Pre-Feasibility Study

COTTON TOWELS MANUFACTURING UNIT

Small and Medium Enterprise Development Authority

Government of Pakistan
www.smeda.org.pk

HEAD OFFICE
6th Floor LDA Plaza Egerton Road, Lahore
Tel 111 111 456, Fax: 6304926-7 Website www.smeda.org.pk
Helpdesk@smeda.org.pk
REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE
PUNJAB SINDH NWFP BALOCHISTAN

8th Floor LDA Plaza Egerton 5TH Floor, Bahria Ground Floor Bungalow No. 15-A
Road, Lahore Complex II, M.T. Khan Road, State Life Building Chaman Housing Scheme
Tel 111 111 456, Fax: Karachi. The Mall, Peshawar. Airport Road, Quetta.
Tel: (021) 111-111-456 Tel: (091) 9213046-47 Tel: (081) 831623, 831702
6304926-7 Website Fax: (021) 5610572 Fax: (091) 286908 Fax: (081) 831922
www.smeda.org.pk Helpdesk-khi@smeda.org.pk helpdesk-pew@smeda.org.pk helpdesk-qta@smeda.org.pk
helpdesk@smeda.org.pk

January 2007
Pre-Feasibility Study Cotton Towels Manufacturing Unit

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. Therefore,
the content of this memorandum should not be relied upon for making any decision,
investment or otherwise. The prospective user of this memorandum is encouraged to
carry out his/her own due diligence and gather any information he/she considers
necessary for making an informed decision.
The content of the information memorandum does not bind SMEDA in any legal or other
form.

DOCUMENT CONTROL
Document No. PREF-63

Revision 2

Prepared by SMEDA-Punjab

Issue Date 2003

Revision Date January , 2007

Issued by Library Officer

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Pre-Feasibility Study Cotton Towels Manufacturing Unit

1 INTRODUCTION TO SMEDA 4
2 PURPOSE OF THE DOCUMENT 4
3 PROJECT BRIEF 4
3. 1 Opportunity Rationale 5
3. 2 Proposed Capacity 5
3. 3 Total Project Cost 5
3. 4 Production Process Flow 6
4 CURRENT INDUSTRY STRUCTURE 7
5 MARKETING 8
5. 1 Guidelines for Towels Export Business- Key Success Factors 8
5. 2 Total Market Size and Growth 9
5. 3 Major Exporters 9
5. 4 Major Importers 10
6 RAW MATERIALS 10
7 MACHINERY DETAILS 11
8 HUMAN RESOURCE REQUIREMENT 12
9 LAND & BUILDING 13
9. 1 Total Land Requirement 13
9. 2 Covered Area Requirement 13
9. 3 Recommended Mode 14
9. 4 Suitable Locations 14
9. 5 Utilities Requirement 14
10 PROJECT COST 15
10. 1 Initial Project Cost 15
10.2 Estimated Time for Project Completion 16
11 KEY SUCCESS FACTORS 16
12 THREATS FOR THE BUSINESS 17
13 REGULATIONS 17
14 KEY ASSUMPTIONS 17
15 FINANCIAL STATEMENTS 18
15. 1 Projected Income Statement 18
15. 2 Projected Cash flow Statement 19
15. 3 Projected Balance Sheet 20

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Pre-Feasibility Study Cotton Towels Manufacturing Unit

1 INTRODUCTION TO SMEDA
The Small and Medium Enterprise Development Authority (SMEDA) was established
with the objective to provide fresh impetus to the economy through the launch of an
aggressive SME support program.
Since its inception in October 1998, SMEDA adopted a sectoral SME development
approach where key sectors were selected on the criterion of SME presence. In depth
research was conducted and comprehensive development plans were formulated after
identification of impediments and retardants. The all-encompassing sectoral development
strategy involved overhauling of the regulatory environment by taking into consideration
other important aspects including finance, marketing, technology and human resource
development.
SMEDA has so far successfully formulated strategies for key sectors including, Fruits &
Vegetables, Marble & Granite, Gems & Jewelry, Marine Fisheries, Leather & Footwear,
Textiles, Surgical Instruments, Transport and Dairy. Whereas the task of SME
development at a broader scale still requires more coverage and enhanced reach in terms
of SMEDA’s areas of operation.
Along with the sectoral focus a broad spectrum of Business Development Services is also
being offered to the SMEs by SMEDA. These services include identification of viable
business opportunities for potential SME investors. In order to facilitate these investors,
SMEDA provides Help Desk Services as well as development of project specific
documents. These documents consist of information required to make well researched
investment decisions. Pre-feasibility Studies and Business Plan Development are some of
the services provided to enhance the capacity of individual SMEs to capitalize on viable
business opportunities.

2 PURPOSE OF THE DOCUMENT

Pre-feasibility studies are developed primarily to facilitate potential entrepreneurs in
project identification for investment. Pre-feasibility Studies may form the basis on which
an important investment decision maybe made. The document covers various aspects of
the business venture from project concept development to, financing and business
management

3 PROJECT BRIEF
Towel is an important product used in every day life. Towels and its allied products
constitute an important sector of textile industry. In made ups, towels sub-sector is the
second largest after bedwear in terms of production and exports. Towels are
manufactured in various sizes, shapes and qualities depending upon customers’
requirements.
The proposed project is for setting up a Towels Manufacturing Unit. This will be a
vertically integrated unit including the facility of weaving, dyeing, finishing and
stitching. Most of its production will be for export purpose as this is an export-oriented
order based industry, hence contributing towards the earnings of foreign exchange for the
country. There is a vast range of towel products like towels, terry towels, warp pile

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Pre-Feasibility Study Cotton Towels Manufacturing Unit

fabric, dish cloth, wash cloth, floor cloth, bar mops, bathrobes, bath mats, dusters, kitchen
towels etc. All the calculations and financial workings have been done while treating this
as an export based project.
The yarn used in the production of towels is 10/s, 16/s and 20/s cotton, polyester/cotton
yarn is also used to increase the strength of the product. Pakistan Towel Industry
produces a complete range of towels which include hand towels, bath towels, face towels,
kitchen towels, wash cloths, etc., available in rich assortment of patterns and designs in
eye-catching colors. The towel manufacturers in Pakistan also produce a large range of
allied products of towels including, terry bar mops, terry bathrobes, terry face towels,
terry wash cloths, shop towels, terry gloves, terry pillow covers, terry coverlets and all
other terry made-ups as desired by the buyers.

3. 1 Opportunity Rationale
Exports of towel products from Pakistan constitute a major share of the world market.
Pakistan has approximately 8% share in the world market of towel products1. The annual
average growth rate in the value of exports from Pakistan in the recent five years has
been 8% for towels2.
The international demand for towels is increasing at a fast rate due to the reasons that
European Union has recently withdrawn duties from Pakistan and also due to the
population trends resulting into increase in consumption of related products.
Pakistan’s largest market is USA, about two third of Pakistani exporters provide towels to
USA3. More than 50% of world exports of towels come from Asia. The market share of
Asia in world exports is increasing due to lower labor costs. Pakistan has a good share in
exports from Asia. The availability of suitable raw material and development of certain
skill levels are the favoring factors for further establishment of Towel industry in the
country. Towels of Pakistan have won the appreciation of customers all over the world.
Jacquard towels, woven with double yarn in floral patterns and rich colors, speak
volumes for their excellent craftsmanship. Beautiful, absorbent, smooth, white and dyed
Pakistani towels are exported to Europe, United States, Canada and to all other countries
earning substantial foreign exchange for the country.

3. 2 Proposed Capacity
The proposed capacity of this unit is 20 looms producing 150 tons of towels per annum
based on daily two shifts of 8 hours for 300 days. This unit has the capability for
horizontal as well as vertical integration.

3. 3 Total Project Cost

The total project cost of this Cotton Towel Manufacturing unit is Rs. 38.9 million.

1
Textile Vision 2005
2
TMAP Special Report No. 14 – The News
3
Textile Vision 2005

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3. 4 Production Process Flow

Purchase of Quality Warping Sizing of

Yarn Inspection of Yarn Yarn

Production of Heating of Dyeing of Fabric Alignment

Grey Fabric Fabric in Kier Fabric in Drying of Fabric in
on Looms Winch Stenter

Tumbling and Cutting of Stitching and Packing of

Finishing in Fabric Labeling of Towels
Tumble Towels

Most of the towel industry is classified as constituted of small and medium sized units
having smaller productions, and mostly manufacturers do not have complete processing
facilities. The woven towel is sent to independent processing units. This reduces the
capital cost of the manufacturers, but at the same time, increases the quality cost. Quality
control becomes very difficult when processing is sub-contracted. The decision to
establish an in-house processing facility is supported by the fact that orders that a
manufacturer gets from buyers are in line with the manufacturing capabilities, so there is
a need to invest in modern processing facilities. Since this is an export-oriented industry,
so quality is the most important tool that a manufacturer can use to achieve good price
and market share of its product through the modern processing facilities. For a new
entrant, it may be difficult to fetch orders without any proper production facility.
Another important processing step is drying. Since the weight per unit area is higher for a
towel as compared to other woven fabrics, so drying time is relatively higher. Majority of
the manufacturers uses atmospheric drying in the sunlight. Large manufacturers have
their own hydroextractors that improve the quality of their final product. Due to the
quality issues, a hydroextractor has been recommended for this project.
Final operation is cutting and stitching. This is fairly a simple operation and does not
require much expertise. There are no major technology issues in this operation of towel
manufacturing.
A complete towels unit with looms and dyeing section has been recommended instead of
outsourcing some of the processing functions. According to industry sources, it is
difficult to get the production processed on regular basis from other units because the
unit, which is giving good quality, usually remains busy. Outsourcing results into
increased costs of production hence reducing profits. Most of the export-oriented units in
the country have their own processing facilities.

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4 CURRENT INDUSTRY STRUCTURE

The Towel Industry of Pakistan comprises of approximately 300 manufacturers and
exporters with a diverse range of towel products. The towel industry relies largely on
locally manufactured machines to produce products that have a good demand in the
international market. Pakistani exporters have been able to sell towel products on
competitive prices and have made considerable progress in terms of value addition and
quality issues over the last 10 years. The exports of towel and allied products have
increased substantially despite the stagnation in country’s exports. Following is the
geographical split of manufacturers and exporters in Pakistan:

Table 4-1: Geographical Split of Towels Manufacturers and Exporters in Pakistan4

Northern Region Number of units
Lahore 14
Kasur 3
Faisalabad 4
Gujranwala 17
Multan 1
Others 6
Total for Northern Region 45
Southern Region Number of units
Karachi 255
Total for Southern Region 255

Table 4-2: Towels Manufacturers in Northern Region – Exporters and Local

Sellers5
Northern Region Number of units
Local Sellers 29
Local Sellers and Exporters 7
Medium Exporters 6
Large exporters 3
Total 45

Table 4-3: Towels Manufacturers in Southern Region – Exporters and Local Sellers
Southern Region Number of units
Local Sellers 27
Local Sellers and Exporters 22
Medium Exporters 200
Large exporters 6
4
Source: Towels Manufacturers Association of Pakistan - TMAP
5
Source: Towels Manufacturers Association of Pakistan - TMAP

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Southern Region Number of units

Total 255

It is obvious from the above table that major concentration of this industry is in the
southern region of the country. This is due to the initial development of industry in
Karachi and the fact that manufacturers can avoid transportation costs from
manufacturing units to ports. In addition, many imported chemicals used in dyeing
process are available at lower prices in Karachi. This industry is characterized by
majority of the manufacturers and exporters located in few major cities.
The above manufacturers and exporters of towels products have diverse production
facilities ranging from complete vertically integrated units, to stitching units, from
weaving units to dyeing units, etc. A few are also working as commercial exporters
without any production facility.
According to the estimates given by industry sources, approximately 90% of the revenues
generated by this industry are from exports while 5% of the rejected exports are sold in
the local market, and remaining 5% comes from local requirements.

5 MARKETING
In view of the fact that main raw material and skilled manpower is available in Pakistan,
the scope for towel exports from Pakistan is unlimited. However, marketing is a very
vital aspect of this industry as this is an export oriented order based industry.
Export orders can be obtained through direct marketing in the international markets either
by initiating contacts with potential customers through formal communications or visiting
those countries especially USA, Europe and Gulf countries. The Towel Manufacturers
Association of Pakistan (TMAP) is well organized and has an impeccable record in its
conduct and administration of textile quota and trade fairs. It participates in “Heim
Textile” Fair regularly and organizes space for its members. However, in the absence of
export orders, other factories that have excess export orders can also provide subcontract
work on CMT (cut, make and trim) basis.
TMAP is also involved in getting latest trade inquiries raised from various countries; the
members can also obtain this information to focus their marketing efforts on target
countries.

5. 1 Guidelines for Towels Export Business- Key Success Factors

To enter in the export business of towels, following basic guidelines can provide help to
any new entrant in this business:
1. Ensure good quality at all costs. This is a basic key for a successful exporter.
Therefore, quality issues should be the primary focus. In this respect, a quality
certification can be very helpful in marketing the quality issues related to towels
products. Although, the stress on quality in this industry is not as important as in any
other textile based industry, like, polo shirts, bed sheets, curtains etc. However, a

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certification like ISO 9000 can be helpful in obtaining orders and building an
impression in the eyes of buyers.
2. Commitments with buyers regarding quality, price and shipment are the basic
essentials to enter and grow in the export business.
3. Many towel-manufacturing companies are considering it worthwhile setting up their
overseas offices and warehouses. Overseas office can not only assist in sales, but also
keep the exporter continuously informed about the latest buyer's requirements and
market demands. Warehouses of supplier(s) in the customer's countries make it
convenient for the customer to make the purchase decisions effectively, as in this case
customer gets the required products on LDP (Landed Duty Paid) basis and without
any hassle of being involved in shipment and import procedures.
4. It is very important in successful marketing to be active and quickly responsive to the
customer demands. Being flexible with buyers regarding their requests and
requirements can help to develop mutual understandings with them.
5. Participation in trade fairs is very helpful in knowing customers’ requirements and
obtaining orders. International Trade Fairs provide an excellent opportunity to
introduce a new entrant in the international markets.

5. 2 Total Market Size and Growth

Total global trade value of Towel products is more than US$ 4.0 billion. Cotton Towels
have a substantial share in the total exports of Towel and related products.6

Table 5-1: Trade of Towel Products in World7

Towels Products Percentage Share
Towels 56%
Woven Cotton Pile 30%
Cleaning Clothes 11%
Terry Towel 3%
Total 100%

5. 3 Major Exporters
China is the major exporter of towel products and Pakistan holds second position in the
global exports of towels, with 8 % market share. Total exports in 1997 were $305
million. In Europe, Portugal, Germany and Belgium are the major exporters. Following
are the percentage shares of these countries:

Table 5-2: Percentage Share in World Exports8

Countries Percentage Share
China 28%
Pakistan 8%

6
Source: Textile Vision 2005
7
Source: Textile Vision 2005
8
Source: Textile Vision 2005

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Countries Percentage Share

Portugal 7%
Germany 7%
Belgium 6%
Others 44%
Total 100%

5. 4 Major Importers
Regional distribution of towel imports is quite balanced. Of the six major importers, three
countries belong to Europe, two to Asia and one to American Continent. USA is the top
importer and also has the highest average import growth rate. It is interesting to note that
the average growth rates of all the major importers of towel products have been positive.
Following are the percentage shares of the major countries importing towel products:

Table 5-3: Percentage Share in World Imports9

Countries Percentage Share
USA 19%
Hong Kong 11%
Japan 10%
Germany 8%
UK 8%
France 7%
Others 36%
Total 100%

6 RAW MATERIALS
Following is the list of raw materials, which are used in the manufacturing of towels:
1. Towels fabric is made from 10/s, 14/s, 16/s and 20/s yarn or a mix of cotton-polyester
depending upon requirements of customers.
2. Dyeing chemicals (reactive colors, caustic soda, soda ash, hydrogen per oxide,
common salt, detergent and wetting).
3. Stitching threads.
4. Poly Bags (packing material).

9
Source: Textile Vision 2005

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7 MACHINERY DETAILS
Following combination of machines is required for manufacturing of approximately
150,000 Kgs of towel per annum based on daily two shifts of 8 hours for 300 days in a
year

Table 7-1 Machinery Details

Machines unit Cost per machine Total Cost (Rs)
(Rs)
Looms 20 226,000 4,520,000
Hanks to Cone and Cone to Hanks Winder 1 57,000 57,000
Weft Pirn Winder 1 42,000 42,000
Kier 1 650,000 650,000
Winch 2 350,000 700,000
Hydro-extractor 1 250,000 250,000
Sizing 9 drum with double dip system 1 4,950,000 4,950,000
Warping 1 370,000 370,000
Tumble 1 375,000 375,000
Stenter 1 375,000 375,000
Inspection Rolling Machine 2 375,000 750,000
Boiler 1 3,500,000 3,500,000
Stitching machines 5 40,000 200,000
Cutter 1 100,000 100,000
Other Equipments-Furnace Oil Tank, 499,125
Frames, Trollies and Water Pump
Sales tax 2,600,719
Installation costs for machines Including
Transformer, Cable and Control Panel 1,000,000
Total Cost of installed machinery 39 20,938,844

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8 HUMAN RESOURCE REQUIREMENT

For a unit of 20 looms, following manpower is required:
Table 8-1: Permanent Employees
Salary per Salary
Salary per
Employee No of Employee per per
month
month annum
OPERATING FIXED
COSTS
Chief Executive 1 62,000 62,000 744,000
Export & Marketing 1 45,000 45,000 540,000
Manager
Accountant 1 17,000 17,000 204,000
Accounts Clerk 1 8,000 8,000 96,000
Store Clerk 1 8,000 8,000 96,000
Technician/Electrician 1 6,000 6,000 72,000
Security Guard 4 4,500 18,000 216,000
Peons 2 4,000 8,000 96,000
TOTAL 12 92,500 110,000 2,064,000
PRODUCTION
FIXED COSTS
Production Supervisor 1 22,000 22,000 264,000
Weaving Manager 1 35,000 35,000 420,000
Dying Master 1 20,000 20,000 240,000
Boiler Engineer 1 25,000 25,000 300,000
Asstt. Dying Master 1 18,000 18,000 216,000
Asstt. Weaving Manager 1 18,000 18,000 216,000
Total Production Fixed
Costs 6 138,000 138,000 1,656,000
TOTAL FIXED
PAYROLL 18 230,500 248,000 3,720,000

Table 8-2 Contractual employees 10

Salary per Salary per Salary per
Employee No of month month annum
Warping labor 3 4,000 12,000 144,000
Sizing labor 3 4,000 12,000 144,000
Weavers 4 5,500 22,000 264,000
Fabric handlers- Dying Department 20 4,000 80,000 960,000

10
The costs of contractual employees are calculated on 100% capacity of the unit

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Pre-Feasibility Study Cotton Towels Manufacturing Unit

Cutting Master 1 8,500 8,500 102,000

Cutting Helper 3 4,000 12,000 144,000
Stitching machine operators 5 6,000 30,000 360,000
Packing staff 5 4,000 20,000 240,000
Total 44 40,000 196,500 2,358,000

9 L AND & B UI L DI NG
9. 1 Total Land Requirement
For above mentioned recommended size of towels manufacturing unit, approximately
one-acre (8-kanal) area of land is required.

9. 2 Covered Area Requirement

Following is the covered area requirement split into various departments and sections:

Table 9-1: Covered Area Requirement

Area (sq. ft.) per
Sections/Departments section Total Area (sq. ft.)
Yarn & Dyeing Materials Store 800
Sizing Section 1,000
Warping Section 1,000
Weaving Section11 125 per machine 5,000
Dyeing & Finishing Hall12 6,000
Cutting, Stitching & Packing
section:
Cutting Room 150 per table 750
Stitching Section 100 per machine 1,000
Packing Section 150 per employee 750
Towels Store 700
Total Factory Area 17,000
Office Building 1,500
Total Area 18,500

Table 9-2: Construction Cost

Cost Required Area(Sq.ft) Cost per Sq. Ft.(Rs)

Land 18,500 180

Factory Building 17,000 550

11
This area can accommodate 40 looms as part of the expansion plan in future years.
12
This includes the space for boiler hall, inspection hall and control room.

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9. 3 Recommended Mode
It is recommended that this project should be started in an owned building because this
set-up will involve installation of heavy machinery, underground cabling and other
fixtures with considerable cash outlay.

9. 4 Suitable Locations
The clusters of towels industry exist predominantly in Karachi, Gujranwala, Faisalabad
and Lahore. As most of the manufactures are based in these major cities, it is
recommended that such unit should be located in any of these areas. However, the basic
criteria for the selection of location within these clusters should be the accessibility of
raw material and skilled manpower. Also, basic utilities like electricity, gas, waters and
public transport is must for the establishment of such sort of unit.

9. 5 Utilities Requirement
 Electricity
 Gas
 Furnace Oil
 Telephone
 Fax
 Internet

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10 PROJECT COST

10.1 Initial Project Cost

Following are the initial project cost:

Table 10-1: Project Cost

Fixed Assets Cost
Land and Building 13,430,000
Plant & Machinery 20,938,844
Civil Works 100,000
Furniture Fixture 421,500
Vehicles 1,200,000
36,090,344
Current Assets
Pre operating expenses 1,000,000
Raw Material Inventory 1,332,000
Cash and Banks balances 500,000
2,832,000
Total 38,922,344

Table 10-2: Project Financing

Financing
Equity financing – 61% 23,742,630
Debt financing – 39% 15,179,714
Total 38,922,344

Table 10-3: Project Economics

Project’s Economies Equity Project
Net Present Value (in Rs) 31,442,293 31,077,815

Internal Rate of return 33.98% 30.88%

Payback Period (in Years) 7.08 5.57

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10.2 Estimated Time for Project Completion

 1 months for completion of initial formalities i.e. formation, registration of the
company etc.
 10 months for purchase of land and construction of building.
 3 months for sanction of loan (In case, if financing has to be arranged through bank).
 4 month for purchase of machinery, its installation and trial run.
 1 month for furnishing and staff / labor appointments.
 The projects can take-off within one year, as some of the activities will be in progress
simultaneously.
 In case if the project is self financed, if the building is rented and if machinery is also
locally procured then this set-up will not take more then 6 months.

11 KEY SUCCESS FACTORS

The total commercial viability of this proposed towels unit depends on the regular supply
of export orders. This requires aggressive marketing efforts at the entrepreneur's end and
the concerned management team. A detailed discussion on the marketing aspect has
already been done in the marketing section of this study.
Comparing Pakistan’s major importers with the world’s major importers, Pakistan is
completely out of sync with the world market mix. The countries of Middle East are not
included in list of major importers. USA is the largest importer but only 1-2 % of
Pakistan’s total exports is going to USA. Pakistan does not have any major exports to
markets like Japan, Hong Kong, Germany and France. There is an opportunity for the
Pakistani towels products’ manufacturers and exporters that they should target these
markets and get Pakistan its due share.
Following are other key points that can be taken as key success factors for any export
based towels unit.
 Outlets in Gulf countries
 Assurance of consistent good quality
 Surety of on time delivery
 Competitive rates
 Cost efficiency
 Better services to the customer i.e. claim settlement etc.
 Better communication development with customers

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12 THREATS FOR THE BUSINESS

 Close competition among local exporters causes reduction in prices of the orders in
process.
 The labor force at the lowest level i.e. skilled / semi-skilled manpower, machine
operators are quite unorganized. Their job behaviors and seriousness about the
completion of any assigned job are always unpredictable; however, a motivated
Production Supervisor can overcome this.
 Non-availability of technical personnel especially for dyeing, processing and
finishing.
 In case of CMT based unit, the requirement of credit and/or delay of payments from
customers might cause disturbance in the cash cycles.

13 REGULATIONS
 As such no special regulation is applicable on this industry except the normal
industrial rules and regulations. It does not require any prior sanction/approval from
the government to establish a Towels industry as a whole except for installation of
boiler.
 Being the export-based unit, government offers incentives in terms of treating exports
as zero-rated for sales tax, tax rebates at the rate of 3% and re-finance facilities.
 Towels Manufacturers Association of Pakistan (TMAP) is the administrative body in
Pakistan with the primary objective to safeguard the interests of exporters and
manufacturers in Pakistan. Moreover, every export shipment is verified by TMAP in
order to enable the exporter to claim tax rebate from the Government.
The advantages of being registered with TMAP are:
1. The first hand knowledge of international trade inquiries,
2. Prompt awareness of any changes in Government policies, and
3. A platform for manufacturers and exporters to share knowledge and experience.
4. A platform for manufacturers and exporters to discuss any unwanted change in
the Government policies and to solve individual problem of any manufacturers.

14 KEY ASSUMPTIONS

Percentage Increase in Raw material cost 1%

Percentage Increase in Labor cost 5%
Electricity price growth rate 10%
Gas price growth rate 10%
Percentage Increase in Other Costs 5%
Selling Price Per Unit in US $ 5.00
Conversion Rate US $/Pak Rupees 60.00

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15 FINANCIAL STATEMENTS

15.1 Projected Income Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Sale Value 27,000,000 31,833,296 37,531,805 44,250,409 52,171,717 61,511,026 72,522,173 85,504,437 100,810,668 118,856,882
Costs
Total Material 13,320,000 15,550,461 18,154,417 21,194,411 24,743,458 28,886,800 33,723,954 39,371,098 45,963,868 53,660,611
Labour 1,414,800 1,717,125 1,984,813 2,655,860 3,069,891 2,495,917 3,029,264 3,676,580 4,462,221 5,415,742
Gas & Furnace oil 180,000 228,867 264,546 407,002 470,450 598,170 760,562 967,041 1,229,576 1,563,384
Electricty 1,440,000 1,830,935 2,328,001 2,960,013 3,421,458 4,785,356 6,084,496 7,736,330 9,836,607 12,507,073
Total Variable Cost of Production 16,354,800 19,327,388 22,731,777 27,217,286 31,705,257 36,766,243 43,598,275 51,751,049 61,492,271 73,146,810
Fixed Overheads - Production
Payroll 1,656,000 1,738,800 1,825,740 1,917,027 2,012,878 3,767,583 3,955,962 4,153,760 4,361,448 4,579,521
Depreciation 3,038,884 3,038,884 3,038,884 3,038,884 3,038,884 4,075,662 4,075,662 4,075,662 4,075,662 4,075,662
Maintenance 75,000 78,750 82,688 86,822 91,163 95,721 100,507 105,533 110,809 116,350
4,769,884 4,856,434 4,947,312 5,042,733 5,142,926 7,938,967 8,132,132 8,334,955 8,547,920 8,771,533
Total Production Cost 21,124,684 24,183,822 27,679,089 32,260,019 36,848,183 44,705,210 51,730,407 60,086,005 70,040,192 81,918,343
Contribution Margin 10,645,200 12,505,908 14,800,027 17,033,123 20,466,459 24,744,783 28,923,898 33,753,388 39,318,396 45,710,072
Gross Profit 5,875,316 7,649,474 9,852,715 11,990,390 15,323,534 16,805,816 20,791,766 25,418,432 30,770,476 36,938,539
Operating Overheads
Payroll 2,064,000 2,167,200 2,275,560 2,389,338 2,508,805 2,634,245 2,765,957 2,904,255 3,049,468 3,201,941
Depreciation 237,150 237,150 237,150 237,150 237,150 237,150 237,150 237,150 237,150 237,150
Other operating costs 100,000 105,000 110,250 115,763 121,551 127,628 134,010 140,710 147,746 155,133
Legal and professional charges 50,000 52,500 55,125 57,881 60,775 63,814 67,005 70,355 73,873 77,566
Amortization of pre-operating expenses 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000
Total 2,551,150 2,661,850 2,778,085 2,900,132 3,028,281 3,162,837 3,304,122 3,452,470 3,608,236 3,771,791
Operating Profit 3,324,166 4,987,624 7,074,630 9,090,258 12,295,253 13,642,979 17,487,644 21,965,962 27,162,240 33,166,748
Financial Charges
Long Term Loan 2,125,160 2,125,160 1,700,128 1,275,096 850,064 425,032 - - - -
Profit Before Tax 1,199,006 2,862,464 5,374,502 7,815,162 11,445,189 13,217,947 17,487,644 21,965,962 27,162,240 33,166,748
Losses Carried Forward - - - - - - - - - -
Tax @20% 239,801 572,493 1,074,900 1,563,032 2,289,038 2,643,589 3,497,529 4,393,192 5,432,448 6,633,350
Profit after tax 959,205 2,289,971 4,299,602 6,252,130 9,156,151 10,574,357 13,990,115 17,572,769 21,729,792 26,533,398
Retained earnings at the beginning - 959,205 3,249,175 7,548,777 13,800,907 22,957,058 33,531,415 47,521,530 65,094,300 86,824,092
Avaiable for distribution 959,205 3,249,175 7,548,777 13,800,907 22,957,058 33,531,415 47,521,530 65,094,300 86,824,092 113,357,490
Retained earnings at the end 959,205 3,249,175 7,548,777 13,800,907 22,957,058 33,531,415 47,521,530 65,094,300 86,824,092 113,357,490
 Pre-Feasibility Study Cotton Towels Manufacturing Unit

15.2 Projected Cash flow Statement

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Profit after tax - 959,205 2,289,971 4,299,602 6,252,130 9,156,151 10,574,357 13,990,115 17,572,769 21,729,792 26,533,398
Adjustment of non-cash changes and other items:
Depreciation - 3,276,034 3,276,034 3,276,034 3,276,034 3,276,034 4,312,812 4,312,812 4,312,812 4,312,812 4,312,812
Amortization of preoperating expenses - 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000
Working Capital Changes
(Increase)/decrease in trade debtors - (2,700,000) (483,330) (569,851) (671,860) (792,131) (933,931) (1,101,115) (1,298,226) (1,530,623) (1,804,621)
(Increase)/decrease in stocks (1,332,000) (223,046) (260,396) (303,999) (354,905) (414,334) (483,715) (564,714) (659,277) (769,674) 5,366,061
Increase/(Decrease) in payables - 2,197,800 407,085 436,193 509,235 594,507 694,059 810,280 945,963 1,104,367 349,602
(1,332,000) (725,246) (336,640) (437,657) (517,530) (611,958) (723,588) (855,549) (1,011,540) (1,195,931) 3,911,042
Net Cash Flow from operating activities (1,332,000) 3,609,993 5,329,365 7,237,979 9,110,634 11,920,228 14,263,582 17,547,379 20,974,042 24,946,674 34,857,253
Pre-operating expenses (1,000,000) - - - - - - - - - -
Fixed Capital expenditure (36,090,344) - - - - - (7,037,781) - - - -
Net Cash Flow from investing activities (37,090,344) - - - - - (7,037,781) - - - -

Capital issued 23,742,630 - - - - - - - - - -

Receipt of long term Loan 15,179,714 - - - - - - - - - -
Repayment of long term loan - (3,035,943) (3,035,943) (3,035,943) (3,035,943) (3,035,943) - - - - -
Net Cash Flow from financing activities 38,922,344 (3,035,943) (3,035,943) (3,035,943) (3,035,943) (3,035,943) - - - - -
Cash generated (injected) during the year 500,000 574,050 2,293,423 4,202,036 6,074,691 8,884,285 7,225,801 17,547,379 20,974,042 24,946,674 34,857,253
Opening balance of cash and cash equivalent - 500,000 1,074,050 3,367,473 7,569,509 13,644,200 22,528,485 29,754,286 47,301,664 68,275,706 93,222,380
Closing balance of cash and cash equivalent 500,000 1,074,050 3,367,473 7,569,509 13,644,200 22,528,485 29,754,286 47,301,664 68,275,706 93,222,380 128,079,632

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 Pre-Feasibility Study Cotton Towels Manufacturing Unit

15.3 Projected Balance Sheet

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
CAPITAL AND RESERVES
Issued, subscribed and paid up capital 23,742,630 23,742,630 23,742,630 23,742,630 23,742,630 23,742,630 23,742,630 23,742,630 23,742,630 23,742,630 23,742,630
Retained Earnings - 959,205 3,249,175 7,548,777 13,800,907 22,957,058 33,531,415 47,521,530 65,094,300 86,824,092 113,357,490
23,742,630 24,701,834 26,991,805 31,291,407 37,543,536 46,699,687 57,274,045 71,264,160 88,836,929 110,566,721 137,100,120
LONG TERM LOAN
Long Term Loan @16% 15,179,714 12,143,771 9,107,828 6,071,886 3,035,943 - - - - - -

CURRENT LIABILITIES
Creditors accrued and other liabilities - 2,197,800 2,604,885 3,041,079 3,550,314 4,144,821 4,838,879 5,649,159 6,595,123 7,699,489 8,049,092
38,922,344 39,043,405 38,704,519 40,404,371 44,129,793 50,844,508 62,112,924 76,913,319 95,432,052 118,266,211 145,149,211
FIXED CAPITAL EXPENDITURE
-
Operating fixed assets - at cost 36,090,344 36,090,344 36,090,344 36,090,344 36,090,344 36,090,344 43,128,125 43,128,125 43,128,125 43,128,125 43,128,125
Accumulated derpreciation - (3,276,034) (6,552,069) (9,828,103) (13,104,138) (16,380,172) (20,692,984) (25,005,797) (29,318,609) (33,631,422) (37,944,234)
36,090,344 32,814,309 29,538,275 26,262,241 22,986,206 19,710,172 22,435,141 18,122,328 13,809,516 9,496,703 5,183,891

Preoperating expenses 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 -

CURRENT ASSETS
Raw Material Inventory 1,332,000 1,555,046 1,815,442 2,119,441 2,474,346 2,888,680 3,372,395 3,937,110 4,596,387 5,366,061 -
Trade debts - 2,700,000 3,183,330 3,753,180 4,425,041 5,217,172 6,151,103 7,252,217 8,550,444 10,081,067 11,885,688
Cash and Banks balances 500,000 1,074,050 3,367,473 7,569,509 13,644,200 22,528,485 29,754,286 47,301,664 68,275,706 93,222,380 128,079,632
1,832,000 5,329,096 8,366,244 13,442,131 20,543,587 30,634,336 39,277,784 58,490,991 81,422,536 108,669,507 139,965,321

38,922,344 39,043,405 38,704,519 40,404,371 44,129,793 50,844,508 62,112,924 76,913,319 95,432,052 118,266,211 145,149,211

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