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Pre-Feasibility Study

Gold Jewelry Manufacturing and Retail Shop

Small and Medium Enterprises Development Authority


Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
6 Floor LDA Plaza Egerton Road, Lahore
Tel (042)111 111 456,
Fax: 36304926-7
helpdesk@smeda.org.pk
th

REGIONAL OFFICE

REGIONAL OFFICE

REGIONAL OFFICE

REGIONAL OFFICE

PUNJAB

SINDH

KHYBER PAKTUNKHWA

BALOCHISTAN

8th Floor LDA Plaza,


Egerton Road,
Lahore.
Tel: (042) 111 111 456,
Fax: (042) 36370474
helpdesk.punjab@smeda.org.pk

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M.T. Khan Road,
Karachi.
Tel: (021) 111-111-456
Fax: (021) 5610572
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Peshawar.
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August, 2012

Pre-feasibility Study

Gold Jewelry Manufacturing & Retail Shop

EXECUTIVE SUMMARY................................................................................................................. 4

PURPOSE OF THE DOCUMENT ................................................................................................... 5

CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT ..................... 5


3.1
3.2
3.3

SWOT ANALYSIS ............................................................................................................................. 5


ENTREPRENEURIAL FIT ..................................................................................................................... 7
BUSINESS MODEL: IN-HOUSE MANUFACTURING VS. OUTSOURCED MANUFACTURING .................... 8

PROJECT PROFILE ......................................................................................................................... 8


4.1 OPPORTUNITY RATIONALE ............................................................................................................... 8
4.2 PROJECT BRIEF ................................................................................................................................. 9
4.3 MARKET ENTRY TIMING ................................................................................................................... 9
4.4 PROPOSED BUSINESS LEGAL STATUS ...............................................................................................10
4.5 PROJECT CAPACITY AND RATIONALE ..............................................................................................10
4.6 PROJECT INVESTMENT .....................................................................................................................11
4.7 PROPOSED PRODUCT MIX ................................................................................................................11
4.7.1
Product Mix - Workshop Operations .....................................................................................11
4.7.2
Preferred Karatage................................................................................................................12
4.7.3
Item Wise Stock Composition ................................................................................................12
4.8 PROPOSED LOCATION ......................................................................................................................13
4.8.1
Location for Workshop Unit ..................................................................................................13
4.8.2
Location for Retail Unit .........................................................................................................14
4.9 KEY SUCCESS FACTORS / PRACTICAL TIPS FOR SUCCESS ................................................................14
4.9.1
Key Success Factors for Workshop Unit ...............................................................................14
4.9.2
Key Success Factors for Retail Unit ......................................................................................15
4.10
STRATEGIC RECOMMENDATIONS ................................................................................................15
4.10.1
Marketing ..........................................................................................................................15
4.10.2
Ratio of Order to From-Counter Purchase .......................................................................15
4.10.3
Nature of Stock Keeping ...................................................................................................15
4.10.4
Pricing Policies: ...............................................................................................................15
4.10.5
Mode of Payment ..............................................................................................................15
4.11
PRODUCT RANGE IN TERMS OF DESIGNS, ITEMS AND QUALITY ..................................................16

SECTOR & INDUSTRY ANALYSIS ..............................................................................................16


5.1 INDUSTRY STRUCTURE ....................................................................................................................16
5.1.1
Average Workshop .................................................................................................................17
5.2 EXPORT MARKET .............................................................................................................................18
5.2.1
Major International Market Players ......................................................................................18
5.2.2
Pakistans Jewelry Export .....................................................................................................19
5.3 MARKET POTENTIAL ........................................................................................................................19
5.3.1
Customer Loyalty ...................................................................................................................20
5.3.2
Trends ....................................................................................................................................20
5.4 TARGET CUSTOMERS .......................................................................................................................20

PRODUCTION PROCESS ...............................................................................................................21


6.1 PRODUCTION PROCESS FLOW ..........................................................................................................21
6.1.1
Contracting out an order .......................................................................................................23
6.1.2
Jewelry Designing .................................................................................................................23
6.1.3
Gold Refining and Mixing .....................................................................................................23
6.1.4
Converting Gold Ingots into Gold Sheets and Wires .............................................................23
6.1.5
Transfer of Design / Pattern Making .....................................................................................24
6.1.6
Engraving ..............................................................................................................................24
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6.1.7
Finishing ................................................................................................................................25
6.1.8
Polishing and Buffing ............................................................................................................25
6.1.9
Beading and Stone Studding ..................................................................................................25
6.1.10
Gold Recovery...................................................................................................................26
6.2 CASTING PROCESS AND MACHINERY REQUIREMENT .......................................................................26
6.2.1
Supply of Machineries ...........................................................................................................26
6.3 JEWELRY ITEM MANUFACTURING TIME...........................................................................................27
6.4 RAW MATERIAL ...............................................................................................................................27
6.5 MISCELLANEOUS EXPENSE ..............................................................................................................28
6.6 INITIAL INVESTMENT IN GOLD JEWELRY STOCK ..............................................................................28
6.7 MACHINERY REQUIREMENT.............................................................................................................28
6.8 FURNITURE & FIXTURES ..................................................................................................................29
7

LAND & BUILDING REQUIREMENT .........................................................................................30


7.1 LAND REQUIREMENT .......................................................................................................................30
7.1.1
Rent ........................................................................................................................................30
7.2 UTILITIES REQUIREMENT .................................................................................................................31

HUMAN RESOURCE REQUIREMENT .......................................................................................31

FINANCIAL ANALYSIS ..................................................................................................................32


9.1
9.2
9.3

10

PROJECTED INCOME STATEMENT .....................................................................................................32


PROJECTED CASH FLOW STATEMENT ..............................................................................................33
PROJECTED BALANCE SHEET ...........................................................................................................34

KEY ASSUMPTIONS .......................................................................................................................35

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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-87

Prepared by

SMEDA-Punjab

Issue Date

August, 2012

Issued by

Library Officer

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1 EXECUTIVE SUMMARY
A lack of passion for gold jewelry in Pakistan, and even amongst the Pakistani
expatriates, is hard to imagine. It is a cultural idiosyncrasy within the South Asian
Region. Gold jewelry is perceived not only as a decorative item but a symbol of status.
The perception pervades in all classes. Another reason for the vitality of the gold jewelry
market is that all domestic jewelry products are priced by weight, which results in the fact
that people perceive gold jewelry as a means of security net for the future because gold
alone has an internationally agreed price.
Global trade for Gems and Jewellery has shown a positive growth trend showing
increasing demand for these valuable fashion articles in international market. United
Nations Statistics showed that India is the market leader right now.
The subject enterprise of this pre-feasibility study is an integrated business gold jewelry
manufacturing and retailing business. In the subject pre feasibility study we assume the
60% of total jewelry sold will be traditional jewelry normally available in gold jewelry
shop, while 40% of total jewellery will be of designer made, which is of premium quality
and high price. This designer made jewelry will target the elite class of society.
Total projected cost of the project is estimated at Rs. 12.418 million. The internal rate of
return (IRR), Net Present Value (NPV) and payback of the project are 56%, Rs.78.805
million and 3.48 years respectively.
This pre-feasibility is being prepared by SMEDA and is intended to provide general
information on the opportunity for an investor in the Gems and Jewelry sector to establish
a Gold Jewellery designer made retail outlet and workshop. This would allow the project
to manufacture Gold Jewellery and gems for local market and Global market as well,
thereby, adding value and maximizing profits.

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2 PURPOSE OF THE DOCUMENT


The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs
in project identification for investment. The project pre-feasibility may form the basis of
an important investment decision and in order to serve this objective, the document/study
covers various aspects of project concept development, start-up, and production,
marketing, finance and business management. The document also provides sectoral
information, brief on government policies and international scenario, which have some
bearing on the project itself.
The purpose of this document is to facilitate potential investors in gold jewelry
manufacturing and retail enterprise by providing them a macro as well as a micro view of
gold jewelry business with the hope that such information as provided herein will aid the
potential investors in crucial investment decisions.
The need to come up with pre-feasibility reports for undocumented or minimally
documented sectors like jewelry manufacturing and retailing sector attains greater
imminence as the research that precedes such reports reveal certain thumbs of rules; best
practices developed by existing enterprises by trial and error, and certain industrial norms
that become a guiding source regarding various aspects of business set-up and its
successful management.
This particular pre-feasibility is regarding Gold Jewelry Manufacturing and Retail
Shop, which comes under a broader Gem and Jewelry Sector.

3 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT


Below are some factors and variables that have a great bearing on setting up jewelry
manufacturing and retailing enterprise:
3.1

SWOT Analysis

Before stepping into any venture, one has to analyze the strengths, weaknesses,
opportunities and threats (SWOT). An industrial / sectoral SWOT analysis is given
below. A prospective entrepreneur would have to conduct a micro-level SWOT analysis
on the basis of the intended city / town / village for his business.

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SWOT Analysis
Strengths
1. Stock of skilled craftsmen;
2. Low manufacturing cost;
3. Low capital investment in
machinery;
4. Price inelasticity of demand for
gold jewelry implying the relative
ease with which an entrepreneur
may pass on increase in costs to
the customer.
5. Easy exit since gold stock can be
resold easily (though capital gains
/ loss possible due to change in
gold price);
6. Premium mark-up is accepted in
general by customers if they
perceive that the jewelry item they
are purchasing is unique or has a
designers value. Thus there is
greater
opportunity
for
an
entrepreneur to charge higher
mark-up on exclusively positioned
jewelry line.

Weakness
1. Weak sharing of information and best
practices within the industry. Trade
secrets tend to be kept within family;
2. Maintaining exclusivity of designs is
difficult due to absence of copyright
laws within the industry. Investment
in exclusive designers is thus risky.
3. Highly
skilled
craftsmen
are
concentrated in few clusters, mainly
in Karachi and Lahore;
4. Practice of hallmarking products for
export is low, thus non-hallmarked
items are less reliable abroad than
competitive but hallmarked jewelry.

Opportunities
1. Increasing
population
thus
expanding
potential
domestic
market;
2. Gold price is perceived to be
outmatching inflation thus purchase
of gold jewelry is more readily
justified in terms of future security.
3. Increasing demand for 22k gold
jewelry abroad
amongst South
Asian expatriates;
4. Increasing demand of 18k jewelry
within
Pakistan
provides
opportunity for jewelers to increase
their stock size and range with
lesser investment in gold.
5. Increasing participation of females
in
work-force,
thus
greater
purchasing power of women to

Threats
1. Improving trade relations with India
may lead to import of competitive
jewelry items into Pakistani Market;
2. Competition from Far-East Asian
countries is already somewhat visible;
3. Proper designing matching the market
taste is crucial to sales, if designing
does not match the market demand,
the entrepreneur may be stuck with
slow conversion of stock to sales.
4. Frequent turnover of key craftsmen
risks loss of quality and exclusivity;
5. Economic Condition of Pakistan;
6. Artificial Jewelry trend.

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purchase jewelry items;


6. Increasing trend and inclination in
the market to pay premium for
exclusive designs / brands has a
created a niche market for products
bearing higher profit margin.
3.2

Entrepreneurial Fit

The prospective investor will need to assess an entrepreneurial fit in the sector in light of
the sectoral SWOT analysis. Table 3-1 below gives an example of crucial traits
contributing to entrepreneurial fit in the jewelry sector, and course of action to be taken in
case the crucial trait is present, and also if its lacking.
Table 3-1: Entrepreneurial Fit
ENTERPRENURIAL FIT
CRUCIAL
TRAITS

Family
Background

Process
Know How

Flair for
designing /
Ability to
gauge
trends

Importance

If Positive

Action Needed if Negative

Source of process
knowledge;
Prevents costly
managerial mistakes
more probable in trial
and error based
decision making;
Better knowledge/
guidance of the
market in terms of
trends, suppliers,
craftsmen..etc.
Effective quality
control;
Feasibility
assessment of
selecting production
technology

Entrepreneurial
advantage;
Lower risk than if any
industrial background is
lacking.

Intensive industrial and


sectoral study in terms of
processes, modes of quality
control, workers'
management practices;
Preferred technology;
Preferred suppliers, etc.

Entrepreneurial
advantage;
Effective quality check;
Less risk in management
and ownership of retail /
manufacturing unit.

Acquire process know how;


Delegate Quality Control
function to employee or
partner who has the process /
production know how

Unique selling
proposition;
Premium pricing
Customer Loyalty

Entrepreneur is able to
determine the stock of
jewelry items in terms of
designs and variety.

Prospective customer's
feedback on preferred / not
so preferred styles;
Advice of established
jewelers catering to similar
target market;
Hire graduates from
designing / arts' institutions;
Greater investment in
jewelry catalogues.

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3.3

Gold Jewelry Manufacturing & Retail Shop

Business Model: In-House Manufacturing vs. Outsourced Manufacturing

The entrepreneur - assuming sufficient financial resources - then needs to decide on his
business model in terms of having his workshop in-house, or outsource jewelry
production. The following table gives advantages and disadvantages of the two options.
Table 3-2: Pros and Cons of In-House vs. Outsourced Manufacturing
Pros and Cons of In-House vs. Outsourced Manufacturing

PROS

In-House
CONS

Outsourced
PROS

CONS

Greater control on
quality

Greater total set-up cost

Lower set-up cost

Less convenient in terms of


quality control

Greater chance of
securing design
exclusivity

Greater investment risk

lower investment risk

Difficult to keep designs from


being copied by competitors

feasible for small


scale jewelers

Lesser control over order


completion time

Optimal order
processing
Better process
control when
production under
one roof

Greater labor cost in


order to prevent
craftsmen's turnover
Cases of design
leakages and craftsmen
refusing to work
exclusively for one
jeweler commonly
reported
Not feasible for small
scale jewelry business

Possible to
rationalize on total
labor cost for small/
medium size business
Greater range of
choice in terms of
craftsmen to be used

4 PROJECT PROFILE
4.1

Opportunity Rationale

A lack of passion for gold jewelry in Pakistan, and even amongst the Pakistani
expatriates, is hard to imagine. It is a cultural idiosyncrasy within the South Asian
Region. Gold jewelry is perceived not only as a decorative item but a symbol of status.
This perception pervades all classes.
Another reason for the vitality of the gold jewelry market is that all domestic jewelry
products are priced by weight, which results in the fact that people perceive gold jewelry
as a means of security net for the future because gold alone has an internationally agreed
price (although there is no regulated appraisal system for selling second-hand jewelry,
more often people get much less money than they have paid when they try to return the
jewelry).
On the supply side, gold jewelry manufacturing is labor intensive. The skill of most of
the craftsmen is passed on from generation to generation or through a process of intense
apprenticeship. Gold jewelry manufacturing units tend to specialize in terms of process,
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thus they all tend to form a cluster of independent units that utilize each others service to
complete a jewelry item. This makes it easier for a new entrant to identify craftsmen in
terms of skill, reliability and quality.
In case the entrepreneur wishes to set-up an integrated business (retail and
manufacturing), most of the machinery used is now locally made (largely in Gujranwala)
and is considered almost at par with the Italian machines for the same purpose. Hence,
initial capital investment in machinery is less and does not pose a great barrier to entry
into enterprise of gold jewelry manufacturing and retailing.
4.2

Project Brief

The subject enterprise of this pre-feasibility study is an integrated business gold jewelry
manufacturing and retailing business. In the subject pre feasibility study we assume the
60% of total jewelry sold will be traditional jewelry normally available in gold jewelry
shop, while 40% of total jewellery will be of designer made, which is of premium quality
and high price. This designer made jewelry will target the elite class of society.
The manufacturing unit known as the workshop is a self sufficient unit that out sources
only the following processes: gold refining and mixing, mechanized chain and bangle
making.
A Gold Jewellery Manufacturing and Retail Shop with a capacity of 3600 tolas a year
started in a rented shop and workshop, require total capital investment estimated at Rs
2.555 million for purchasing machinery & equipments, furniture & fixtures and for preoperating expenses. Rs. 9.864 million is estimated for working capital that should be used
to purchase raw material, pay building rent and for cash in hand. The total project cost is
estimated at Rs. 12.418 million.
Table 4-1: Project Outcomes
Project Outcomes
Net Present Value
Internal Rate of Return
Discounted Payback (years)

4.3

Rs. 78,805,233
56%
3.48

Market Entry Timing

The gold jewelry retailing sector faces a seasonality factor that becomes apparent in the
sales. Sales tend to peak during the wedding season. The wedding season fall in winters
(October - March).
As far as the importance of timing of setting up a gold-jewelry business is concerned, its
preferable that the business be set up in the wedding season.
This would not only help the initial cash flows but also render any promotional tactic
(even if it may be just an attractive faade of the shop or a well designed jewelry) more
effective by having greater number of prospective gold jewelry buyers in the market.
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4.4

Gold Jewelry Manufacturing & Retail Shop

Proposed Business Legal Status

Since majority of Gold Jewelry business are family owned, most of these enterprises hold
the status of registered partnerships. The other option mostly taken up is that soleproprietorship. The latter two options are preferred over the option of incorporation
mainly due to requirement, in the case of incorporation, of periodic disclosure of
financial information.
4.5

Project Capacity and Rationale

The capacity of the workshop is defined as the volume of output the workshop is can
produce when working to full capacity at a given period of time. In this case, the capacity
of the workshop is defined as the amount of gold jewelry in terms of grams (weight) that
the workshop can produce in a year when working at its full capacity. The research,
based on interviews with gold jewelry making craftsmen suggests that on average, a
skilled craftsman can produce gold jewelry worth 575 grams of gold in a month or 6900
grams (600 Tolas) worth of jewelry in a year. Since majority of gold jewelry is handmade
and only small portion, if any, of the jewelry involves casting process, number of gold
jewelry manufacturing craftsmen is the key variable determining the capacity of the
workshop.
The capacity of the retail unit in gold jewelry industry, on the other hand, is described in
terms units of gold invested in stock of jewelry prepared by a jeweler at any one time.
Table 4-1 shows how a manufacturing unit and gold jewelry retail enterprise is described
in terms of capacity and scale.
Table 4-2: Capacity Description
Capacity Description
Capacity Description for Workshop Unit
Scale
Small
Medium
Large
Scale
Small
Medium
Large

Number of
Output / year (grams)
Output / year (tolas)
Craftsmen
3-5
20,700 34,500
1,800 3,000
6 - 10
41,400 69,000
3600 - 6000
11 or more
75,900 - more
6,600 - more
Capacity Description for Retail Unit
Stock Level (Grams)
Stock Level (Tolas)
1150 - 2300
100 - 200
2300 - 8050
200 - 700
8050 or more
700 or more

This pre-feasibility report suggests that to enter the gold jewelry manufacturing and retail
industry with an integrated business of manufacturing and retailing, the new entrant
should enter with at least a medium scaled workshop and also a medium scaled retail
unit. The medium sized workshop and retail business is the minimum feasible scale for
integrated unit since the larger number of overheads (as compared to if manufacturing
and retail were separate independent businesses) require a minimum level of sales for the
overhead costs to be met. This minimum level of sales is met with operations at medium
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scale. Medium scaled workshop can provide jewelry items for its own retail units where
generating greater profit margins. Starting at a larger scale would expose the entrepreneur
to greater risk while starting too small, with given fixed and administrative costs, can
push the break even period for the project too far ahead. For example, with the given
cost parameters described as assumptions, starting with workshop of 4 craftsmen and
retail unit with a stock of 2300 grams of gold can push the discounted payback period to
more than 10 years.
The financial model given at the end of this report assumes initial capacity of workshop
to be manufacturing of gold jewelry worth 41,400 grams / year (3600 tolas / year).
This model shows that the workshop will initiate its operations at 50% of its capacity in
year 1, and the level of operations will increase as manufacturing unit receives more
orders from its own retail unit. The maximum capacity of manufacturing unit is assumed
at 95%.
4.6

Project Investment

Table 4-2 below gives an estimate of the initial investment required to set up a workshop
with annual capacity to manufacture gold jewelry items worth 41,400 grams.
Table 4-2: Initial Investment
Description
Capital Investment
Machinery & equipment
Furniture & fixtures
Office equipment
Pre-operating costs
Total Capital Cost

Amount (in Rs.)


311,800
1,545,800
273,000
424,000
2,554,600

Working Capital
Equipment spare part inventory
Raw material inventory
Upfront building rent
Cash

5,750
8,157,813
1,200,000
500,000

|Total Working Capital

9,863,563

Total Investment
4.7

12,418,163

Proposed Product Mix

4.7.1 Product Mix - Workshop Operations


The workshop operations will be based on orders from on gold jewelry items sold
directly through self-owned retail unit of the model. Workshop operations are expected
to be distributed between output made on order for designer made jewelry and output
sold through retail outlet of traditional jewelry.
The following subsections refer to product mix of the gold jewelry retail unit:
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4.7.2 Preferred Karatage


Pakistanis and Indians abroad and at home prefer 22-karat jewelry. The West and Far
East prefers jewelry of 18 14 karat gold. Because Pakistanis consider gold jewelry an
asset, a trend towards preferring low karat jewelry by the mainstream local market is
unlikely in the foreseeable future.
However, a niche for 18 karat jewelry has emerged. This niche constitutes largely of
working women belonging to age group 25 years - 40 years.
The business model in this report assumes traditional / mainstream customers who prefer
22 karat gold jewelry as the target market.
4.7.3 Item Wise Stock Composition
Based on the interviews of established jewelers, one is able to establish rule of thumb
for stock composition of total amount of gold invested in stock of jewelry available for
display.
One is also able to establish an average amount of gold per item type and average number
of units stocked per item type. Table 4-3 below shows average gold content in grams per
jewelry item:
Table 4-3: Average Gold Content
AVERAGE GOLD CONTENT (Grams) PER ITEM
Item

Earrings
Rings
12 Bangles' Set
Bracelets
Chains
Necklaces
Pendants
Teeka
Bridal Set
Jhoomer

Gold Content (grams) - Range


80% of items of
20% of items of
same category sold same category sold
3.5
7
3
7.5
43
34
10.25
24.75
15
7
34.5
37
3.25
4
4.375
3
57.5
115
11.5
17.25

Average Gold
Content / Item
4.2
3.9
41.2
13.15
13.4
35
3.4
4.1
69
12.65

Calculation of average gold content for earrings (as an illustration) is calculated thus: 3.5
grams * 0.8 + 7 grams * 0.2 = 4.2 grams
Table: 4-3 is to be read as, for example, of the total units of earrings kept as stock for
sale, 80% weigh around 3.5 gms, while 20% of earrings kept in stock weigh about 7
grams.
Given the average weight of gold (gms) per jewelry item and the information regarding
average item wise stock composition of jewelers participating in this research, Table: 4-4
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below gives an idea as to how, percentage wise, total gold available for jewelry stock
may be distributed among various jewelry items.
Furthermore this distribution is translated into number of units per jewelry for initial
stock level of gold jewelry items worth 4600 grams (400 tolas).
It is of note that smaller items have higher sales turn-over than larger jewelry items.
Thus, though small items like earrings, rings and pendants utilize together only 16 % of
total gold available for stock, unit wise they constitute 61% of total units prepared as
stock.
Table 4-4: Weight wise distribution of gold metal
WEIGHT WISE DISTRIBUTON OF GOLD METAL STOCK AMONG JEWELRY ITEMS

Item
Earrings
Rings
Bangles' Design (four
bangles per design)
Bracelets
Chains
Necklaces
Pendants
Teeka
Bridal Set
Jhoomer
TOTAL

Item-wise Distribution of
Gold Stock (%)
4%
9%
14%

Units per Item Type given


4600 gms (400 tolas) of Gold
40 units
108 units
16 units

7%
3%
43%
3%
0%
17%
0%
100%

24 units
10 units
56 units
42 units
2 unit
12 units
0 units
310 units

It is important to note that as such jewelers in Pakistan do not compose their stock on the
basis of any hard and fast rule. The stock size and its composition are improved as the
retailer gains experience of the market itself and as the sale increases. If sales remain low
or constant, the stock of jewelry would be decreased because Gold is expensive item and
your money will be tied up in your stock.
4.8

Proposed Location

4.8.1 Location for Workshop Unit


The ideal location for workshop would be within a jewelry cluster often referred to as
Sirafa Bazaar in main urban cities. The advantages of locating the workshop are many
and some of them relate to the fact the cluster is almost self sufficient in terms of supply
of raw material, small tools and equipment, ancillary services such as machine repair, and
also in terms of gold jewelry making processes that may need to be outsourced. More
important are the advantages in terms of networks and links developed with suppliers,
gold jewelry retailers who may be potential customers, and with potential craftsmen who
may be recruited when required.
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The downturn of locating the gold jewelry manufacturing workshop that integrates many
processes that are usually outsourced (eg. Polishing and buffing, casting) is that the space
required for the model workshop will be far greater than the average workshop found in
Sarafa bazaar. Sarafa bazaars are often located in the oldest part of the city. Finding
rentable space is hard and if available, space in terms of complete room is often small.
This implies that the workshop may have to be set up in two different rooms / tiers.
Also, the rents and rates of space in a jewelry cluster is almost double that of space for
workshop outside the cluster. The difference becomes greater the further one goes from
the cluster. For example, space 20 by 25 square feet may be let at Rs. 25,000/ month if
located within the cluster but may cost Rs. 12,000/ month in old part of the city but far
from the cluster.
4.8.2 Location for Retail Unit
An ideal location for setting up a jewelry shop would be in main market or shopping
center where more females tend to shop frequently. Ideally that location should not only
have a wide range of shops in terms of clothes, shoes etc but also have a cluster of
competing jewelry shops.
The latter characteristic is important for jewelry buyers tend to shop around for designs
and variety before making a purchase, and because it is convenient for a prospective
buyer to window shop amongst clustered shops, they are less likely to enter a recently
set-up, and not so renowned shop located in isolation.
Its noted that even shops of established reputation ultimately shift to main market areas
to boost their sales.
In short, factors important in considering the location of the shop would be:

4.9

Accessibility
Security
Area frequented by female shoppers
Cluster of competing jewelers
Key Success Factors / Practical Tips for Success

4.9.1 Key Success Factors for Workshop Unit


The key success factors in gold jewelry manufacturing business are:
Quality of craftsmanship
Managing turnover of key craftsmen;
Establishing a reputation of reliability (in terms of honest and timely processing of
orders) and quality;
Networking to attract and ensure sufficient orders to cover overhead costs;
Networking to identify suppliers and service providers who are reliable and provide
adequate quality.
Housing as many processes in-house so as to provide as many services under one roof.
Location

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4.9.2 Key Success Factors for Retail Unit


The key success factor in gold jewelry retail business is the turnover which in turn
depends on:
Quality
Design
Variety and product range displayed under one roof.
Location
4.10

Strategic Recommendations

4.10.1 Marketing
Marketing and promotional schemes are financially feasible only if you have sufficient
capital / stock in terms of finished product that you are able to satisfy a customers need.
Hence, unless one has a sufficiently wide range of jewelry items to cater to a prospective
buyer attracted by marketing scheme, the attraction of that customer to your shop may
not translate into sales but into higher average selling cost.
Excellent customer service can play a vital role in converting a window shopper into a
customer and a small order into a large.
4.10.2 Ratio of Order to From-Counter Purchase
In the wedding season, purchases on order outnumber those from the displayed stock and
vice versa on other occasions.
4.10.3 Nature of Stock Keeping
Increase the average stock size to hedge against increasing trend in gold prices. Some
stock is kept of gold and those stones, precious and semi precious gems the type of which
have been used in displayed jewelry items to cater to the possibility that a customer may
want to purchase a displayed item with some alterations. Stock in term of duplicates of
displayed jewelry item is not kept.
4.10.4 Pricing Policies:
Increased competition has reduced jewelers control in terms of price determination of
smaller and relatively non-exclusive jewelry items. One is, however, able to charge a
premium on exclusivity and uniqueness of the design.
Price of gold jewelry item is extremely sensitive to price of gold. Furthermore since gold
jewelry has a high income elasticity of demand, the jeweler is not free to pass all of the
increase in cost of raw material to the customer but has to absorb some of it himself.
If a customer has ordered an item, then the rate of gold that a customer will pay is
established when the order is given by the customer and is largely the current market rate
at that time.
4.10.5 Mode of Payment
Advance: Advance is normally taken when the jewelry item being sold is to be made on
order. There is no fixed percentage of the orders cost demanded since our business
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depends on relationship building and we keep a customers ability to pay advance at a


given moment under consideration.
On the Spot Payment: On the spot purchases of displayed items are paid for at the time of
the purchase.
Credit: Credit sales are neither an industry norm, nor encouraged by the jewelers. In the
rural areas, however, payment if not purchase coincides with the harvesting of crops.
4.11

Product Range in Terms of Designs, Items and Quality

The type of jewelry items in term of design and quality depends on the clientele of the
jeweler. The type of clientele, in its turn depends on the location of the shop.
The choice of target customers may be gauged by the general trend as seen via the
jewelry items sold by other jewelers in the same or similar area and by trial and error.
However, the jewelers vision and his understanding of the market trend have a great
bearing on the range and variety of jewelry items displayed in his shop.

5 SECTOR & INDUSTRY ANALYSIS


5.1

Industry Structure

Pakistans jewellery sector is basically retail driven due to a huge local market. Karachi
and Lahore are the main hubs for jewellery manufacturing. Dubai is the main exporter of
bullion to Pakistan. The dominant reason for the purchase of jewellery in Pakistan is
marriage, as gold is perceived as a form of savings and it is accumulated for this purpose
over several years. However, with increasing awareness and education, along with other
emerging investment opportunities, jewellery is now gaining preference as more of a
fashion symbol.
The range of jewellery items produced by the jeweller is very wide. The popular items of
Pakistans jewellery are Teeka, Pendants, Bazuband, Jhoomer, Bangles, Nose Pins, Kara,
Earrings, Rings, Balian, Pazeb and Necklace.
Jewellery industry is highly fragmented, with very few players having complete in-house
production facilities. Most of the players outsource manufacturing process to small
vendors. The trade consists of small companies (generally up to 15 workers) with
freelance craftsmen. The workforce works in the traditional manner sitting on the floor at
low benches rather than seated at conventional workbenches, which are more comfortable
and productive. The tools and technology employed are mostly basic. The use of hightech machinery is missing throughout the value chain.
Each of the major cities of Pakistan has a Sarafa Bazaar, consisting of hundreds of
small showrooms, bullion dealers and casting shops. Major cities and their markets are:
KARACHI
LAHORE
RAWALPINDI/ISLAMABAD

Zaibunisa Street (Saddar), Tariq Road & Hydery


Gulberg, the Mall Road, Suha Bazaar
Muree Road, Mareer Chowk, & Jinnah Super
Market
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The industry structure is very fragmented and one with high degree of operational /
functional specialization. For a polisher of gold jewelry will not do anything but polish.
Thus a polisher can be an independent unit in manufacturing process and may cater to
multiple jewelers. Complete jewelry manufacturing and integrated retailing units are rare
in the industry.
The markets preference leans towards exclusive designs. Thus jewelry manufacturing is
very labor intensive, and unlike in the West, degree of mechanization and production of
standardized items except in case of generic gold chains and perhaps bangles is very low.
Hence, every process of jewelry making requires high level of expertise and skill as
jewelry manufacturing is closer to being a form of art. It is an art in the sense that when
it comes to making of handmade jewelry, each process has more than one way of doing
it, and the quality of work depends on the skill of an individual worker/ craftsman.
Because jewelry manufacturing is spread over number of specialized units in terms of
process, jewelry making industry tends to be clustered or geographically concentrated.
These clusters of workshops are found in Lahore, Karachi, and Rawalpindi in what are
called the Sarafa Bazaars.
Large and renowned jewelers tend to have their workshops preferably in Karachi or in
Lahore due to exceptional skill level developed there over time. In order to supervise the
quality of workmanship and design of their jewelry item, jewelers not located in the main
jewelry manufacturing cities but having their workshops there then have a representative
or an agent in the city where their jewelry is being manufactured.
5.1.1 Average Workshop
An average gold jewelry manufacturing workshop tends to be a 200 (10x20) square feet
covered area that is located within or near a jewelry manufacturing cluster if the
workshop depends on outsourcing some of the processes as gem setting or polishing.
Workshops visited in the jewelry manufacturing clusters (Sirafa Bazaars) were further
specialized in terms of bangle manufacturers alone; makers of plain jewelry only; makers
of studded jewelry only, making gold balls to be sold to other workshops etc. A
completely self-sufficient workshop is seldom found in the industry.
Average number of workers in a typical gold jewelry manufacturing workshop found
within a cluster like Sirafa Bazars is 5 to 6 craftsmen. These craftsmen tend to be
generally the pattern makers, or those craftsmen who transfer the design on to the gold.
Few workshops have a polisher and a finisher, and even fewer have a stone setter
in the same workshop. Within the workshop, however, workers tend to be specialists in
terms of their functions. For example, a workshop will have one worker who specializes
in copying designs from catalogues; another, a maker of studded jewelry; another, a
maker of plain jewelry, or a worker who only makes bangles etc.
The average working hours of a craftsman are 9 hours a day, six days a week. Workers
are often part of a local union.
The recruitment of craftsmen is based on references and personal recommendations.
According to some jewelers the turnover rate of workers recruited on the basis of

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personal recommendation / reference tends to be low since the workers recruited in this
manner would not like to lose the confidence of their referees.
The remuneration of the craftsmen is a combination of base salary and performance (in
terms of units made and / or quality of work).
5.2

Export Market

5.2.1 Major International Market Players


Global trade for Gems and Jewellery has shown a positive growth trend showing
increasing demand for these valuable fashion articles in international market. If we look
at the statistics, we found that India is the market leader in exports followed by China,
USA and Switzerland. From the below table we can see that in near future china will
surely become the market leader. Pakistan is also doing exports of jewellery but on a very
small scale. Total export of gold jewellery from Pakistan was only1 541,943,862.19 US
Dollars.
Table 5-1: Top Exporting Countries2

India

9149.9

Avg.
Growth
(%)
06-10
16.5

China

8971.2

29.3

131

11.6

USA

7075.2

5.7

12.3

9.1

Switzerland

6161.6

13.6

25.2

8.0

Italy

5772.8

0.3

29.9

7.5

Hong Kong

5630.2

4.1

21.3

7.3

United Kingdom

4458.1

5.6

18.2

5.8

United Arab Emirates

3720.1

47.5

21.4

4.8

Thailand

3437.1

16.0

25.4

4.4

Singapore

2559.5

41

52.9

3.3

Country

Value
(Million US $)

Growth
(%)
09-10

World
Share
(%)

-32.9

11.8

1http://www.fbr.gov.pk/TradeStatistics/PCTSUMMARY411.ASPX?view=ExternalLink&ActionID=+&Artic
leID= (HS Code of Gold Jewelry is 7113.1910)

2http://comtrade.un.org/pb/CommodityPagesNew.aspx?y=2008&v=true: 897 SITC Code Revision


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Table 5-2: Jewellery Imports3


Country

Value
(Million
US$)

USA
Switzerland
Hong Kong
United Arab Emirates
United Kingdom
Singapore
France
Japan
Germany
Italy

10306.7
8844.6
6758.1
6349.2
3806.2
2892.2
2501.8
1847.5
1787.1
1472.3

Avg.
Growth
(%)
06-10
-2.4
30
21.3
16.5
-4.1
27.6
9.7
-2.4
7.5
9.8

Growth
(%)
09-10

Market
Share
(%)

16.4
45.9
52.3
17.7
10.9
53.7
23.4
20.7
16.0
40.9

16.8
14.4
11
10.3
6.2
4.7
4.1
3.0
2.9
2.4

5.2.2 Pakistans Jewelry Export


Pakistans export of jewelry targets mainly the South Asian expatriates in Dubai, USA
and UK. Several factors contributing to an insignificant share of world jewelry export
contributed by Pakistan is that firstly, the industry is still fragmented and not well
documented. Secondly, the designs produced by the jewelers are very traditional and are
made in 22 carat. No hall marking or branding system exists. The larger export market,
on the other hand demands 18, 14 and 8 carat jewelry with new and lightweight designs.
The giftware market is negligible.
Small and Medium Enterprises Development authority (SMEDA) has identified
Pakistans jewelry industry as a sector with major potential. To support this sector,
SMEDA formed Pakistan Gems And Jewelry Development Company which provides
technical training to the craft men and students for jewelry manufacturing on cost basis.
Most of the jewellery exported from Pakistan is purchased by Pakistani expatriates. There
is a need to improve our understanding of international designs and trends to increase our
customer base beyond our traditional cliental.
5.3

Market Potential

The consensus amongst the jewelers spoken is that the demand of Jewelry in Pakistan is
decreasing day by day due to high rise and instability in Gold Price. In last five years
gold prices in the world market increases by 145.18%4. Due to high rise in gold price
purchasing power of purchasers influenced diversely, people prefer artificial jewelry on
original gold jewelry for even wedding events.
3

http://comtrade.un.org/pb/CommodityPagesNew.aspx?y=2008&v=true 897 SITC Code Revision 3

http://www.goldprice.org/gold-price-history.html#10_year_gold_price
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One big problem in this sector is that the price of gold varies dramatically on daily
basses, which cause loss for the goldsmith/jeweler.
5.3.1 Customer Loyalty
Customer loyalty in urban areas and cities is less than in rural areas. Urban customers
tend to shop around for an item before making a purchase. The loyalties of these
customers have to be retained via good designs, long product range and relationship
building.
5.3.2 Trends
The main driver of demand for jewelry tends to be weddings whereby shopping for
jewelry to be given in dowry starts years back and goes on till few days before the event.
Larger, prominent and gem studded jewelry, thus, constitutes the traditional demand.
However, with increasing rate of females working and earning a salary for themselves;
and greater exposure to outside culture through magazines and TV the demand for
smaller and contemporary western designs is emerging in the main urban cities. The rural
and semi rural areas tend to present a more traditional demand.
5.4

Target Customers

The gold jewelry manufacturing and retail enterprise will have two broad sets of target
market. Given the proportion of workshop output, the main set of target market are the
traditional consumers (purchasers) of gold jewelry. The other is designer made jewelry
which is for elite class.
The first set of target market consumer market can be sub-defined in terms of how the
enterprise decides to position its gold jewelry items. Tapping an exclusive niche that falls
under Designer Jewelry may require lower initial investment in terms of stock per
gross margin. However, that position strategy would have additional demands of offering
exclusive and appealing designs and range to the target market. For this purpose, it is
suggested to hire in house designers who could design different styles of jewelry to meet
the demand of target market.
The positioning strategy, that is, whether the prospective jeweler (retailer /manufacturer)
decides to cater to a local niche or mainstream market; or to the export market has crucial
bearing on gamut of decisions ranging from site and dcor of the showroom to production
process / feasibility of mechanization of process.
The following table depicts how the choice of target market affects some of the decision
variables.

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Table 5-3: Implications of Various Positioning Strategies


Implications of Various Positioning Strategies5
Target
Market

Price

NICHE
MARKET /
DESIGNER

Designer's
Premium for
exclusivity

LOCAL
MAINSTREA
M MARKET

Competitive
pricing;
Lesser
profit
margin than
in designer
products.

EXPORT
MARKET
(Expatriates
from the SubContinent)

Competitive
in the
foreign
market

EXPORT
MARKET
(NonExpatriates)

Competitive
in the
foreign
market

Promotion

Product

Exhibitions;
Fashion
Shows;
Fashion
Magazine
shoots / Ads
Word of mouth;
Window
displays;
If justified by
capacity,
fashion
magazine
advertisement
near seasonal
peaks.
Exhibitions

Trade
promotion

Distribution

22 karat - 18 karat;
Exclusive designs;
Low duplicity;
Labor Intensive
processes

Location in the
main market is not
crucial;
Dcor of showroom
must support the
brand image

22 - 21 karat items;
High stock to sales
ratio;
Larger range of
jewelry items
available for
display;
Variety of smaller
(high turnover
items)
21 karat;
Studded jewelry
preferred;
Both Asian and
contemporary
designs; Smaller /
lighter jewelry
18- 14 karats;
Contemporary
designs; Smaller /
lighter jewelry;
Mechanization
feasible for mass
distribution

High importance of
central location in
a busy shopping
centre, or in a
cluster of jewelry
shops

Importing agents;
Own agent abroad;
Exhibitions

Importing agents;
Own agent abroad;
Exhibitions

6 PRODUCTION PROCESS
6.1

Production Process Flow

Figure 6.1 below shows the production process flow from contracting an order and
completing an order. The production process depicted in Figure 5.1 is described in detail
later.

Note: This model is based on catering to the local mainstream market. The various target markets
mentioned above, however are not mutually exclusive. For example a gold jewelry manufacturing and
retailing enterprise may have mainstream local market for volume of sales as the primary target market
but can have separate product lines for exclusive / niche and export market for greater profit margin as
secondary target market
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Figure 6.1: Production Process Flow

6.1.1

Contract Order

6.1.2 Jewelry Designing

6.1.3 Gold Refining and Mixing

6.1.4 Converting Gold


plates and wires
6.1.5 Pattern Making

6.1.6 Engraving

6.1.7 Finishing

6.1.8 Polishing and Buffing

6.1.9 Beading and Gem


Studding
6.1.10 Gold Recovery

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6.1.1 Contracting out an order


There are two main ways a jeweler contracts out an order. Firstly, if a jeweler has his /
her own basic workshop, then he/she assigns the task of manufacturing a particular
jewelry item to the workshop supervisor / lead craftsman in the workshop. The person to
whom the task is assigned in effect becomes the project manager for the manufacturing of
the assigned jewelry item.
The other route is that the jeweler himself takes the order through different
manufacturing process located in independent specialized units like Gold Mixing Unit;
independent designing and crafting unit, the polishing unit, and the stone / gem setting
etc.
The latter route is more costly and time consuming, however the jeweler can apply
greater quality control and be more satisfied with the end result.
6.1.2 Jewelry Designing
The design of the jewelry offered is crucial to a cash flow favorable stock-turnover.
There are several sources of jewelry designs:
Copy of designs from jewelry magazines and catalogues;
Hiring of professional jewelry designers with a related educational and professional
background;
Jewelry design may be provided by the client himself / herself;
Jewelry designing by the jeweler himself / herself.
Once the jewelry design is provided to the craftsman / pattern maker, the latter makes a
sketch of the design and shows it to the jeweler / entrepreneur for approval. This process
till the approval may take about 2 days.
6.1.3 Gold Refining and Mixing
The jeweler commissioning the manufacture of a gold jewelry first purchases gold in
form of ingots amount more than what that item would take. For example for a 1 tola
(11.5 gram) gold item, the jeweler would purchase 1.5 tolas of gold) from gold
wholesalers in Sarafa bazaars.
Next, the gold is mixed to get the desired karatage. The mixed gold is molded into small
bars and given to the craftsman who manufactures the order.
If the jewelry design requires setting of gems / stones, they too will have to be bought.
The quality of the stones can be checked by the Gem Corporation.
6.1.4 Converting Gold Ingots into Gold Sheets and Wires
In accordance with the design requirements, the craftsman converts the gold ingots into
gold sheets and wires with thickness required by the design. The gold sheets and rods are
made from a machine locally called sheet and wire making machine (Patra or Ari ki
Machine). This machine compresses the gold fed into it in one end to produce sheets /
wires according to the setting from the other end.

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6.1.5 Transfer of Design / Pattern Making


There are two main ways a craftsman may transfer the design into a jewelry item:
Direct transfer of design on Patra (flat gold sheet) by the Engraver locally referred
to as Ari ka Kaam Karrney Wala;
Casting.
The direct transfer of design is a more popular method. The disadvantage of direct
transfer of design on gold sheet is that one requires more gold than is required to make an
item. The excess gold at the end of the process is then melted and re-used in other items.
However, the jewelry item itself requires less gold through the direct method than it
requires if casting method is used. Jewelry made via casting is heavier for it requires
more gold. Same design made via casting, taking 30g of gold may be prepared by hand
using 20g of gold.
Casting method is used for repeated designs. Casting designs are those that are used
currently either as piece in a jewelry item or a jewelry item itself.
Cast process follows thus: First, a model referred to as a dye is prepared on an iron
sheet. The model is then used to prepare rubber casts / moulds. These models are used in
a casting plate (Casting Machine) to make the gold jewelry. Wax casting is used for
Kundan and very light jewelry, like Dhaka or Bangals jewelry. Kundan making skills are
concentrated in Lahore, Multan, Bahawalpur, Sargodha and Karachi.
The Casting method is time saving. A casting plate has a capacity of 50 tolas. Unless
casting work of 50 tolas is not lined up, the machine will not (or cannot) operate. Because
casting method is not popularly used, casting work is not sufficient at any given time to
operate the machine.
Hence, workshops having their own casting shop set specific days of a week for casting.
For example, a workshop may set two days in a week for operating the casting machine,
and the craftsman may have to wait for these days for his work-in-process to proceed.
This is one reason why the casting process is often outsourced by workshops to
independent casting units in the jewelry cluster. These independent units run their
casting plates every day; hence the casting process does not prove to be a bottleneck for a
craftsman.
On getting the casted design, the craftsman gives a finishing to the casted pieces.
Locally manufactured casting machine and its accessories would cost about three and
half lacks-, whereas imported machines German or Italian are much costly then these.
6.1.6 Engraving
Most jewelry design often requires engraving whereby intricate patterns are etched onto
the gold base. Basic engraving may be done at the workshop. However, engraving is a
specialized task, and sophisticated engraving may need to be outsourced to an
independent engraver in the market.
Engraving mainly requires basic chip forming tools such as miniature chisels made of
hardened steel. In proper engraving a sharpened tool is set against the metal at a specific
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angle and pressure applied both own-ward and forward. The tool buries itself into the
sheet, forms a chip, and pushes that curl of metal ahead of it as it cuts.
6.1.7 Finishing
Once the design has been transferred, engraved and design pieces soldiered to form one
item, the craftsman gives the piece a finish technically called deburring before the item
is sent for polishing. Deburring is the removal of all sharp edges, air bubbles and burrs on
a piece.
6.1.8 Polishing and Buffing
Polishing is the use of abrasives to get general surface finish improvement. Buffing is the
step to get a smooth, bright, high luster final finish. There are many different polishing
and buffing compounds. An often-used breakdown of compounds is:
Cutting Compounds: These include the brown Tripoli and bobbing compound
Intermediate Compounds: These include Gray Tripoli, Graystar, white diamond, and
crocus. Platinum Tripoli and yellow bobbing compound.
Polishing Compounds: Some polishing compounds are red rouge, yellow rouge, white
rouge, black rouge, green rouge.
Super Finish Compounds: Blue rouge, Blue magic, Fabuluster, and Zam.
The Polishing and Buffing process is performed on buffing wheels. There are buffing
wheels to go with different types of compounds being used. There are cotton wheels,
chamois wheels, bristle brush wheels and more. Cotton buffing wheels are the most
common, felt wheels are also popular as are the brushes. Chamois wheels are great for
final buffing, but they are also fairly expensive.
Polishing may take one to three days depending on the item being polished and buffed.
The polisher is paid in kind that is considered as wastage by the jeweler. A polisher sets
his rate in terms of 500mg on 11.5g (1 tola) of gold. This means that if a polisher is given
13g of gold to polish, and after polishing the weight of gold goes down to 12.5 g, then
500mg was his compensation. If the weight lessens by more than the set rate, the goldjeweler will write the excess amount payable by the polisher and will be adjusted at the
end of a month when the polisher will melt his gold and pay off the excess to the
jeweler.
6.1.9 Beading and Stone Studding
Beading and gem studding process occurs after the finishing, polishing and buffing of the
main gold base of the jewelry item.
Beading is the stringing of gem beads on to the main gold jewelry item. There is often a
beader in every workshop whose job is only to put on the beads on to the gold jewelry.
Gem studding is fixing of gem stones on to the jewelry. While some workshops may have
their own gem studder, most of the workshops outsource the gem / stone studding to an
independent stone setter. Stone setting may take two to three days.

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6.1.10 Gold Recovery


On completing the gold jewelry items the craftsman must return to the jeweler who had
given the order the same amount of gold in terms of jewelry and scrap net of a fixed rate
of wastage. For example, if the jeweler had given the craftsman 30g of gold (24k) for a
necklace requiring 15 grams of gold, then the craftsman has to return gold in terms of 15
grams constituting the necklace and 13.2 grams in scrap gold after netting wastage at 6%
(1.8 grams of gold).
6.2

Casting Process and Machinery Requirement

If a new design is to be casted, the first step to casting is making a model of the design by
hand either with gold, silver or iron. The model is then used to make a rubber mold
known as dye. For this process, rubber that comes in rolls and is known as Casting
Rubber is heated, using a Dye Press Machine, under pressure and flows around the
prototype making a mold. When cool it is then is cut apart leaving a cavity in the rubber
in the shape of the original piece. Wax Injector machines are used to inject molten wax is
into the rubber mold creating a wax copy of the original. The wax model is attached to a
rubber base with a heating pen like device known as Waxer with a number of others into
a tree like form in the process known as sprueing.
The wax tree is then surrounded by a metal cylinder called a flask which fits onto the
rubber base. This cylinder is then filled with plaster which has been mixed under vacuum
in a vacuum machine to draw out the air it contains. The plaster encases the wax pieces
and then hardens. The base is removed and the assembly is placed in a Gas Furnace. The
flasks with the plaster encased waxes are heated overnight to 1350 degrees which burns
away the wax leaving cavities in the plaster in the shape of the original pieces.
Gold is melted in a flask like attachment on a casting machine. The flasks of plaster that
are ready from the Gas Furnace are put on the Cast Machine that is turned on. The caste
machine, using system of pressure makes the molten gold travel into the plaster mold
while at the same time removes trapped air and gases.
When the process is done, the plaster is broken off and the tree is then put under a
motorized pressure machine that washes away any remaining plaster. The gold tree is
then dipped into nitric acid and heated with a blow torch to get the gold color on the gold
caste pieces. The caste pieces are then cut away from the base and are sanded and filed
to remove traces of the spruce, mold lines and any imperfections. The pieces are
oxidized if required and undergo a multiple step tumbling process using different grit
media to achieve the final desired finish.
6.2.1 Supply of Machineries
As mentioned above, most of the gold manufacturing machinery is made in Pakistan.
Gujranwala is the hub where most of the locally made gold manufacturing machinery is
manufactured. The suppliers are concentrated in Sadar bazaar of Gujranwala. Simple
machines like motorisd polishing and buffing machines can be bought from any Sarafa or
old city bazaar of main urban centers.
Earlier, casting machines had to import from either Italy or German. The main suppliers
through which the imported casting machines were bought are located in Karachi. Some
26
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Pre-feasibility Study

Gold Jewelry Manufacturing & Retail Shop

of the suppliers of imported casting machines have now started manufacturing (with
some imported parts) the casting machines and equipment themselves.6
6.3

Jewelry Item Manufacturing Time

Table 6-1 below gives an average time for a medium sized workshop to produce the
respective jewelry items.
Table 6-1: Jewelry Item Manufacturing Time
Item
Ring
Bangle
Earring
Chain
Necklace
Teeka
Jhoomer
Nose pin
Pendant
Baazoband
Bridal set

Time
1-2 days
1 week
2-3 days
3 days
1 week
1 day
3 days
1 day
2 days
5 days
1 month

The time taken on completion of a small order is not far less than time taken for a bridal
set because of the way craftsmen schedules the work on order. Craftsmen prefer to work
on larger items since for almost a similar amount of concentration the craftsmens
earning on a large item is far greater than his earning on a smaller item.
6.4

Raw Material

Table 6-2 below lists the main raw material needs and the purpose for their use. The
monthly requirement assessment for each raw material is based on the workshop
operations at 41,400 grams / year.

One such supplier is Ayub Brothers Engineering Works and Alay Casting Equipment. Phone# 0212254747, Address: LR9/14, Amil Street, Wahab Road, Ghazi Nagar, Karachi 3.
6

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Pre-feasibility Study

Gold Jewelry Manufacturing & Retail Shop

Table 6-2: Raw Material Required


Raw Material
Casting Rubber

Purpose
For making casting dyes for new designs

Whip Mix Jewelry Investment Powder


(Plaster)
Wax
Nitric Acid

Required in the process of casting

Surf / Detergent
Coloring Chemicals
6.5

Required in the process of casting


For bringing out the color of gold after
casting process and during polishing
Required during polishing and buffing
process
Required to change color of gold jewelry
item after finishing process

Miscellaneous Expense

Miscellaneous office expense includes:


Stationary expense: Printing (receipt vouchers, business cards, etc), writing material
(pens, pencils, ink pads...etc);
Tea and entertainment expense for loyal customers and employees;
Commuting expense (visits to workshops, suppliersetc).
Other non-recurring expenses.
6.6

Initial Investment in Gold Jewelry Stock

The retail unit of the integrated modeled enterprise will begin operations with initial
stock level one month for Jewelry Manufacturing. Total raw material inventory for Year
0 will be of Rs. 8,157,813.
6.7

Machinery Requirement

A basic gold manufacturing workshop can be set up quite inexpensively. Cutting


(separating materials), soldered construction and finishing are the three main things that
jewelers do. However the more processes included within the workshop, the greater the
level of investment. The model subject to this study includes the following processes and
the tools, equipment and machines required are in accordance.
The workshop of this model has the capacity to perform all processes. The only process it
out sources is gold refining and mixing. Processes performed in the workshop are:
1. Gold refining and Mixing
2. Handcrafting of jewelry by engravers and craftsmen
3. Polishing
4. Finishing
5. Gem / stone Beading
6. Gem Studding
7. Casting
For this purpose the tools, equipment and machinery requirements are as follows:
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Pre-feasibility Study

Gold Jewelry Manufacturing & Retail Shop

Table 6-3: Details of Machinery & Equipment


Machines, tools and
equipment
Wire Making Machine
and accessories
Plate Making Machine
and accessories
Wax Casting Machine
& Equipment
Polishing Machine and
Accessories
Tool set for craftsmen
Tools for gem studders
Digital scale
Total

No. of
Units

Price /
unit (Rs)

Place of Origin
/Manufacturing
Gujranwala,
20,000
Lahore
Gujranwala,
20,000
Lahore
Karachi
150,000

20,000

20,000

150,000

10,000

10,000

5
2
1
-

16,000
10,000
11,800
-

80,000
20,000
11,800
311,800

Total Cost (Rs)

Gujranwala
Gujranwala
Gujranwala
Chinese / Italian
-

Most of the above mentioned tools and machines are manufactured locally. Gujranwala
specializes not only in gold jewelry making tools, equipment and machinery, but also in
terms of furnishings (like special safes) required by gold jewelry retail outlet. However,
some machines like gold plate making and wire making machines are also manufactured
in Faisalabad and Lahore.
There are clusters of Gold jewelry related tools and machine manufacturing and are
located in Sadar bazaar in each of the three main cities mentioned above.
The general practice amongst the jewelry manufacturers is to use locally made tools and
machinery. Machines generally imported are chain making, bangle making and casting
machines. The main origin of imported machines is primarily Italy or Germany. Till
recently, casting machines had to be imported as electricity based casting machines were
not being manufactured in Pakistan. Casting machines are now being manufactured in
Karachi at a small scale. Interviews with users with locally manufactured casting
machines have expressed their satisfaction with the latter. Because the enterprise subject
to this model deals primarily with hand crafted jewelry and casted jewelry component or
whole items constitute only small portion of total output, the model enterprise invests in
locally manufactured casting machine and equipment.
6.8

Furniture & Fixtures

Furnishing and fittings required for a workshop is estimated to cost around Rs. 199,000/which includes design department furniture, work stations for craftsmen, chairs, safe and
split Acs.
Furniture and Fixture of retail outlet will cost Rs. 1,358,600/-. The renovation of Out let
is estimated at Rs. 1,200,000/-. Beside this furniture include counters, office chairs,
visitor chairs, safes, Split Ac, weighing scale and hand tools.
Table 6-4 below shows the break-up of the cost for furniture and fixture for both the
retail and the workshop unit.
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Pre-feasibility Study

Gold Jewelry Manufacturing & Retail Shop

Table 6-4: Furniture and Fixture


Cost Items
Retail Unit
Counter Table
Counter Chairs
Visitors Chairs
Renovation of Outlet
Safe
Office table and chairs for Design
Department
Hand tools (magnifying glass, gem
inspection glass, ring size gauge
.etc)
Work station for Craftsmen
Chairs for workers
Air Conditioners (Split 1.5 ton)
Total Furniture and Fixture Cost

Units

Unit Cost

Total Cost

1
4
8
1

20,000
9,000
2,600
1,200,000

2
2

20,000
25,000

40,000
50,000

10,000

10,000

6
10
3

4,000
2,500
40,000

24,000
25,000
120,000
1,545,800

20,000
36,000
20,800
1,200,000

Mostly Gold jewelry retailers contract for fixtures like lockers and showcases and
decided upon after consultation with and recommendation of other jewelers who have
had experience in acquiring those items. The whole industry runs on the basis of trust and
word-of-mouth reputation. Jewelers tend not to recruit un-vouched for suppliers or
workers. However, Gujranwala specializes in specialized lockers for gold jewelry retail
shops.

7 LAND & BUILDING REQUIREMENT


7.1

Land Requirement

7.1.1 Rent
Rent varies with space and location. For workshop, the location may be within jewelry
cluster or outside it. The rents and rates within the jewelry cluster tend to be higher. For
example, a workshop within the jewelry cluster would seek rent of Rs. 25,000/- per
month whereas the same nature of space further to the jewelry cluster may seek only Rs.
12,000/- per month. This model assumes a workshop located within the jewelry cluster.
Hence the monthly rent for the first year is Rs. 25,000/- per month with annual increase
of 10%.
The rent for the gold jewelry retail shop of 500 square feet located in a central shopping
centre of a major urban city, is estimated to be around Rs. 75,000/- month and is
estimated to increase at 10% annually.
The rent for both the workshop and retail shop is often pre-paid in terms of lease.

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Pre-feasibility Study

7.2

Gold Jewelry Manufacturing & Retail Shop

Utilities Requirement

A medium sized 500 square feet sized retail shop that is open six days a week for about
10 hours / day, tends to incur electricity bill worth about Rs. 538,500 / Year. This
amounts to a monthly average of Rs. 44,875/- after considering the fact that electricity
bill tends to be higher in summers and lower in winters.
Currently established gold jewelry manufacturing workshops concludes electricity
amount on average Rs. 38,875/ month. The main electricity usage in the workshop will
be in terms of lighting and operation of machines such as wire and plate making,
polishing and most significantly, the casting machine and of Air Conditioners which will
be placed in production room and Design Department.
There will be total three telephone lines, one in outlet and 2 in work shop. Average
telephone bill for one line is Rs. 1000/.

8 HUMAN RESOURCE REQUIREMENT


The model enterprise recruits all employees on monthly salary basis. Table 8-1 shows the
remuneration scheme for the employees employed in both the retail and manufacturing
units. The monthly salary cost of the retail unit is Rs. 91,500/- while the monthly salary
cost of the planned workshop is Rs. 334,000.
Salaries are expected to be raised at 10% annually.
Table 8-1: Human Resource Required and Remuneration Plan
Designation /
Responsibility
Retail Unit
Shop Manager
Sales Assistant
Errand Boy
Guard
Manufacturing Unit
Designer
Assistant Designer
Chief craftsman
Craftsmen
Beader
Studder
Polisher
Casting Machine
operator
Gaurd

No of
Employees

Monthly Salary /
Employee

Annual Salary
Rs. 000

1
2
1
1

50,000
12,000
7,500
10,000

600
288
90
120

1
1
1
6
2
2
2
1

70,000
30,000
35,000
15,000
12,000
18,000
12,000
15,000

840
360
420
1,080
288
432
288
180

10,000

120
5,106

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Pre-feasibility Study

Gold Jewelry Manufacturing & Retail Shop

9 FINANCIAL ANALYSIS
9.1

Projected Income Statement

Calculations

SMEDA

Income Statement
Year 1
113,001,300

Year 2
162,167,969

Year 3
218,569,195

Year 4
288,502,307

Year 5
374,798,482

Year 6
457,703,471

Year 7
529,396,533

Year 8
610,976,538

Year 9
705,128,023

Rs. in actuals
Year 10
813,788,251

97,893,750
2,691,000
34,500
466,500
101,085,750
11,915,550

140,487,150
3,059,992
45,045
513,150
144,105,338
18,062,631

189,347,894
3,361,272
55,235
564,465
193,328,866
25,240,329

249,931,396
3,691,291
66,332
620,912
254,309,931
34,192,376

324,690,326
4,053,037
78,400
683,003
329,504,765
45,293,717

396,511,448
4,458,534
87,106
751,303
401,808,391
55,895,079

458,619,607
4,903,376
91,663
826,433
464,441,079
64,955,454

529,292,889
5,380,776
96,246
909,077
535,678,987
75,297,552

610,856,923
5,904,656
101,058
999,984
617,862,621
87,265,402

704,989,975
6,479,541
106,111
1,099,983
712,675,610
101,112,642

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

2,298,000
68,940
1,200,000
538,500
114,900
172,350
229,800
565,007
213,060
84,800
5,485,357
6,430,194

2,521,737
75,652
1,320,000
592,350
126,087
189,130
252,174
621,507
213,060
84,800
5,996,496
12,066,135

2,767,256
83,018
1,452,000
651,585
138,363
207,544
276,726
683,658
213,060
84,800
6,558,010
18,682,319

3,036,680
91,100
1,597,200
716,744
151,834
227,751
303,668
752,024
213,060
84,800
7,174,861
27,017,515

3,332,336
99,970
1,756,920
788,418
166,617
249,925
333,234
827,226
213,060
84,800
7,852,505
37,441,211

3,656,777
109,703
1,932,612
867,260
182,839
274,258
365,678
909,949
213,060
8,512,135
47,382,944

4,012,806
120,384
2,125,873
953,986
200,640
300,960
401,281
1,000,943
213,060
9,329,933
55,625,520

4,403,498
132,105
2,338,461
1,049,384
220,175
330,262
440,350
1,101,038
213,060
10,228,333
65,069,219

4,832,229
144,967
2,572,307
1,154,323
241,611
362,417
483,223
1,211,142
213,060
11,215,278
76,050,124

5,302,702
159,081
2,829,537
1,269,755
265,135
397,703
530,270
1,332,256
213,060
12,299,498
88,813,143

Other income (interest on cash)


Earnings Before Interest & Taxes

15,000
6,445,194

12,066,135

147,231
18,829,551

577,318
27,594,833

1,369,642
38,810,854

2,696,330
50,079,274

4,509,155
60,134,675

6,694,357
71,763,576

9,291,538
85,341,662

15,703,597
104,516,740

Interest on short term debt


Interest expense on long term debt (Project Loan)
Interest expense on long term debt (Working Capital Loan)
Subtotal
Earnings Before Tax

202,614
193,796
739,228
1,135,638
5,309,556

218,878
162,857
618,647
1,000,382
11,065,753

16,264
126,662
477,294
620,220
18,209,331

84,320
311,590
395,909
27,198,924

34,785
117,340
152,124
38,658,729

50,079,274

60,134,675

71,763,576

85,341,662

104,516,740

Tax
NET PROFIT/(LOSS) AFTER TAX

1,327,389
3,982,167

2,766,438
8,299,315

4,552,333
13,656,998

6,799,731
20,399,193

9,664,682
28,994,047

12,519,818
37,559,455

15,033,669
45,101,006

17,940,894
53,822,682

21,335,415
64,006,246

26,129,185
78,387,555

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

32
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Pre-feasibility Study

9.2

Gold Jewelry Manufacturing & Retail Shop

Projected Cash Flow Statement

Calculations

SMEDA

Cash Flow Statement


Year 0
Operating activities
Net profit
Add: depreciation expense
amortization of pre-operating costs
amortization of training costs
Deferred income tax
Accounts receivable
Finished goods inventory
Equipment inventory
Raw material inventory
Pre-paid building rent
Accounts payable
Cash provided by operations
Financing activities
Project Loan - principal repayment
Working Capital Loan - principal repayment
Short term debt principal repayment
Additions to Project Loan
Additions to Working Capital Loan
Issuance of shares
Purchase of (treasury) shares
Cash provided by / (used for) financing activities
Investing activities
Capital expenditure
Acquisitions
Cash (used for) / provided by investing activities
NET CASH

Year 1

Year 2

Year 3

Year 5

Year 6

53,822,682
213,060
(7,795)
(1,469,742)
(2,968,246)
(2,314)
(13,145,470)
(233,846)
3,444,890
39,653,219

Year 9
64,006,246
213,060
(7,795)
(1,685,096)
(3,424,318)
(2,551)
(15,929,746)
(257,231)
4,006,896
46,919,466

Rs. in actuals
Year 10

13,656,998
213,060
84,800
(1,012,295)
(2,057,227)
(2,648)
(6,714,232)
(145,200)
2,284,431
6,307,686

20,399,193
213,060
84,800
(1,211,425)
(2,548,120)
(3,085)
(8,778,024)
(159,720)
2,851,056
10,847,736

28,994,047
213,060
84,800
(1,498,089)
(3,141,498)
(2,646)
(9,283,094)
(175,692)
3,454,386
18,645,274

1,277,300
4,931,781
6,209,081

(182,148)
(699,948)
-

(213,087)
(820,529)
(2,352,272)
-

(249,282)
(961,882)
(188,816)
-

(291,624)
(1,127,586)
-

(341,159)
(1,321,836)
-

12,418,163

(882,096)

(3,385,888)

(1,399,980)

(1,419,210)

(1,662,995)

(9,363,563)

45,101,006
213,060
(7,795)
(1,482,447)
(2,572,900)
(2,098)
(10,847,843)
(212,587)
2,998,465
33,186,861

Year 8

8,299,315
213,060
84,800
(471,461)
(1,651,345)
(2,267)
(5,103,712)
(132,000)
1,960,682
3,197,072

(5,750)
(8,157,813)
(1,200,000)

37,559,455
213,060
(7,795)
(1,622,477)
(2,985,589)
(1,944)
(9,044,490)
(193,261)
3,323,682
27,240,641

Year 7

3,982,167
213,060
84,800
38,975
(2,167,148)
(4,395,033)
(2,133)
(4,134,813)
(120,000)
4,529,949
(1,970,176)

78,387,555
213,060
(7,795)
(1,944,770)
(3,950,541)
27,435
91,139,237
2,829,537
122,114
166,815,832

(2,554,600)

(2,554,600)

500,000

(2,852,272)

(188,816)

4,907,706

33
PREF-87/ August, 2012/ Rev 2

Year 4

9,428,525

16,982,279

27,240,641

33,186,861

39,653,219

46,919,466

166,815,832

Pre-feasibility Study

9.3

Gold Jewelry Manufacturing & Retail Shop

Projected Balance Sheet

Calculations

SMEDA

Balance Sheet
Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Rs. in actuals
Year 10

500,000

2,638,609
6,046,378
10,149
17,396,338
1,452,000
27,543,474

4,907,706
3,650,904
8,103,605
12,798
24,110,569
1,597,200
42,382,783

14,336,232
4,862,329
10,651,725
15,883
32,888,593
1,756,920
64,511,682

31,318,510
6,360,419
13,793,223
18,529
42,171,688
1,932,612
95,594,980

58,559,151
7,982,895
16,778,812
20,473
51,216,178
2,125,873
136,683,382

91,746,012
9,465,342
19,351,712
22,571
62,064,021
2,338,461
184,988,119

131,399,232
10,935,084
22,319,958
24,885
75,209,491
2,572,307
242,460,956

178,318,697
12,620,181
25,744,276
27,435
91,139,237
2,829,537
310,679,363

345,134,530
14,564,951
29,694,817
389,394,297

Assets
Current assets
Cash & Bank
Accounts receivable
Finished goods inventory
Equipment spare part inventory
Raw material inventory
Pre-paid building rent
Total Current Assets

5,750
8,157,813
1,200,000
9,863,563

2,167,148
4,395,033
7,883
12,292,626
1,320,000
20,182,689

Fixed assets
Machinery & equipment
Furniture & fixtures
Office equipment
Total Fixed Assets

311,800
1,545,800
273,000
2,130,600

280,620
1,391,220
245,700
1,917,540

249,440
1,236,640
218,400
1,704,480

218,260
1,082,060
191,100
1,491,420

187,080
927,480
163,800
1,278,360

155,900
772,900
136,500
1,065,300

124,720
618,320
109,200
852,240

93,540
463,740
81,900
639,180

62,360
309,160
54,600
426,120

31,180
154,580
27,300
213,060

424,000
424,000
12,418,163

339,200
339,200
22,439,429

254,400
254,400
29,502,354

169,600
169,600
44,043,803

84,800
84,800
65,874,842

96,660,280

137,535,622

185,627,299

242,887,076

310,892,423

389,394,297

4,529,949
2,352,272
6,882,221

6,490,631
188,816
6,679,447

8,775,061
8,775,061

11,626,118
11,626,118

15,080,504
15,080,504

18,404,187
18,404,187

21,402,652
21,402,652

24,847,541
24,847,541

28,854,438
28,854,438

28,976,551
28,976,551

38,975
1,095,152
4,231,833
5,365,960

38,975
882,065
3,411,304
4,332,345

38,975
632,784
2,449,422
3,121,181

38,975
341,159
1,321,836
1,701,970

38,975
38,975

31,180
31,180

23,385
23,385

15,590
15,590

7,795
7,795

6,209,081
3,982,167
10,191,248
22,439,429

6,209,081
12,281,482
18,490,563
29,502,354

6,209,081
25,938,479
32,147,561
44,043,803

6,209,081
46,337,672
52,546,753
65,874,842

6,209,081
75,331,719
81,540,800
96,660,280

6,209,081
112,891,174
119,100,256
137,535,622

6,209,081
157,992,181
164,201,262
185,627,299

6,209,081
211,814,863
218,023,944
242,887,076

6,209,081
275,821,109
282,030,191
310,892,423

Intangible assets
Pre-operation costs
Total Intangible Assets
TOTAL ASSETS
Liabilities & Shareholders' Equity
Current liabilities
Accounts payable
Short term debt
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

1,277,300
4,931,781
6,209,081

6,209,081
6,209,081
12,418,163

34
PREF-87/ August, 2012/ Rev 2

6,209,081
354,208,665
360,417,746
389,394,297

Pre-feasibility Study

Gold Jewelry Manufacturing & Retail Shop

10 KEY ASSUMPTIONS
Table 10-1: Assumptions Related to the Scope of Operations
Aspect
Scope
In-House Operations
Scale
Legal Status

Assumption
Gold Jewelry Retailing and Manufacturing
Retailing and Manufacturing
Medium
Sole proprietorship

Table 10-2: Operating Assumptions


No of working Days in a year
No of working Hrs in a Day
No of Outlets
Working Hrs of Out Let

330
8
1
10

Table 10-3: Expenses and Growth Rate


Sale Price Growth Rate
15.41%
Salaries, wages growth rates (as %age of 10%
annual Salaries and Wages)
Electricity
Avg. units consumed per
(Approx)
Rate per Unit
Annual rate of Increase %

month 800
20
10%

Outlet Rent per month

Rs. 75,000

Shop rent growth rate

10%

Work Shop Rent Per Month

Rs. 25,000

Work Shop rent growth rate

10%

Table 10-4: Financial Assumptions


Debt to Capital Ratio
Interest rate on Long Term debt
Debt Tenure

50:50
16%
5 Years

Interest on Cash in Bank

6%
35

PREF-87/ August, 2012/ Rev 2

Pre-feasibility Study

Gold Jewelry Manufacturing & Retail Shop

Accounts Payable Days

15

Accounts Receivable

Table 10-5: Stock Level Assumptions


Raw Material Inventory
Equipment Spare part Inventory

30 Days
60 Days

Finished Goods Inventories

15 Days

Table 10-6: Other Expenses Assumptions


Operating Cost Growth Rate

5%

Traveling Expenses

5% of Admin Expense

Communication expenses
Office Expenses (Stationary, Entertainment,
Janitorial etc of Admin Exp)
Promotional Expenses (of Sales)
Machinery Depreciation Rate
Furniture Depreciation Rate

7.5% of Admin Expense


10% of Admin Expense

36
PREF-87/ August, 2012/ Rev 2

0.5% of Revenue
10%
10%

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