263 Textiles Feasibility

Pre-Feasibility Study
GARMENTS STITCHING UNIT

(Denim Jeans)
Small and Medium Enterprise Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
6 Floor, LDA Plaza, Egerton Raod, Lahore
Tel: (042) 111-111-456, Fax: (042) 6304926-27
helpdesk@smeda.org.pk
th
REGIONAL OFFICE
PUNJAB
8th Floor, LDA Plaza, Egerton
Road, Lahore
Tel: (042) 111-111-456
Fax: (042) 6370474
helpdesk@smeda.org.pk
REGIONAL OFFICE
SINDH
5TH Floor, Bahria
Complex II, M.T. Khan Road,
Karachi.
Tel: (021) 111-111-456
Fax: (021) 5610572
helpdesk-khi@smeda.org.pk
REGIONAL OFFICE
NWFP
Ground Floor
State Life Building
The Mall, Peshawar.
Tel: (091) 9213046-47
Fax: (091) 286908
helpdesk-pew@smeda.org.pk
June, 2005
REGIONAL OFFICE
BALOCHISTAN
Bungalow No. 15-A
Chaman Housing Scheme
Airport Road, Quetta.
Tel: (081) 831623, 831702
Fax: (081) 831922
helpdesk-qta@smeda.org.pk
Garments Stitching Unit (Denim Jeans)
1.
2.
3.
INTRODUCTION TO SMEDA...................................................................3
PURPOSE OF THE DOCUMENT..............................................................3
CRUCIAL FACTORS & STEPS IN DECISION MAKING......................4
3.1.
STRENGTHS OF THE BUSINESS ....................................................................4
3.2.
WEAKNESSES OF THE BUSINESS .................................................................4
3.3.
OPPORTUNITIES FOR THE BUSINESS ............................................................4
3.4.
THREATS FOR THE BUSINESS ......................................................................4
4.
PROJECT PROFILE ...................................................................................4
4.1.
OPPORTUNITY RATIONALE ........................................................................4
4.2.
PROJECT BRIEF .........................................................................................5
4.3.
PROPOSED CAPACITY ................................................................................5
4.4.
TOTAL PROJECT COST ...............................................................................5
4.5.
PROPOSED BUSINESS LEGAL STATUS .........................................................6
4.6.
PROPOSED LOCATION................................................................................6
4.7.
KEY SUCCESS FACTORS ............................................................................6
5.
MARKETING ..............................................................................................6
5.1.
EXPORT MARKET ......................................................................................6
5.2.
DOMESTIC MARKET ..................................................................................7
5.3.
TARGET CUSTOMERS ................................................................................8
5.4.
CURRENT INDUSTRY STRUCTURE ...................................................8
5.4.1. Existing Split of Industry.......................................................................8
6.
PRODUCTION PROCESS FLOW .............................................................8
6.1.
RAW MATERIAL........................................................................................9
6.1.1. Packing Cost.........................................................................................9
7.
HUMAN RESOURCE REQUIREMENTS ...............................................10
8.
MACHINERY DETAILS ..........................................................................11
8.1.
MACHINERY LIST.................................................................................... 11
8.2.
MOTOR VEHICLE .................................................................................... 11
9.
LAND & BUILDING ................................................................................. 12
9.1.
LAND/BUILDING REQUIREMENT ..............................................................12
9.2.
RECOMMENDED MODE............................................................................12
9.3.
SUITABLE LOCATIONS .............................................................................12
9.4.
UTILITIES REQUIREMENTS .......................................................................13
10. PROJECT ECONOMICS..........................................................................13
11. FINANCIAL ANALYSIS........................................................................... 14
11.1. PROJECTED INCOME STATEMENT .............................................................14
11.2. PROJECTED BALANCE SHEET ...................................................................15
11.3. PROJECTED CASH FLOW STATEMENT.......................................................16
12. KEY ASSUMPTIONS................................................................................17
1
PREF-01/Jun, 2005/Rev 2
DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject
matter and provide a general idea and information on the said area. All the material
included in this document is based on data/information gathered from various
sources and is based on certain assumptions. Although, due care and diligence has
been taken to compile this document, the contained information may vary due to any
change in any of the concerned factors, and the actual results may differ substantially
from the presented information. SMEDA does not assume any liability for any
financial or other loss resulting from this memorandum in consequence of
undertaking this activity. The prospective user of this memorandum is encouraged to
carry out additional diligence and gather any information he/she feels necessary for
making an informed decision.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk
DOCUMENT CONTROL
Document No.
PREF-01
Revision
Prepared by
SMEDA-Punjab
Issue Date
July, 2001
Revised in
June, 2005
Issued by
Library Officer
2
1. INTRODUCTION TO SMEDA
The Small and Medium Enterprise Development Authority (SMEDA) was
established with the objective to provide fresh impetus to the economy through the
launch of an aggressive SME support program.
Since its inception in October 1998, SMEDA had adopted a sectoral SME
development approach. A few priority sectors were selected on the criterion of SME
presence. In depth research was conducted and comprehensive development plans
were formulated after identification of impediments and retardants. The allencompassing sectoral development strategy involved recommending changes in the
regulatory environment by taking into consideration other important aspects
including finance, marketing, technology and human resource development.
SMEDA has so far successfully formulated strategies for sectors including, fruits
and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and
footwear, textiles, surgical instruments, transport and dairy. Whereas the task of
SME development at a broader scale still requires more coverage and enhanced
reach in terms of SMEDAs areas of operation.
Along with the sectoral focus a broad spectrum of business development services is
also offered to the SMEs by SMEDA. These services include identification of viable
business opportunities for potential SME investors. In order to facilitate these
investors, SMEDA provides business guidance through its help desk services as well
as development of project specific documents. These documents consist of
information required to make well-researched investment decisions. Pre-feasibility
studies and business plan development are some of the services provided to enhance
the capacity of individual SMEs to exploit viable business opportunities in a better
way.
This document is in the continuation of this effort to enable potential investors to
make well-informed investment decisions.
2. PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential
entrepreneurs to facilitate investment and provide an overview about Garment
Stitching Unit. The project pre-feasibility may form the basis of an important
investment decision and in order to serve this objective, the document covers various
aspects of the business concept development, start-up, production, marketing, and
finance and business management.
This particular pre-feasibility is regarding Garment Stitching Unit which comes
under Textile sector.
3
3. CRUCIAL FACTORS & STEPS IN DECISION MAKING

3. 1.
3. 2.
3. 3.
Strengths of the business

There is a ready made market for this product.
Relatively low labour costs
Ample available work force.
Well-situated industrial estate with all main facilities available.
Weaknesses of the business
The requirement of credit and/or delay of payments from customer side
might cause disturbance in the cash cycles.
Very small base of available skilled machinists.
Lack of trained technicians and line / middle management.
Uncertain investment climate
Opportunities for the business
WAPDA/KESC will provide off peak hour rates and bulk rates for
industrial consumers to lower the electricity cost of manufacturing.
Manufacturers-cum-exporters are allowed to import samples of each kind or

quality having value up to US$ 100 at zero duty rate.
Two special export zones focusing on textile sector particularly in dyeing,

processing and finishing sectors will be established at Karachi and in one of
the industrial cities of Punjab.
3. 4.
Threats for the business
Skilled operators in the denim garments are quite unorganized. Stitching

expertise is not available at the best possible level. This restricts the industry
to the basic garments and only limits the entry into the manufacturing of high
quality garments.
Asia pacific markets are emerging as new players in the world knitwear
trade. Competition from China, Hong Kong, Vietnam, and Korea is likely to
increase in the coming years. NAFTA is also one of the threats.
4. PROJECT PROFILE
4. 1.
Opportunity Rationale
During the last decade, the usage of denim garments, especially denim jeans, has
been on a rise in the international as well as the local markets. This has led to a rise
in the demand of denim garments. The competitive edge of Pakistan in this field
stems from the ready availability of cotton yarn required to weave denim fabric i.e.
4
NE 7/1 to NE 14/11. During the past few years, the denim fabric manufacturing
capacity has also been enhanced that has provided the opportunity to the downstream
industry to get strengthened. The export of denim garments from Pakistan has also
been increasing in the past.
4. 2.
Project Brief
The proposed project presents an investment opportunity in manufacturing of denim

garments i.e. denim jeans, denim padded shirts, denim shirts, denim skirts, Bermuda
shorts, jackets and work clothes, etc. Denim Jeans trousers constitute about 80% of
total denim products manufactured with the remaining 20% including other denim
products. The proposed stitching unit will be having the potential for its own
manufacturing and supply for the local market as well as for the export market.
However washing will be outsourced.
4. 3.
Proposed Capacity
1000 garments/day 2
4. 4.
Total Project Cost
The cost of project has been estimated as Rs.8.571 million including machinery and
office equipment.
Table 4-1
Project Investment
Fixed Investment
Working Capital
Total Investment
Rs. 4,629,718
Rs. 3,941,751
Rs. 8,571,469
The proposed pre-feasibility is based on the assumption of 50% debt and 50%
equity. However this composition of debt and equity can be changed as per the
requirement of the investor.
The project seems to be viable with the following returns on investment.
Table 4-2
Project Returns
Internal rate of return (project)

Net Present Value @ 20%
Payback period based on cash inflows
65.39%
Rs. 133,943,269
4.78 years
yarn count
The project profile has been prepared for a standard five pocket jeans trouser
5
4. 5.
Proposed Business Legal Status
The proposed legal structure of the business entity is either sole proprietorship or
partnership. Although selection totally depends upon the choice of the entrepreneur
but this financial feasibility is based on a Sole Proprietorship.
4. 6.
Proposed Location
The proposed locations for a garment manufacturing unit will be
4. 7.
Lahore
Karachi
Faisalabad
Hyderabad
Sialkot
Gujranwala
Key Success Factors
The total commercial viability of this proposed stitching unit depends on the regular
orders for the purchase of the finished product. This requires very aggressive
marketing efforts at the entrepreneur's end.
Following are other key points that are important for the successful operation of the
proposed stitching unit.
Surety of high consistent quality

Surety of on time delivery
Competitive rates
Cost efficiency
Better services to the customer.
Better communication development with customers
5. MARKETING
5. 1.
Export Market
Pakistans export of denim jeans is increasing over the years. There is approximately
a 100% increase in its exports in the year 2003. It still has potential to grow.
Pakistans export trend for the last five years is shown in figure 5-1.
6
Export Trend of Pakistan
Value in Us$ 1000
Figure 5-1
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
1999
2000
2001
2002
2003
Years
Turkey and Italy are the major countries importing Pakistani denim products. Other
major export markets are Bangladesh, Greece and United Kingdom etc. Total Export
of Pakistan in the year 2003 was US $ 43.3 million. Major partners are given in the
table below.
Table 5-1
Pakistans Exports in the year 20032
Country
Turkey
Italy
Greece
United Kingdom
Spain
USA
Tunisia
Jordan
Netherlands
Iran
Export Value (US$ 1000)

17,620
4,191
4,285
1,051
667
1,624
719
1,417
1,384
911
Most of the manufacturers catering to the export market are exporting in the range of
10,000 to 30,000 jean trousers per month. But the big manufacturers are exporting as
much as 500,000 jean trousers per month.
5. 2.
Domestic Market
Almost all the established manufacturers are catering solely to the export market.
Only the B-Class products are sold in the domestic market. The size of the
manufacturers, whose primary market is domestic, is quite small.
2
Source: PC TAS 2003
7
Target Customers
5. 3.
In case of direct exports, the customers are retail chain stores, direct distributors and
wholesalers. The export can either be through buying houses and/or through direct
customers.
CURRENT INDUSTRY STRUCTURE
5. 4.
5.4.1. Existing Split of Industry

Major concentration of the denim garment stitching industry is in Karachi and
Lahore. Other important hubs are Sialkot, Faisalabad and Gujranwala.
The average production capacity of majority of small and medium sized jeans
manufacturing units is about 1,000 jeans per day. However, large size manufacturers
are producing as much as 30,000 jean trousers per day.
Table 5-2
Major Players
U. S. Apparel and Textile Pvt. Ltd.

RAJBY Industries
Ali Murtaza Associates Pvt. Ltd.
M/s Azgard Nine Ltd.
Talon Sports Pvt. Ltd.
M/s Al Karam Textile Mills Pvt. Ltd.
M/s Mr. Denim Pvt. Ltd.
Abdullah Apparels Pvt. Ltd.
M/s Digital Apparel Pvt. Ltd.
M/s Joes Fashion Export Pvt. Ltd.
Lahore
Karachi
Karachi
Lahore
Sialkot
Karachi
Lahore
Karachi
Karachi
Karachi
6. PRODUCTION PROCESS FLOW

The proposed business will be stitching jeans garments. It will be purchasing raw
material from the market i.e. jean cloth which will be put into the process. Washing
of the fabric will be outsourced as washing in house requires a plant which is
expensive and will take the project cost too high. So it is recommended that the
proposed project should outsource washing and later on it can have its own plant for
in house washing. Washing cost per piece is taken as Rs. 15. Proposed production
process flow for the said business is shown in figure 5-1.
8
Figure 6-1
Process Flow Chart for Denim Garments Stitching Unit:
Denim Fabric
Raw Material
Inspection
Cutting
Threading
Buttoning/ Riveting
Pressing
Stitching
Stone Washing ( To
be outsourced)
Final Inspection/
Packing
Raw Material
6. 1.
The proposed business will be using raw material listed in the table 5-1.
Table 6-1
Raw Material
Raw Material
Fabric cost
Pocket Lining per meter
Stitching thread
Imported buttons
4.5 YG Zip
Main label
Care and size label
Rewet per unit
Packing cost
Consumption/ Piece
1.30 m
0.17m
260m
1
1
1
1
6
1
Rate (Rs.)
125/m
28.00/,
0.03/
1.25
9.00
1.75
0.50
4.50
7.00/piece
6.1.1. Packing Cost

Packing cost includes one poly bag and one small carton for the packing of each
finished garment. Total cost of packing for one piece is taken as Rs. 7.
9
7. HUMAN RESOURCE REQUIREMENTS

For a garment-stitching unit of 32 stitching machines, following manpower is
required:
Table 7-1
Manpower Required
Designation
Production Manager
Cutting Master
Accounts officer
Security Guards
Technician/Electrician
Cutting Helper
Final Table inspector
Finishing Supervisor
Rowing Inspector
Machine Operator
Helper (machine
operator)
Clippers
Iron Presser
Packing Staff
Store keeper
Total
Number
1
1
1
2
1
2
2
1
1
31
Salary/ Month
15,000
8000
7,000
4,000
1,500
3,000
3,500
5,000
3,500
6,000
2
2
2
2
1
2,500
5,000
10,000
4,000
3000
10
Annual Salary
180,000
96,000
84,000
96,000
18,000
72,000
84,000
60,000
42,000
2,232,000
60,000
120,000
240,000
96,000
36,000
3,516,000
8. MACHINERY DETAILS
Machinery List
8. 1.
Following combination of stitching machines is required for manufacturing 1000

denim jeans per day. Approx. prices for Japanese origin machinery are given below:
Table: 8-1
Stitching Machinery Required
Machinery
Number
Cutting Machine
Lock Stitch (Single Needle)
Lock Stitch (Double Needle)
Safety Stitching Over lock
(3Thread)
Safety Stitching Over lock
(5Thread)
Feed Off Arm
Bar Tracking
Waist Belt Machine
Eyelet Machine
Button Stitching Machine
Loop Making Machine
Snap Fastener
2
15
3
Cost/machine3
(US $)
1250
330
1675
965
57,639
1
2
3
1
1
1
1
1
1205
4290
2296
2240
12840
2250
2600
4500
71,975
512,483
411,420
133,795
766,933
134,393
155,298
268,785
Total
32
Table: 8-2
149,325
295,664
300,143
3,257,853
Other Equipment Required
Other Equipment
Steam Boiler with 2 irons
Factory fixture (wooden tables, stools, boxes etc)
Machine Installation & Electric wiring cost
Total
8. 2.
Total cost in (Rs.)
Cost (Rs)
97,601
100,000
96,000
293,061
Motor Vehicle
The proposed business will be using one Suzuki Mehran for transportation purposes.
The cost is taken as Rs. 375,000.
Machine prices are converted from US $ to Rupees. Rate of conversion is taken as Rs.59.73 for US
$ 1.
11
9. L A N D & B U I L D I N G
Land/Building Requirement
9. 1.
Approximately, 3,844 square feet of total covered area is required to establish the
proposed stitching unit. The allocation of the space requirement is as follows:
Table: 9-1
Space Requirements
Space Requirement
Fabric & Accessories inventory Store
Cutting Room
Stitching Room
Inspection Room
Packing Room
Finished Garment Store
Total factory area
Required area (sq. ft)

938
312
650
397
397
850
3,544
Management Building
300
Total Area Required (sq. ft.)

Table: 9-2
3,844
Building Construction Cost
Building Construction Cost
Cost (Rs./sq. ft.)
Factory area
Management building
Total
450
600
Construction cost (Rs.)

1,594,800
180,000
1,774,800
Recommended Mode
9. 2.
It is recommended that this project should be started in a rented building. As the

initial capital cost of the project will be less. An appropriate premises is normally
available in many commercial/industrial areas of under mentioned clusters.
Table: 9-3
Rent Cost
Rent cost
Monthly rent (Rs.)
Estimated Building rent

9. 3.
40,000
Annual rent (Rs.)

480,000
Suitable Locations
The clusters of stitching industry exist predominantly in Lahore, Karachi, Faisalabad

and Sialkot. Most of the garment manufactures are based in these major cities, so it
12
is recommended that such unit should be started in these cities. Basic raw material
i.e. denim cloth, is also conveniently available in these cities.
9. 4.
Utilities Requirements
Electricity
Telephone
Fax
10. PROJECT ECONOMICS

Table: 10-1 Project Costs
Project Costs
Machinery & equipment
Furniture & fixtures/Equipment
Office vehicles
Pre-operating costs
Total Capital Costs
Total (Rs.)
3,952,218
115,000
375,000
187,500
4,629,718
Equipment spare part inventory

Upfront for building rental
Upfront insurance payment
Stocks- Raw Material
Cash
Total Working Capital
1,976
480,000
222,111
2,442,339
795,325
3,941,751
Total Investment in the Project
8,571,469
Table: 10-2 Financing Plan

Equity
Debt
Total
50%
50%
4,285,734
4,285,734
8,571,469
Table: 10-3 Projects Economics

Internal Rate of Return
Net Present Value (NPV@ 20%) (Rs)
Payback Period (Years)
65.39%
133,943,269
4.781
13
11. FINANCIAL ANALYSIS

Projected Income Statement
11. 1.
cc
P R O JEC T ED IN C O M E STA TE M EN T
R s. 100 0
Sa les
Y ea r 1
Y ear 2
Y ea r 3
Y ear 4
Y ea r 5
Y ear 6
Y ear 7
Y ear 8
Y ea r 9
6 0,00 1,24 9
70 ,81 5,80 1
82 ,9 73 ,1 56
9 6,97 4,87 6
1 12 ,9 47 ,209
13 1,14 4,25 9
1 44 ,2 58 ,6 85
15 8,68 4,5 54
1 74 ,5 53 ,009
19 2,0 08,3 10
Y ear 10
C o st of g oo ds sold
5 0,80 0,65 3
57 ,55 4,76 1
64 ,0 08 ,8 22
7 1,40 9,84 3
79 ,3 90 ,943
8 7,99 1,62 8
92 ,3 91 ,2 09
9 7,01 0,7 70
1 01 ,8 61 ,308
10 6,9 54,3 74
W ashing C o st (O U T SO U RCE D )
R aw M aterial
3,21 0,48 0
3,50 8,59 6
3 ,8 17 ,3 52
4,13 7,05 6
4 ,4 68 ,020
4,81 0,56 8
4 ,9 06 ,7 80
5,00 4,91 5
5 ,1 05 ,0 14
5,2 07,1 14
P ayro ll (Pro duction Staff)
3,06 0,00 0
3,36 6,00 0
3 ,7 02 ,6 00
4,07 2,86 0
4 ,4 80 ,146
4,92 8,16 1
5 ,4 20 ,9 77
5,96 3,07 4
6 ,5 59 ,3 82
7,2 15,3 20
M achine M aintenance
11 5,20 0
12 3,26 4
1 31 ,8 92
14 1,12 5
1 51 ,004
16 1,57 4
1 72 ,8 84
18 4,9 86
1 97 ,9 35
2 11,7 91
D irect Electricity
40 4,70 3
44 5,17 3
4 89 ,6 90
53 8,65 9
5 92 ,525
65 1,77 8
7 16 ,9 55
78 8,6 51
8 67 ,5 16
9 54,2 68
5 7,59 1,03 5
64 ,99 7,79 4
72 ,1 50 ,3 58
8 0,29 9,54 2
89 ,0 82 ,638
9 8,54 3,70 9
1 03 ,6 08 ,8 05
10 8,95 2,3 97
1 14 ,5 91 ,155
12 0,5 42,8 66
T o tal
G ross P rofit
2,41 0,21 4
5,81 8,00 7
10 ,8 22 ,7 99
1 6,67 5,33 4
23 ,8 64 ,571
3 2,60 0,55 1
40 ,6 49 ,8 80
4 9,73 2,1 57
59 ,9 61 ,8 54
7 1,4 65,4 44
O pera ting Expenses

P ayro ll (Ad min )
45 6,00 0
50 1,60 0
5 51 ,7 60
60 6,93 6
6 67 ,630
73 4,39 3
8 07 ,8 32
88 8,6 15
9 77 ,4 76
1,0 75,2 24
Fixed electricity
19 8,31 6
21 8,14 7
2 39 ,9 62
26 3,95 8
2 90 ,354
31 9,38 9
3 51 ,3 28
38 6,4 61
4 25 ,1 07
4 67,6 18
Insurance exp ense
22 2,11 1
19 9,90 0
1 77 ,6 89
15 5,47 8
1 33 ,267
11 1,05 5
88 ,8 44
6 6,63 3
44 ,4 22
22,2 11
4,56 0
5,01 6
5 ,5 18
6,06 9
6 ,676
7,34 4
8 ,0 78
8,8 86
9 ,775
10,7 52
60 0,01 2
70 8,15 8
8 29 ,7 32
96 9,74 9
1 ,1 29 ,472
1,31 1,44 3
1 ,4 42 ,5 87
1 8,75 0
1 8,75 0
18 ,7 50
1 8,75 0
18 ,750
1 8,75 0
18 ,7 50
1 8,75 0
18 ,7 50
18,7 50
O ffice exp en ses

A d ministrative O verheads
A mo rtizatio n (Pre-op eratio nal E xp enses)
D epreciation
T o tal
O pera ting Pro fit
44 4,22 2
44 4,22 2
4 44 ,2 22
44 4,22 2
4 44 ,222
44 4,22 2
4 44 ,2 22
44 4,2 22
4 44 ,2 22
4 44,2 22
1,94 3,97 1
2,09 5,79 3
2 ,2 67 ,6 32
2,46 5,16 2
2 ,6 90 ,370
2,94 6,59 6
3 ,1 61 ,6 41
1,81 3,56 7
1 ,9 19 ,7 52
2,0 38,7 77
46 6,24 3
3,72 2,21 4
8 ,5 55 ,1 67
1 4,21 0,17 2
21 ,1 74 ,201
2 9,65 3,95 5
37 ,4 88 ,2 38
4 7,91 8,5 90
58 ,0 42 ,1 02
6 9,4 26,6 67
60 0,00 3
50 9,23 2
4 05 ,7 54
28 7,78 8
1 53 ,308
65 5,79 7
6 63 ,1 20
27 9,64 7
N o n-o perating Expenses

Finan cial C harges on Lo ng-term L oan
Finan cial C harges on Sho rt-T erm L oan
B uilding Rentel
T o tal
P rofit B efo re Ta x
T ax
P rofit A fter Tax
R etained Earnings b eginning of year
R etained Earnings end o f year
ROE
48 0,00 0
52 8,00 0
5 80 ,8 00
63 8,88 0
7 02 ,768
77 3,04 5
8 50 ,3 49
93 5,3 84
1 ,0 28 ,9 23
1,1 31,8 15
1,08 0,00 3
1,69 3,02 9
1 ,6 49 ,6 74
1,20 6,31 6
8 56 ,076
77 3,04 5
8 50 ,3 49
93 5,3 84
1 ,0 28 ,9 23
1,1 31,8 15
2,02 9,18 5
6 ,9 05 ,4 93
1 3,00 3,85 7
20 ,3 18 ,125
2 8,88 0,91 0
36 ,6 37 ,8 89
4 6,98 3,2 06
57 ,0 13 ,1 79
6 8,2 94,8 52
58 5,21 5
2 ,2 91 ,9 23
4,42 6,35 0
6 ,9 86 ,344
1,44 3,97 0
4 ,6 13 ,5 71
8,57 7,50 7
13 ,3 31 ,781
2 8,88 0,91 0
36 ,6 37 ,8 89
4 6,98 3,2 06
57 ,0 13 ,1 79
6 8,2 94,8 52
8 30 ,2 11
5,44 3,78 1
14 ,0 21 ,288
2 7,35 3,07 0
56 ,2 33 ,9 80
9 2,87 1,8 69
1 39 ,8 55 ,074
19 6,8 68,2 53
5 ,4 43 ,7 81
1 4,02 1,28 8
27 ,3 53 ,070
5 6,23 3,98 0
92 ,8 71 ,8 69
13 9,85 5,0 74
1 96 ,8 68 ,253
26 5,1 63,1 05
(61 3,76 0)
0
(61 3,76 0)
0
(61 3,76 0)
-1 4%
(61 3,76 0)
83 0,21 1
3 4%
1 08 %
20 0%
14
PREF-01/June, 2005/Rev 2
3 11 %
67 4%
8 55 %
109 6%
13 30 %
15 94%
Projected Balance Sheet
11. 2.
PROJECTED BALANCE SHEET

Rs `000'
Const. Year
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
251,285,619
Current Assets
Cash
Stocks and Inventory
Receivable
Equipment and spare part inventory
795,325
795,325
795,325
795,325
5,178,622
15,917,245
43,236,562
78,604,244
124,130,646
179,481,212
2,442,339
2,767,056
3,077,347
3,433,166
3,816,872
4,230,367
4,441,885
4,663,979
4,897,178
5,142,037
8,654,026
10,213,817
11,967,282
13,986,761
16,290,463
18,915,037
20,806,541
22,887,195
25,175,915
27,693,506
3,219
1,976
2,075
2,179
2,288
2,402
2,522
2,648
2,781
2,920
3,066
Pre-paid insurnace payment
222,111
199,900
177,689
155,478
133,267
111,055
88,844
66,633
44,422
22,211
Pre-paid building rent
480,000
528,000
580,800
638,880
702,768
773,045
850,349
935,384
1,028,923
1,131,815
1,244,996
Total
3,941,751
12,946,382
14,847,157
16,992,418
23,820,691
37,324,697
67,535,327
105,079,563
152,991,284
210,956,255
280,227,341
Gross Fixed Assets
4,442,218
4,442,218
4,442,218
4,442,218
4,442,218
4,442,218
4,442,218
4,442,218
4,442,218
4,442,218
4,442,218
444,222
888,444
1,332,665
1,776,887
2,221,109
2,665,331
3,109,552
3,553,774
3,997,996
4,442,218
4,442,218
3,997,996
3,553,774
3,109,552
2,665,331
2,221,109
1,776,887
1,332,665
888,444
444,222
187,500
187,500
168,750
168,750
150,000
150,000
131,250
131,250
112,500
112,500
93,750
93,750
75,000
75,000
56,250
56,250
37,500
37,500
18,750
18,750
0
0
8,571,469
17,113,128
18,550,931
20,233,220
26,598,522
39,639,556
69,387,214
106,468,478
153,917,227
211,419,227
280,227,341
4,684,261
4,736,570
1,997,480
5,119,518
5,800,175
6,450,593
7,196,443
8,000,751
8,867,499
9,310,874
9,776,418
10,265,239
10,778,501
9,803,780
10,536,744
8,448,073
7,196,443
8,000,751
8,867,499
9,310,874
9,776,418
10,265,239
10,778,501
Long-term Loan
Total
4,285,734
4,285,734
3,637,373
3,637,373
2,898,242
2,898,242
2,055,632
2,055,632
1,095,056
1,095,056
0
0
0
0
0
0
0
0
0
0
0
0
Equity
Paid-up Capital
4,285,734
4,285,734
4,285,734
4,285,734
4,285,734
4,285,734
4,285,734
4,285,734
4,285,734
4,285,734
4,285,734
830,211
5,443,781
14,021,288
27,353,070
56,233,980
92,871,869
139,855,074
196,868,253
265,163,105
Less: Accumulated depreciation

Net Fixed Assets
Intangible Assets
Pre-operational Expenses
Total
Total Assets
Current Liabilities
Running Finance
Accounts payable
Total
Long-term liabilities
Retained Earnings
(613,760)
Total
4,285,734
3,671,975
5,115,945
9,729,516
18,307,023
31,638,804
60,519,714
97,157,603
144,140,809
201,153,988
269,448,840
Total Liabilities And Equity
8,571,469
17,113,128
18,550,931
20,233,220
26,598,522
39,639,556
69,387,214
106,468,478
153,917,227
211,419,227
280,227,341
15
11. 3.
Projected Cash Flow Statement
PROJECTED CASH FLOW STATEMENT

Rs `000'
Const. Year
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Operating activities
Net profit
(613,760)
Amortization (Pre-operational Expenses)

Depreciation
Up-front insurance payment
Equipment and spare part inventory
(222,111)
(1,976)
Accounts receivable
Stocks-RM
(2,442,339)
Accounts payable
Cash provided by operations
(2,666,426)
1,443,970
4,613,571
8,577,507
13,331,781
28,880,910
36,637,889
46,983,206
57,013,179
18,750
18,750
18,750
18,750
18,750
18,750
18,750
18,750
18,750
18,750
444,222
444,222
444,222
444,222
444,222
444,222
444,222
444,222
444,222
444,222
22,211
22,211
22,211
22,211
22,211
22,211
22,211
22,211
22,211
22,211
(99)
(104)
(8,654,026)
(1,559,791)
(324,717)
(109)
68,294,852
(114)
(120)
(126)
(132)
(139)
(146)
(153)
(1,753,465) (2,019,479)
(2,303,702)
(2,624,575)
(1,891,504)
(2,080,654)
(2,288,720)
(2,517,591)
(310,291)
(355,818)
(383,707)
(413,494)
(211,518)
(222,094)
(233,199)
(244,859)
5,119,518
680,656
650,419
745,850
804,308
866,748
443,375
465,544
488,821
5,142,037
513,262
(3,987,900)
739,623
3,639,780
7,405,240
11,903,956
27,396,622
35,452,716
45,619,940
55,453,458
71,917,589
Financing acivities
Long term debt principal repayment
Add: buliding rent expense
Building rent payment
(480,000)
Adition to debt
4,285,734
Issuance of share
4,285,734
Running Finance Repayment

Cash provided by/ (used for) financing activities
8,091,469
Total
Investing activities
Capital expenditure
5,425,043
(648,361)
(739,132)
(842,610)
(960,576)
480,000
528,000
580,800
638,880
702,768
773,045
850,349
935,384
1,028,923
1,131,815
(528,000)
(580,800)
(638,880)
(702,768)
(773,045)
(850,349)
(935,384)
(1,028,923)
(1,131,815)
(1,244,996)
(696,361)
(4,684,261)
(5,476,193)
(4,736,570) (1,997,480)
(5,637,260) (3,021,943)
0
(1,165,333)
0
(77,304)
0
(85,035)
0
(93,538)
0
(102,892)
0
(113,181)
(4,684,261)
(4,736,570)
(1,997,480)
10,738,623
27,319,318
35,367,682
4,383,296
(1,095,056)
45,526,402
55,350,566
71,804,408
(4,629,718)
Cash (used for)/ provided by invetsing activities

(4,629,718)
Cash balance brought forward
Net Cash
Running Finance
Cash carried forward
0
795,325
795,325
795,325
795,325
795,325
5,178,622
15,917,245
43,236,562
78,604,244
124,130,646
179,481,212
5,178,622
15,917,245
43,236,562
78,604,244
124,130,646
179,481,212
251,285,619
1,997,480
795,325
5,178,622
15,917,245
43,236,562
78,604,244
124,130,646
179,481,212
251,285,619
(3,888,936)
(3,941,245)
(1,202,154)
4,684,261
4,736,570
795,325
795,325
795,325
16
12. KEY ASSUMPTIONS

Table 12-1
Machinery Assumptions
Number of Machines Installed

Installed capacity
Initial year capacity utilization
Capacity utilization growth rate
Defective garment rate (of total finished garments)
Total Production per day
Annual Production Capacity (excluding defective)
Table 12-2
Operating Assumptions
Shifts operational per day

Hours operational per shift
Days operational per month
Days operational per year
Table 12-3
32
100%
70%
5%
2%
1000
305,760
1
8
26
312
Economy-Related Assumptions
Electricity growth rate

Wage growth rate
Office equipment price growth rate
Office vehicles price growth rate
10%
10%
5%
10%
Table 124 Cash Flow Assumptions

Accounts Receivable cycle (in days)
Accounts payable cycle (in days)
Raw material inventory (in days)
Equipment spare part inventory (in days)
Table 12-5
45
30
15
30
Revenue Assumptions
Sales Price per unit

Sales Price growth rate
Maximum capacity utilization
Rate of defective garments (Rs/garment)
US $ 4.25
10%
95%
50
17
Table 12-6
Expense Assumptions
Administrative overhead (% of Sales)

Office expenses (stationery, entertainment etc)
Machine maintenance (per month)
Machine maintenance growth rate
Pre-paid building Rent (months)
Pre-paid insurance (months)
Insurance rate (% of net fixed assets)
Spare part inventory
Rent growth rate
Tax treatment
Table 12-7
1%
1% of admin expense
Rs 200 per machine
7%
12
12
5%
0.05% of machine cost
5%
Treated as sole
proprietorship
Financial Assumptions
Project life (years)

Debt
Equity
Interest rate on long-term debt
Interest rate on short term debt
Debt tenure (years)
Debt payments per year
Discount rate (weighted Avg. cost of capital for NPV)
18
10
50%
50%
14%
14%
5
1
20%

263 Textiles Feasibility

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Pre-Feasibility Study

GARMENTS STITCHING UNIT

Small and Medium Enterprise Development Authority

Garments Stitching Unit (Denim Jeans)

Garments Stitching Unit (Denim Jeans)

Garments Stitching Unit (Denim Jeans)

2. PURPOSE OF THE DOCUMENT

Garments Stitching Unit (Denim Jeans)

3. CRUCIAL FACTORS & STEPS IN DECISION MAKING

Strengths of the business

Manufacturers-cum-exporters are allowed to import samples of each kind or

Two special export zones focusing on textile sector particularly in dyeing,

Threats for the business

Skilled operators in the denim garments are quite unorganized. Stitching

Garments Stitching Unit (Denim Jeans)

The proposed project presents an investment opportunity in manufacturing of denim

Total Project Cost

Internal rate of return (project)

Garments Stitching Unit (Denim Jeans)

Proposed Business Legal Status

The proposed locations for a garment manufacturing unit will be

Surety of high consistent quality

Export Trend of Pakistan

Value in Us$ 1000

Garments Stitching Unit (Denim Jeans)

Pakistans Exports in the year 20032

Export Value (US$ 1000)

Source: PC TAS 2003

Garments Stitching Unit (Denim Jeans)

5.4.1. Existing Split of Industry

U. S. Apparel and Textile Pvt. Ltd.

6. PRODUCTION PROCESS FLOW

Garments Stitching Unit (Denim Jeans)

Process Flow Chart for Denim Garments Stitching Unit:

6.1.1. Packing Cost

Garments Stitching Unit (Denim Jeans)

7. HUMAN RESOURCE REQUIREMENTS

Garments Stitching Unit (Denim Jeans)

Following combination of stitching machines is required for manufacturing 1000

Stitching Machinery Required

Other Equipment Required

Total cost in (Rs.)

Garments Stitching Unit (Denim Jeans)

Required area (sq. ft)

Total Area Required (sq. ft.)

Building Construction Cost

Building Construction Cost

Cost (Rs./sq. ft.)

Construction cost (Rs.)

It is recommended that this project should be started in a rented building. As the

Monthly rent (Rs.)

Estimated Building rent

Annual rent (Rs.)

The clusters of stitching industry exist predominantly in Lahore, Karachi, Faisalabad

Garments Stitching Unit (Denim Jeans)

10. PROJECT ECONOMICS

Equipment spare part inventory

Total Investment in the Project

Table: 10-2 Financing Plan

Table: 10-3 Projects Economics

Garments Stitching Unit (Denim Jeans)

11. FINANCIAL ANALYSIS

P ayro ll (Pro duction Staff)