SMEDA Denim Jeans Stitching Unit

Pre-Feasibility Study

DENIM JEANS STITCHING UNIT

Small and Medium Enterprises Development Authority Government of Pakistan www.smeda.org.pk

HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore Tel (042)111 111 456, Fax: (042) 36304926-7 [email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE KHYBER PAKTUNKHWA

REGIONAL OFFICE BALOCHISTAN

8th Floor LDA Plaza, Egerton Road, Lahore. Tel: (042) 111 111 456, Fax: (042) 36370474 [email protected]

5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 35610572 [email protected]

Ground Floor State Life Building The Mall, Peshawar. Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908 [email protected]

Bungalow No. 15-A Chamn Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922 [email protected]

June, 2010


Garments Stitching Unit (Denim Jeans)

1.

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

2.

INTRODUCTION TO SMEDA............................................................ SMEDA ..................................................................... ......... 5

3.

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

4.

CRUCIAL FACTORS FACTORS AND STEPS IN DECISION MAKING MAKING................. ................. 6

4.1.

STRENGTHS................................................ .................................................................................................. .................................................. 6

4.2.

WEAKNESSES...................................................... ......................................... 6

4.3.

OPPORTUNITIES .................................................. ........................................................................................... ......................................... 6

4.4.

THREATS.................................................... .................................................. 6

5.

PROJECT PROFILE.................................................... PROFILE...................................................................................... .................................. 6

5.1.

OPPORTUNITY RATIONALE .................................................... ...................... 6

5.2.

PROJECT BRIEF ................................................... ............................................................................................ ......................................... 7

5.3.

PROPOSED CAPACITY.................................................... ............................... 7

5.4.

TOTAL PROJECT COST .................................................. ................................................................................. ............................... 7

5.5.

PROPOSED BUSINESS LEGAL STATUS ...................................................... .... 7

5.6.

PROPOSED LOCATION ................................................... .................................................................................. ............................... 8

5.7.

KEY SUCCESS FACTORS................................................ ............................................................................... ............................... 8

6.

CURRENT INDUSTRY ANALYSIS .................................................. .......... 8

6.1. 7.

EXPORT MARKET................................................ ......................................................................................... ......................................... 8 MARKET ANALYSIS............................................................ ANALYSIS .................................................................................. ...................... 11

7.1.

DOMESTIC MARKET...................................................... ............................. 11

7.2.

TARGET CUSTOMERS .................................................... ............................. 11

8.

PRODUCTION PROCESS FLOW .................................................... ............................................................. ......... 11

8.1.

RAW MATERIAL.................................................. ......................................................................................... ....................................... 12

8.1.1.

Packing Cost............................................ .............................................. 12

9.

HUMAN RESOURCE RESOURCE REQUIREMEN REQUIREMENTS TS ............. .................... ............. ............. .............. ............. ........ .. 13

10.

MACHINERY AND EQUIPMENT DETAILS.......................................... 14

10.1.

MACHINERY LIST ............................................... ...................................................................................... ....................................... 14

10.2.

FURNITURE AND EQUIPMENT LIST .................................................. ............................................................. ........... 14

11.

LAND & BUILDING ......................................................... .................................................................................... ........................... 15

1 PREF-01/June, 2010/Rev 3



11.1.

LAND /BUILDING REQUIREMENT ..................................................... ........... 15

11.2.

RECOMMENDED MODE .............................................................................. 15

11.3.

SUITABLE LOCATIONS ............................................................................... 16

11.4.

UTILITIES REQUIREMENTS ..................................................... .................... 16

12.

PROJECT ECONOMICS ............................................................................ 16

13.

FINANCIAL ANALYSIS ................................................... .......................... 17

13.1.

PROJECTED INCOME STATEMENT.................................................... ........... 17

13.2.

PROJECTED BALANCE SHEET ..................................................................... 18

13.3.

PROJECTED CASH FLOW STATEMENT ...................................................... .. 19

14.

KEY ASSUMPTIONS .................................................................................. 20

ANNEXURE 1: RAW MATERIAL & MACHINERY SUPPLIERS ................ 22 ANNEXURE 2: INCOME TAX DEDUCTION SLABS...................................... 24




DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information he/she feels necessary for making an informed decision. For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk

DOCUMENT CONTROL Document No.

PREF-01

Revision

3

Prepared by

SMEDA-Punjab

Issue Date

July, 2001

Revised in

June, 2010

Issued by

Library Officer 3

PREF-01/June, 2010/Rev 3



1. EXECUTIVE SUMMARY The proposed Denim Jeans Stitching unit is a project of the Textile Sector, producing standard five pocket jeans trouser. The unit will cater to the local as well as export denim market. The jeans produced will be of export, high quality fabric. Through the use of high-tech equipment and modern techniques the company can produce jeans of latest trends without compromising on quality. The process flow includes purchase of raw material, cutting, stitching, washing, finishing, pressing and packing. Quality control checks will be taken care of through out the process. Pakistan has become denim hub in the region in less than a decade and is considered as one of the leading supplier of quality denim fabric to the world's known brands. Pakistan's denim is second to none. There has been a phenomenal increase in the production capacity of denim mills in Pakistan and at present numerous denim mills are in operation. The denim industry is contributing substantially towards exports creating job opportunities and has invested billions in the denim sector. The denim industry is not only fully catering to the needs of the local apparel industry but is also catering to the foreign market and earning valuable foreign exchange for the country. This particular stitching unit is proposed to have an installed capacity for producing 1000 denim jeans per day. The unit’s initial capacity utilization is kept at 70%, which eventually goes up to 90% in the fifth year. A Denim Garment Stitching Unit with an installed capacity to produce 1,000 pieces per day needs an investment estimated at Rs. 14.150 million. The project is financed through 50% debt and 50% equity. Projected IRR, Net Present Value and Payback of this project are 71.11%, Rs. 165.680 million and 3.71 years respectively. The legal business status of this project is proposed as ‘Sole Proprietorship’.




2. INTRODUCTION TO SMEDA The Small and Medium Enterprises Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program. Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The allencompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development. SMEDA has so far successfully formulated strategies for sectors including, fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation. Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way. This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.

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




4. CRUCIAL FACTORS AND STEPS IN DECISION MAKING 4.1. • • • •

4.2. •

• • •

4.3. •

•

•

4.4. •

•

Strengths

There is a “ready made” market for this product. Relatively low labour costs Ample available work force. Well-situated industrial estate with all major facilities available. Weaknesses

The requirement of credit and/or delay of payments from customer side might cause disturbance in the cash cycles. Very small base of available skilled machinists. Lack of trained technicians and line / middle management. Uncertain investment climate Opportunities

WAPDA/KESC will provide “off peak hour rates” and “bulk rates” for industrial consumers to lower the electricity cost of manufacturing. Manufacturers-cum-exporters are allowed to import samples of each kind or quality having value up to US$ 100 at zero duty rates. Two special export zones focusing on textile sector particularly in dyeing, processing and finishing sectors will be established at Karachi and in one of the industrial cities of Punjab. Threats

Skilled operators in the denim garments are quite unorganized. Stitching expertise is not available at the best possible level. This restricts the industry to the basic garments and only limits the entry into the manufacturing of high quality garments. Cost of doing business may increase as the energy, raw material prices, wages and mark up rates may rise.

5. PROJECT PROFILE 5.1.

Opportunity Rationale

During the last decade, the usage of denim garments, especially denim jeans, has been on a rise in the international as well as the local markets. This has led to a rise in the demand of denim garments. The competitive edge of Pakistan in this field stems from the ready availability of cotton yarn required to weave denim fabric i.e. 6 PREF-01/June, 2010/Rev 3



NE 7/1 to NE 14/11. During the past few years, the denim fabric manufacturing capacity has also been enhanced that has provided the opportunity to industry to strengthen. The export of denim garments from Pakistan ha s also been on a rise. 5.2.

Pro je ject Brief

The proposed project presents an investment opportunity in manufacturing of denim jeans. The project profile has been prepared for a standard five pocket jeans trouser. The proposed stitching unit will be having the potential for its own manufacturing and supply for the local market as well as for the export market. However washing will be outsourced. 5.3.

Proposed Capacity

The proposed capacity of the unit is 1000 garments per day. 5.4.

Total Pro ject Cost

The cost of project has been estimated as Rs.14.150 million including machinery and office equipment. Table 5-1

Pro ject Investment

Capital Investment Working Capital Total Investment

Rs. 5,981,220 Rs. 8,169,111 Rs. 14,150,331

The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity. However this composition of debt and equity can be changed as per the requirement of the investor. The project seems to be viable with the following returns on investment. Table 5-2

Pro ject Returns

Internal rate of return (project)

71.11%

Net Present Value @ 20% Payback period – based on cash inflows 5.5.

Rs. 165,680,748 3.71 years

Proposed Business Legal Status

The proposed legal structure of the business entity is either sole proprietorship or partnership. Although selection totally depends upon the choice of the entrepreneur but this financial feasibility is based on a Sole Proprietorship.

1

yarn count



5.6.


Proposed Location

The proposed locations for a garment manufacturing unit will be • • • • • •

5.7.

Lahore Karachi Faisalabad Hyderabad Sialkot Gujranwala Key Success Factors

The total commercial viability of this proposed stitching unit depends on the regular orders for the purchase of the finished product. This requires aggressive marketing efforts at the entrepreneur's end. Following are other key points that are important for the successful operation of the proposed stitching unit. • • • • • •

Surety of high consistent quality Surety of on time delivery Competitive rates Cost efficiency Better services to the customer. Better communication development with customers

6. CURRENT INDUSTRY ANALYSIS 6.1.

Export Market

Pakistan’s export of denim jeans is increasing over the years. Pakistan’s denim exports increased rapidly in the last years, due to a series of advantages including a falling currency, cotton fibre and yarn availability, modern equipment and strong incentives from the government. The country has progressively built a wealthy denim industry, allowing progressive denim apparel production and direct denim fabric exports to other Asian countries and to Turkey. Turkey and Bangladesh are the major countries importing Pakistani denim products. Other major export markets are Italy, Syria and Egypt. Total Export of Pakistan in the year 2009 was USD 55.748 million, which shows approximately a 100% increase as compared to the export of USD 25.776 million in 2008 Major partners are given in the table below:



Table 6-1:


2

Pakistan’s Exports in the year 2008 and 2009 2 2008

Export Partners

2009

Export Value (USD)

World Turkey Bangladesh Syria UAE Belgium Iran Italy Sri Lanka Lebanon Mexico

Export Partners

25,776,377 17,298,943 2,470,708 2,261,119 586,008 400,932 386,009 314,115 269,393 235,019 196,199

Export Value (USD)

World Turkey Bangladesh Italy Syria Egypt Colombia UAE Sri Lanka Peru Greece

55,748,551 32,421,589 8,007,672 3,120,928 2,112,099 1,848,727 881,696 738,513 711,244 662,473 597,849

A comparative picture of the world’s top importers and exporters and their trade value is given in the figures below. Figure 6-1

Top Importers

World's Top Importers

17% Turkey China

43%

11%

China, Hong Kong SAR Colombia

11% 8%

2

10%

http://comtrade.un.org


Mexico Others


Table 6-2:


Trade Value f or Top Importers Country

Trade Value (USD)

Turkey China China, Hong Kong SAR Colombia Mexico Others Total Import Figure 6-1

179,156,828 117,011,111 115,373,606 102,077,109 87,067,153 449,304,425 1,049,990,232

Top Exporters

World's Top Importers

20% China China, Hong Kong SAR 4%

47%

Turkey Pakistan

6%

Italy 9%

Others 14%

Table 6-3:

Trade Value f or Top Exporters Country

Trade Value (USD)

China China, Hong Kong SAR Turkey Pakistan Italy Others Total Export

683,592,128 211,100,320 126,434,925 81,524,928 64,217,277 290,755,006 1,457,624,584




7. MARKET ANALYSIS Major concentration of the denim garment stitching industry is in Karachi and Lahore. Other important hubs are Sialkot, Faisalabad and Gujranwala. The average production capacity of majority of small and medium sized jeans manufacturing units is about 1,000 jeans per day. However, large size manufacturers are producing as much as 30,000 jean trousers per day. 7.1.

Domestic Market

Almost all the established manufacturers are catering solely to the export market. Only the B-Class products are sold in the domestic market. The size of the manufacturers, whose primary market is domestic, is quite small. 7.2.

Target Customers

In case of direct exports, the customers are retail chain stores, direct distributors and wholesalers. The export can either be through buying houses and/or through direct customers. Table 7-1

Ma jo jor Players

U. S. Apparel and Textile Pvt. Ltd. Artistic Milliners Ltd Siddiqsons Denim Mills Ltd Pak Denim Ltd RAJBY Industries Ali Murtaza Associates Pvt. Ltd. Azgard Nine Ltd. Talon Sports Pvt. Ltd. Al Karam Textile Mills Pvt. Ltd. Mr. Denim Pvt. Ltd. Abdullah Apparels Pvt. Ltd. Digital Apparel Pvt. Ltd. Joe’s Fashion Export Pvt. Ltd.

Lahore Karachi Karachi Karachi Karachi Karachi Lahore Sialkot Karachi Lahore Karachi Karachi Karachi

8. PRODUCTION PROCESS FLOW The proposed business is stitching denim jeans. The process will involve purchasing of raw material from the market i.e. denim fabric, which will be put through the process. Washing of the fabric will be outsourced as washing in house requires a plant which is expensive and will greatly increase the project cost. Therefore, it is




recommended that the proposed project should outsource washing. Washing cost per piece is taken as Rs. 30. The production process flow is given in figure 8-1. Figure 8-1

Process Flow Chart f or Denim Garments Stitching Unit:

Denim Fabric Raw Material

Inspection

Cutting

Threading

Buttoning/ Riveting

Pressing

Stitching

Stone Washing (To be outsourced)

Final Inspection/ Packing

8.1.

Raw Material

The proposed business will be using the raw material listed in the Table 8-1. Table 8-1:

Raw Material

Raw Material

Consumption/ Piece

Fabric (Metre) Pocket Lining (Metre) Stitching thread (Metre) Imported buttons 4.5 YG Zip Main label Care and size label Rewet per unit Packing cost

8.1.1.

1.30 0.2 350 1 1 1 1 6 1

Rate (Rs.)

200 / m 100 / m 10 / piece 3 / unit 15 / unit 5 / unit 2 / unit 9 / unit 15 / piece

Pack ing C ost

Packing cost includes one poly bag and one small carton for the packing of each finished garment. Total cost of packing for one piece is taken as Rs. 15.




9. HUMAN RESOURCE REQUIREMENTS For a garment-stitching unit of 32 stitching machines, following manpower is required: Table 9-1:

Manpower Required

Production Staff

Production Manager Production Planning Officer Pattern Master Cutting Master Cutting Helper Final Table inspector Finishing Supervisor Rowing Inspector Machine Operator Helper (machine operator) Clippers Iron Presser Packing Staff Store keeper Total Administration Staff

Chief executive Finance & Admin. Manager Accounts officer Marketing Manager Merchandiser Export Officer Purchase Officer Technician/Electrician Security Guards Total

Number

1 1 1 1 2 2 1 1 40 2 2 1 2 1 58 Number

1 1 2 1 1 1 1 1 2 11


Salary/Month

50,000 25,000 25,000 15,000 8,500 12,000 15,000 12,000 9,000 7,500 7,500 10,000 7,500 10,000

Salary/Month

75,000 50,000 15,000 40,000 25,000 25,000 20,000 15,000 8,500

Annual Salary

600,000 300,000 300,000 180,000 204,000 288,000 180,000 144,000 4,320,000 180,000 180,000 120,000 180,000 120,000 7,296,000 Annual Salary

900,000 600,000 360,000 480,000 300,000 300,000 240,000 180,000 204,000 3,564,000


10.


MACHINERY AND EQUIPMENT DETAILS

10.1. Machinery List

Following combination of stitching machines is required for manufacturing 1,000 denim jeans per day. Approximate prices for Japanese origin machinery are given below: Table 10-1:

Stitching Machinery and Equipment

Machinery

Quantity

Cutting Machine Lock Stitch (Single Needle) Lock Stitch (Double Needle) Safety Stitching Over lock Safety Stitching Over lock Feed Off Arm Bar Tracking Waist Belt Machine Eyelet Machine Button Stitching Machine Loop Making Machine Snap Fastener Total machinery cost Other Equipment Steam Boiler Other tools Machine Installation and wiring Total other equipment cost Total Cost

2 15 3 1 1 2 3 1 1 1 1 1 32

Unit cost (Rs.)

108,500 28,500 133,000 46,500 50,000 40,500 318,000 136,000 1,055,000 320,000 156,500 50,000

1 Lumpsum 32

138,320 25,000 4,000

Total cost (Rs.)

217,000 427,500 399,000 46,500 50,000 81,000 954,000 136,000 1,055,000 320,000 156,500 50,000 3,892,500 138,320 25,000 128,000 291,320 4,183,820

10.2. Furniture and Equipment List

Furniture and Equipment requirement for the Administration and Factory building is given in the table below: Table 10-2:

Furniture and Of f fi ce Equipment

Furniture

Table Chairs Shelves Stools

Quantity

Cost/Unit (Rs.)

9 18 6 13

10,000 3,000 10,000 800 14

PREF-01/June, 2010/Rev 3

Total Cost (Rs.)

90,000 54,000 60,000 10,400



Machine Table

40

5,000

200,000

Lay Table Total Equipment Computers Printer UPS Networking Air conditioner Tele/Fax Total Total Cost

12 98

10,000

120,000 534,400

9 1 9 1 4 1 24

25,000 15,000 7,500 25,000 40,000 15,000

225,000 15,000 67,500 25,000 160,000 15,000 507,500 1,041,900

11.

LAND & BUILDING

11.1. Land / Building Requirement

Approximately, 4,900 square feet of total covered area is required to establish the proposed stitching unit with a management building. The allocation of the space requirement is as follows: Table 11-1:

Space Requirements

Space Requirement

Required area (sq. ft)

Fabric & Accessories inventory Store Cutting Room Stitching Room Inspection Room Packing Room Finished Garment Store Total factory area Management Building Total Area Required (sq. ft.)

1,000 400 1,250 850 750 850 5,100 650 5,750

11.2. Recommended Mode

It is recommended that this project should be started in a rented building. As the initial capital cost of the project will be less. An appropriate premise is normally available in many commercial/industrial areas of under mentioned clusters.



Table 11-2:


Building Rent

Rent cost

Monthly rent (Rs.)

Estimated Building rent

150,000

Annual rent (Rs.)

1,800,000

11.3. Suitable Locations

The clusters of stitching industry exist predominantly in Lahore, Karachi, Faisalabad and Sialkot. Most of the garment manufactures are based in these major cities, so it is recommended that such unit should be started in these cities. Basic raw material i.e. denim cloth, is also conveniently available in these cities. 11.4. Utilities Requirements

It is assumed that the following utilities will already be available at the proposed building to be rented out: • • • • •

Electricity Water Gas Telephone Fax

12.

PROJECT ECONOMICS

Table 12-1: Pro ject Costs Project Costs

Total (Rs.)

Machinery & equipment Furniture & fixtures/Equipment Pre-operating costs Total Capital Costs

4,183,820 1,041,900 755,500 5,981,220

Stocks- Raw Material Equipment spare part inventory Upfront for building rental Upfront insurance payment Cash Total Working Capital Total Investment in the Project

3,951,360 2,092 1,800,000 261,286 2,154,373 8,169,111 14,150,331

Table 12-2: Financing Plan

Equity

50%

7,075,165

Debt Total

50%

7,075,165 14,150,330




13.3. Pro jected Cash Flow Statement PROJECTED CASH FLOW STATEMENT Const. Year Operating activities Net profit Amortization (Pre-operational Expenses) Depreciation Up-front insurance payment Equipment and spare part inventory Accounts receivable Stocks-RM Accounts payable Cash provided by operations Financing acivities Long term debt principal repayment Add: buliding rent expense Building rent payment Adition to debt Issuance of share Running Finance Repayment Cash provided by/ (used for) financin Total Investing activities Capital expenditure Cash (used for)/ provided by invetsin Cash balance brought forward Net Cash

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

1,520,456 151,100 522,572 26,129 (105) (16,058,126) (493,920) 8,297,856 (6,034,038)

5,351,501 151,100 522,572 26,129 (110) (2,768,422) (533,434) 1,037,232 3,786,568

12,470,765 151,100 522,572 26,129 (115) (3,379,546) (575,664) 1,120,211 10,335,451

20,859,667 151,100 522,572 26,129 (121) (3,747,278) (914,839) 1,208,894 18,106,124

26,027,843 151,100 522,572 26,129 (127) (4,274,673) (646,922) 1,921,161 23,727,082

29,382,226 0 522,572 26,129 (133) (3,022,805) (711,614) 1,358,535 27,554,910

32,705,333 0 522,572 26,129 (140) (3,325,085) (782,775) 1,494,389 30,640,422

36,362,824 0 522,572 26,129 (147) (3,657,593) (861,053) 1,643,828 34,036,560

40,385,867 0 522,572 26,129 (155) (4,023,353) (947,158) 1,808,211 37,772,113

44,808,110 0 522,572 26,129 (162) (4,425,688) 10,418,737 1,989,032 53,338,729

(1,028,795) 1,800,000 (1,980,000)

(1,193,403) 1,980,000 (2,178,000)

(1,384,347) 2,178,000 (2,395,800)

(1,605,843) 2,395,800 (2,635,380)

(1,862,777) 2,635,380 (2,898,918)

0 2,898,918 (3,188,810)

0 3,188,810 (3,507,691)

0 3,507,691 (3,858,460)

0 3,858,460 (4,244,306)

0 4,244,306 (4,668,736)

12,350,331 8,135,593

(1,208,795) (7,242,833)

(7,242,833) (8,634,236) ( 4,847,668)

(4,847,668) (6,449,815) 3,885,637

0 (1,845,423) 16,260,701

0 (2,126,315) 21,600,767

0 (289,892) 27,265,018

0 (318,881) 30,321,541

0 (350,769) 33,685,791

0 (385,846) 37,386,267

0 (424,431) 52,914,298

(5,981,220) (5,981,220) 0 2,154,373

2,154,373 (5,088,461)

2,154,373 (2,693,295)

2,154,373 6,040,009

6,040,009 22,300,710

22,300,710 43,901,477

43,901,477 71,166,496

71,166,496 101,488,037

101,488,037 135,173,827

135,173,827 172,560,094

172,560,094 225,474,392

(261,286) (2,092) (3,951,360) (4,214,738)

(1,800,000) 7,075,165 7,075,165


Rs `000' Year 10


14.


KEY ASSUMPTIONS

Table 14-1

Machinery Assumptions

Number of Machines Installed Installed capacity Initial year capacity utilization Maximum capacity utilization Capacity utilization growth rate Defective garment rate (of total finished garments) Total Production per day Table 14-2

Operating Assumptions

Shifts operational per day Hours operational per shift Days operational per year Table 14-3

1 8 300

Economy-Related Assumptions

Electricity growth rate Wage growth rate USD Conversion rate Table 14-4

10% 10% Rs. 85

Cash Flow Assumptions

Accounts Receivable cycle (in days) Accounts payable cycle (in days) Raw material inventory (in days) Equipment spare part inventory (in days) Table 14-5

45 30 15 30

Raw Material Assumptions

Raw material cost growth rate (Year 1-4) Raw material cost growth rate (Year 5-10) Washing cost Washing cost growth rate Table 14-6

32 100% 70% 90% 5% 2% 1000

5% 10% Rs. 30 5%

Revenue Assumptions

Sales Price per unit Defected garment sales price Sales Price growth rate

USD 6.2 Rs. 150 10%



Table 14-7


Expense Assumptions

Administrative overhead (% of Sales) Office expenses (stationery, entertainment etc) Freight expense Machine maintenance (per month) Machine maintenance growth rate Pre-paid building Rent (months) Pre-paid insurance (months) Admin and Factory overhead Insurance rate (% of net fixed assets) Spare part inventory Rent growth rate Tax rate3 Table 14-5

1% 20% of admin expense 1% of raw material 5% of machinery cost 5% 12 12 0.75% of revenue 5% 0.05% of machine cost 10% 25%

Financial Assumptions

Project life (years) Debt Equity Interest rate on long-term debt Interest rate on short term debt Debt tenure (years) Debt payments per year Discount rate (weighted avg. cost of capital for NPV)

3

Tax rate is fixed through out the project since the income falls in 25% tax deduction slab


10 50% 50% 16% 14% 5 1 20%



ANNEXURE 1: RAW MATERIAL & MACHINERY SUPPLIERS 1. Denim Fabric Suppliers

i) US Apparel Pvt. Ltd. Address: 26 M Gulberg III, Lahore Contact No.: 042-5340034 042-5832528 ii) Azguard Nine Ltd. Address: Ismail Aiwan-e-Sci Ferozpur, Lahore Contact No.: 111-786-645 iii) Naveena Denim Address: B21 Block 7/8 Banglore TW PECHS, Karachi Contact No.: 021-4310630, 021-4310632 iv) Siddiqsons Denim Mills Limited Address: D-53, Textile Ave, S.I.T.E, Karachi Contact No.: 021-2577480, 021-2569591 2. Pocket Fabric Suppliers

i) Crescent Textile Mills Address: 40-A Off Zafar Ali Road, Gulberg V, Lahore Tel: +92-42-111-245-245 Fax: +92-42-111-222-245 Email: [email protected] ii) Master Textile Address: 82-C-1, Gulberg III, Lahore. Tel: (92-42) 5392344-48 Fax: (92-42) 5392343 3. Label Suppliers

i) Kohinoor Labels Address: Street No. 2 Islam Nagar, Jail Road, Faisalabad Phone: 041-32627544, 32631114 ii) Leather Connection Address: Alam-Porvair City,Rohi Nala Bhoptian Chowk 9 KM Raiwind Rd Lahore 22 PREF-01/June, 2010/Rev 3



Phone: 042-35321406, 35321401 Fax: 042-35321407 Email: [email protected] 4. Zip & Button Suppliers

i) YKK Pakistan Pvt. Ltd. Contact no.: 042-5792020-2, 021-35085677 5. Thread Suppliers

i) Shah Alam market – Lahore ii) J. & P. Coats Pakisan (Pvt.) Ltd. Address: 4 - Nizam Block, Main Wahdat Road, Lahore. UAN: 111-115-115 6. Machinery Suppliers

i) Almurtaza Garments Machinery Co. Address: 433- F, Johar Town, Lahore. Ph: 042- 5316171- 73. Fax: 042- 5316174. Cell: 0334- 4244202. E. Mail: [email protected] ii) Rex Machinery Pvt. Ltd. Address: Rex Market, 6, Allama Iqbal Road Lahore Ph: 042-36375524-36369309 Email: [email protected]




ANNEXURE 2: INCOME TAX DEDUCTION SLABS Income Slabs

Tax Rate

0.00% 0.50% 1.00% 2.00% 3.00% 4.00% 5.00% 7.50% 10.00% 12.50% 15.00% 17.50% 21.00% 25.00%

100,000 – 110,000 110,000 – 125,000 125,000 – 150,000 150,000 – 175,000 175,000 – 200,000 200,000 – 300,000 300,000 – 400,000 400,000 – 500,000 500,000 – 600,000 600,000 – 800,000 800,000 – 1,000,000 1,000,000 – 1,300,000 1,300,000 and above


SMEDA Denim Jeans Stitching Unit

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