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Small and Medium Enterprises Development Authority Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
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Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost December, 2013
Pre-Feasibility Study
Table of Contents
1. DISCLAIMER ............................................................................................................................2 2. PURPOSE OF THE DOCUMENT .............................................................................................3 3. INTRODUCTION TO SMEDA ...................................................................................................3 4. INTRODUCTION TO SCHEME ................................................................................................4 5. EXECUTIVE SUMMARY ..........................................................................................................4 6. BRIEF DESCRIPTION OF PROJECT & PRODUCT ...............................................................5 7. CRITICAL FACTORS ...............................................................................................................5 8. INSTALLED & OPERATIONAL CAPACITIES ........................................................................6 9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT AND POTENTIAL TARGET MARKETS .....................................................................................................................................6 10. 11. 11.1. 11.2. 11.3. 11.4. 11.5. 11.6. 11.7. 11.8. 11.9. 11.10. 12. 13. 13.1. 13.2. 13.3. 13.4. 13.5. 14. PRODUCTION PROCESS FLOW ......................................................................................7 PROJECT COST SUMMARY .............................................................................................8 PROJECT ECONOMICS ...................................................................................................... 8 PROJECT FINANCING ........................................................................................................ 8 PROJECT COST ................................................................................................................ 9 SPACE REQUIREMENT ...................................................................................................... 9 MACHINERY, EQUIPMENT AND FURNITURE FOR WORKSHOP ............................................. 10 FURNITURE AND EQUIPMENT FOR OUTLET ....................................................................... 10 RAW MATERIAL REQUIREMENTS ...................................................................................... 11 HUMAN RESOURCE REQUIREMENT .................................................................................. 11 REVENUE GENERATION .................................................................................................. 12 OTHER COSTS ........................................................................................................... 13
CONTACT DETAILS OF EXPERTS & CONSULTANTS .................................................13 ANNEXURES ....................................................................................................................14 INCOME STATEMENT ....................................................................................................... 14 CASH FLOW STATEMENT ................................................................................................ 15 BALANCE SHEET............................................................................................................. 16 USEFUL PROJECT MANAGEMENT TIPS ............................................................................. 17 USEFUL LINKS ................................................................................................................ 17 KEY ASSUMPTION ..........................................................................................................18
Pre-Feasibility Study
1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general idea and information on the said subject. Although, the material included in this document is based on data/information gathered from various reliable sources; however, it is based upon certain assumptions which may differ from case to case. The information has been provided on as is where is basis without any warranties or assertions as to the correctness or soundness thereof. 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, its employees or agents do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The contained information does not preclude any further professional advice. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information which is necessary for making an informed decision; including taking professional advice from a qualified consultant/technical expert before taking any decision to act upon the information. For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk
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Pre-Feasibility Study
3. INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was established in October 1998 with an objective to provide fresh impetus to the economy through development of Small and Medium Enterprises (SMEs). With a mission "to assist in employment generation and value addition to the national income, through development of the SME sector, by helping increase the number, scale and competitiveness of SMEs" , SMEDA has carried out sectoral research to identify policy, access to finance, business development services, strategic initiatives and institutional collaboration and networking initiatives. Preparation and dissemination of prefeasibility studies in key areas of investment has been a successful hallmark of SME facilitation by SMEDA. Concurrent to the prefeasibility studies, a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of experts and consultants and delivery of need based capacity building programs of different types in addition to business guidance through help desk services.
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Pre-Feasibility Study
4. INTRODUCTION TO SCHEME
Prime Ministers Youth Business Loan program, for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidised financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially throughthe National Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL). Small business loan upto 2 millionwith tenure upto8 years inclusive of 1 year grace period, and a debt: equity of 90: 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, GilgitBaltistan, Azad Jammu &Kashmir and Federally Administered Tribal Areas (FATA).
5. EXECUTIVE SUMMARY
The pre-feasibility study provides information on key facets of starting a Boutique business for Women Designer Wear. Growing number of boutiques have become an emblem of successful clothes business in Pakistan. Most people especially women prefer them over ordinary garment brands. There has been a mushroom growth in women designer wear boutiques since the last decade as they offer versatility and sophistication. This trend is not only confined to metropolis alone but has also spread to small cities and towns. The rise is attributed to a growing middle class, exposure to media, entertainment, movies, internet and also to a fleet of qualified fashion designers graduating from fashion schools every year. Aspiring fashion graduates or potential entrepreneurs may find this growing sector a good prospect to capitalize on their potential, talent and market opportunity. The boutique business venture entails a total investment of about Rs. 2.18 million. This includes a capital investment of Rs.1.37 million and a sum of Rs.0.81 million as working capital. The project is financed through 90% debt and 10% equity. The Net Present Value (NPV) of the project is around Rs. 8.93 million with an Internal Rate of Return (IRR) of 56% and a payback period of 2.19years. The project will generate direct employment opportunity for 20 persons. Higher return on investment and a steady growth of business is expected with the entrepreneur having some prior experience in the related field of business. This pre feasibility encompasses essential information regarding various aspects of starting a Boutique Women Designer Wear business in Pakistan.
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Pre-Feasibility Study
7. CRITICAL FACTORS
Following are the factor critical for the success of this business venture; Selection of a good location for the outlet. Ability to produce/acquire unique designs and pattern making/cutting and safe guarding such design from piracy. Selection of affordable and quality raw materials i.e. fabric, accessories. Emphasis on quality i.e. stitching and finishing, appropriate labelling, display and packaging. Marketing and promotion through various channels i.e. catalogues/pamphlets, outdoor advertisement, hoardings/flex signs, TV & cable ads, fashion shows, participation in exhibitions, promotion through social media (facebook etc.). Right product mix, proper inventory management, emphasis on customer services. Employing and retaining skilled labor. Higher return on investment and a steady growth of business is expected with the entrepreneur having some prior experience in the related field of business.
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Pre-Feasibility Study
Total designs selected by designer Number of dresses in each design Number of dresses in each size Total Number of Ready Made Dresses Made to order as percentage of Ready Made Dresses @ 40%. Total No. of Dresses
FOR
INVESTMENT
AND
The recommended location for setting up a boutique business will be a posh or semi-posh area of a metropolitan city that can offer easy access of customers to the outlet. It is further recommended that the proposed location should be taken on rent.The size of the shop should be at least 350 sq.ft with a monthly approximate rent of 38,500. A small building will be required to establish the stitching unit in a 5Marla double story premises with an estimated rent of 13,500. The boutique will offer a wide choice of clothes to its clientele ranging from traditional dresses, prt a porter casual, semi casual to formal/bridal wear. Both traditional and western dresses tailored to local needs will be offered to the customers. The ideal target market will be the city in which the sales outlet shall be opened, however, there is a good potential for exports of Pakistani dresses abroad also as there is a large population of Pakistani expatriates in UAE, USA and UK.
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Pre-Feasibility Study
10.
The process for converting fabric in designer wear garments follows the below mentioned sequence: Purchasing of Raw Material
Designing
Pattern Making
Stitching
Cutting
Embroidery
Finishing
Presentation
Market/Clientele
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Pre-Feasibility Study
11.
A detailed financial model has been developed to analyze the commercial viability of Boutique (Women Designer Wear) under the Prime Ministers Youth Business Loan program. Various costs and revenue related assumptions along with results of the analysis are outlined in this section. The projected Income Statement, Cash Flow Statement and Balance Sheet are attached as annexures. 11.1. Project Economics
All the assumptions in this financial model are based upon maximumproduction of 2,240 dresses. Whereas the production target at 75% capacity utilization is 1,680 dresses. The following table shows internal rates of return and payback period.
Table 2: Project Economics
Description Internal Rate of Return (IRR) Payback Period (yrs) Net Present Value (NPV)
Returns on the project and its profitability are highly dependent on the unique designs and quality of purchased raw material. In case critical factors (described above) are not adhered to,the Boutique unit may not be able to operate optimally. 11.2. Project Financing
Following table provides details of the equity required and variables related to bank loan;
Table 3: Project Financing
Description Total Equity (10%) Bank Loan (90%) Markup to the Borrower (%age/annum) Tenure of the Loan (Years) Grace Period (Year)
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Pre-Feasibility Study
11.3.
Project Cost
Table 4: Capital Investment
Capital Investment Machinery & Equipment Furniture & fixtures Office equipment Pre-operating Cost Total Capital Cost Initial Working Capital Total Project Cost
Following requirements have been identified for operations of the proposed business. 11.4. Space Requirement
The area has been calculated on the basis of space requirement for workshop and outlet which has to be taken on rent. However, the units operating in the industry do not follow any set pattern. Following table shows calculations for project space requirement.
Table 5: Space Requirement
Workshop will be rented in the outskirts of big cities where skilled workers are available.
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Pre-Feasibility Study
11.5.
Following table provides list of machinery, equipment and furniture required for an average stitching workshop for Boutique.
Table 6: List of Machinery, Equipment and Furniture for Workshop
Description Single Needle Lock Stitching Machine with Servomotor Over lock Machine with Servomotor Embroidery Machine (50 Pattern) with Servomotor Generator for Workshop (6KW) Furniture (Iron & Cutting Tables, Chairs, Cabinet, etc) Workshop Accessories (Embroidery Frame sets, Scissors, Cutting & Measuring Scale, etc) Air Conditioner Lightening and Iron Total 11.6.
Quantity
4 1 1 1
26,300
50,000
Following table provides details of office furniture and equipment required for this project.
Table 7: List of Office Furniture and Equipment
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Pre-Feasibility Study
Furniture Interior Designing for Shop Air conditioners Energy savers, fans, etc Generator (2.5 KVA) Total 11.7. Raw Material Requirements 1 1 1 50,000
Normally raw material cost of the dress varies between 15% to 30% of its sales price, but in this pre-feasibility study, it is assumed that cost of a dress will be 24% of its sales price. 11.8. Human Resource Requirement
Following table provides details of human resource required for the project along with monthly salaries;
Table 8: Human Resource Requirement
Description Owner/ Manager Production Manager Design Assistant and Purchaser Master Tailor Tailor / Stitching Master Embroidery Worker Press / Iron Man Dyer Cashier / Head Sales Girl Sales Girls Accountant
No. of Employees 1 1 1 2 5 1 1 1 1 2 1
Salary per employee per month (Rs) 38,000 35,000 25,000 13,000 11,000 10,000 10,000 10,000 15,500 12,500 17,000
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Pre-Feasibility Study
1 2 20
10,000 11,000
The table above provides details of human resource required to run such a project. It is assumed that the owner should have priorexperience or knowledge about Boutique business. Designer will design all the dresses with his team and seek approval from owner before the stitching process. Other staff stated above will perform as per their assigned job description.Salaries of all employees are estimated to increase at 10% annually. 11.9. Revenue Generation
Table 9: Revenue in First Year
Product
Dresses
First Year Sales Revenue (Rs) 3,024,000 3,326,400 2,520,000 8,870,400 (369,600) 8,500,800
Casual Semi Formal Formal Total Sales Finished Goods Inventory Minus Total Sales Revenue
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Pre-Feasibility Study
Category Casual Wear Semi Formal Wear Formal Wear 11.10. Other Costs
An essential cost to be borne by the Boutique is rent of the outlet and workshop. A promotional expense in this pre-feasibility study is taken @10% of sales which is essential for this business as marketing plays an important role in the growth of this business.
12.
National College of Arts 4- Shahrah-E-Qaid-E-Azam, Lahore Tel: +92 42 99210599, 99210601 Pakistan Readymade Garments Technical Training Institute 71-L, Gulberg-III, Lahore Ph: 042-9230756, 9230757
Pakistan School of Fashion Design 51-J/3, Johar Town, Lahore TEL: +92 42 3531 5401 08
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Pre-Feasibility Study
13.
ANNEXURES
Income Statement
13.1.
Income Statement
Revenue Cost of sales Cost of goods sold 1 Operation costs 1 (direct labor) Operating costs 2 (machinery maintenance) Operating costs 3 (direct electricity) Total cost of sales Gross Profit General administration & selling expenses Administration expense Administration benefits expense Building rental expense Electricity expense Travelling expense Communications expense (phone, fax, mail, internet, etc.) Office expenses (stationary, entertainment, janitorial services, etc.) Promotional expense Depreciation expense Amortization of pre-operating costs Subtotal Operating Income Gain / (loss) on sale of office equipment Earnings Before Interest & Taxes Interest expense on long term debt (Project Loan) Subtotal Earnings Before Tax Tax NET PROFIT/(LOSS) AFTER TAX
1,530,000 45,900 624,000 171,496 212,520 22,950 15,300 850,080 120,212 39,618 3,632,076 690,031 690,031 162,747 162,747 527,284 12,728 514,556
1,678,963 50,369 686,400 188,645 259,521 25,184 16,790 1,038,083 120,212 39,618 4,103,785 1,329,684 1,329,684 148,996 148,996 1,180,688 99,603 1,081,085
1,842,429 55,273 755,040 207,510 286,218 27,636 18,424 1,144,873 120,212 39,618 4,497,234 1,501,130 1,501,130 130,924 130,924 1,370,206 128,031 1,242,175
2,021,811 60,654 830,544 228,261 314,840 30,327 20,218 1,259,360 120,212 39,618 4,925,845 1,678,874 1,678,874 111,351 111,351 1,567,523 161,004 1,406,519
2,218,657 66,560 913,598 251,087 346,324 33,280 22,187 1,385,296 120,212 39,618 5,396,819 1,875,528 92,800 1,968,328 90,154 90,154 1,878,174 223,135 1,655,039
2,434,669 73,040 1,004,958 276,195 380,956 36,520 24,347 1,523,826 133,031 39,618 5,927,161 2,080,271 2,080,271 67,197 67,197 2,013,074 250,115 1,762,960
2,671,711 80,151 1,105,454 303,815 419,052 40,076 26,717 1,676,209 133,031 39,618 6,495,835 2,320,957 2,320,957 42,335 42,335 2,278,622 303,224 1,975,397
2,931,833 87,955 1,215,999 334,197 460,957 43,977 29,318 1,843,829 133,031 39,618 7,120,716 2,587,209 2,587,209 15,410 15,410 2,571,800 365,450 2,206,350
3,217,280 96,518 1,337,599 367,616 507,053 48,259 32,173 2,028,212 133,031 39,618 7,807,361 2,881,732 2,881,732 2,881,732 442,933 2,438,799
3,530,519 105,916 1,471,359 404,378 557,758 52,958 35,305 2,231,034 133,031 39,618 8,561,877 3,207,511
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Pre-Feasibility Study
13.2.
(217,744) (217,744)
(235,817) (235,817)
(255,389) (255,389)
(299,543) (299,543)
(324,405) (324,405)
(351,330) (351,330)
346,161
1,016,543
1,161,502
1,329,375
1,696,697
1,907,493
2,138,573
2,758,367
5,089,381
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Pre-Feasibility Study
13.3.
Balance Sheet
Balance Sheet
Year 0 Assets Current assets Cash & Bank Accounts receivable Finished goods inventory Equipment spare part inventory Raw material inventory Pre-paid building rent Total Current Assets Fixed assets Machinery & equipment Furniture & fixtures Office equipment Total Fixed Assets Intangible assets Pre-operation costs Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Accounts payable Total Current Liabilities Other liabilities Deferred tax Long term debt (Project Loan) Long term debt (Working Capital Loan) Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
325,000
671,161 163,029 181,682 6,881 228,378 343,200 1,594,332 270,450 393,858 185,600 849,908
1,687,704 181,057 206,678 7,969 277,059 377,520 2,737,987 240,400 350,096 139,200 729,696
2,849,206 209,325 227,099 9,204 335,242 415,272 4,045,347 210,350 306,334 92,800 609,484
4,178,581 230,543 249,537 10,630 405,642 456,799 5,531,733 180,300 262,572 46,400 489,272
5,775,962 253,597 274,192 12,278 490,827 502,479 7,309,336 150,250 218,810 296,097 665,157
7,472,659 278,957 301,284 14,181 593,901 552,727 9,213,710 120,200 175,048 236,878 532,126
9,380,153 306,853 331,054 16,379 718,620 608,000 11,361,058 90,150 131,286 177,658 399,094
11,518,725 337,538 363,765 18,918 869,531 668,800 13,777,277 60,100 87,524 118,439 266,063
14,277,092 371,292 399,710 21,850 1,052,132 735,680 16,857,755 30,050 43,762 59,219 133,031
20,214,100
94,835 94,835
115,716 115,716
128,856 128,856
143,278 143,278
159,464 159,464
177,657 177,657
198,139 198,139
221,239 221,239
247,336 247,336
223,520 223,520
1,960,815 1,960,815
1,543,290 1,543,290
1,986,222 1,986,222
2,510,600 2,510,600
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Pre-Feasibility Study
13.4. Marketing
Product Development & Packaging:Expert help may be engaged for product/service and packaging design & development. Ads & Point of Sale Promotion:Business promotion and dissemination through banners and launch events is highly recommended coupled with utilizing marketing through social media.
13.5.
Useful Links
Prime Ministers Office, www.pmo.gov.pk Small and Medium Enterprises Development Authority, www.smeda.org.pk National Bank of Pakistan (NBP), www.nbp.com.pk First Women Bank Limited (FWBL), www.fwbl.com.pk Government of Pakistan, www.pakistan.gov.pk Ministry of Industries & Production, www.moip.gov.pk Ministry of Education, Training & Standards in Higher Education, http://moptt.gov.pk Government of Punjab, www.punjab.gov.pk Government of Sindh, www.sindh.gov.pk Government of Khyber Pakhtunkhwa, www.khyberpakhtunkhwa.gov.pk Government of Balochistan, www.balochistan.gov.pk Government of GilgitBaltistan, www.gilgitbaltistan.gov.pk Government of Azad Jamu Kashmir, www.ajk.gov.pk Trade Development Authority of Pakistan (TDAP), www.tdap.gov.pk Federation of Pakistan (FPCCI)www.fpcci.com.pk Chambers of Commerce and Industry
Pakistan Institute of Fashion Design (PIFD), www.pifd.edu.pk Pakistan Fashion Design Council (PFDC), www.pfdc.org Securities and Exchange Commission of Pakistan, www.secp.gov.pk
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Pre-Feasibility Study
14.
KEY ASSUMPTION
Table 13: Operating Assumptions
Days operational per month (Workshop) Days operational per month (Outlet)
25 30
Accounts Payable (Days) Accounts Receivable (Days) Raw Material Inventory (Days) Finished Goods Inventory (Days)
15 7 30 15
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