Pre-Feasibility Study Absorbent Cotton

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: 6304926-7 helpdesk@smeda.org.pk
th

REGIONAL OFFICE PUNJAB 8th Floor LDA Plaza, Egerton Road, Lahore. Tel: (042) 111 111 456, Fax: (042) 36370474 helpdesk.punjab@smeda.org.pk

REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 helpdesk.sindh@smeda.org.pk

REGIONAL OFFICE KHYBER PAKTUNKHWA Ground Floor State Life Building The Mall, Peshawar. Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908 helpdesk.NWFP@smeda.org.pk

REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chamn Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922 helpdesk.balochistan@smeda.org.pk

September, 2011

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Absorbent Cotton 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. 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. Prepared by Issue Date Issued by PREF-114 SMEDA-Punjab September, 2011 Library Officer

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EXECUTIVE SUMMARY

Cotton is a fiber being widely accepted by consumers, not least because many products consisting of cotton have been made and used by man for a long time. Loose cotton has been used for a long time by the sanitary and pharmaceutical industry as so-called cotton wool, cotton wool tips and cotton balls. The raw cotton is processed by series of steps which render the cotton hydro-phillic in character and free from external impurities needed to be fit for use in surgical dressings and personal hygiene. With the development of medical facilities and growing awareness towards personal hygiene, the absorbent cotton industry registered steady growth rate in past and is picking up pace with the spread of education and upward economic growth of towns and villages. Demand for absorbent cotton depends on various factors. The demand of this product is directly related with the increase in population and expansion of Public Health Services. The consumption of surgical cotton or cotton wool increases with the increase in population and number of hospitals, dispensaries, health care centers, nursing homes etc. Govt. hospitals and big nursing homes are the largest consumers for cotton wool. Cotton is a highly absorbent fiber and therefore suited very well for absorption of body fluids such as urine, blood and other fluids. It is used for bandages and wound dressings, absorbent pads (demake-up), tampons, sponges, swabs. Cotton also offers the positive property of being a naturally breathing fiber, i.e. it largely prevents the passage of fluids, but lets gas and water vapor pass. With this property cotton is also predestined for surgical gowns and drapes. Government of Pakistan primarily has made majority of investment in health sector by setting up hospitals, health centers in different areas of Pakistan, but these facilities are not up to standard and are very less in numbers as compared to population. Generally, Health care in Pakistan is government sponsored, but over the years private health care providers have become more common due to the tremendous increase in population. With the increase in population the demand of surgical cotton is also increasing. Currently most of the surgical cotton manufacturing units are in Lahore, Karachi and Okara. The total estimated cost of the project is Rs.37.525 million. The project shall be financed through equity contribution of 50% by Equity Contributor-Private Investor and 50% by Bank Loan. The project will be run by qualified professionals. In the total estimated cost, a sum of Rs. 5.709 million is required as working capital. Projected IRR, NPV and Payback of the proposed project are 32%, Rs. 38.722 million and 4.27 years respectively.

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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 all-encompassing 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 industries such as horticulture, including export of fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport, dairy etc. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDAs areas of operation. Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way. This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.

PURPOSE OF THE DOCUMENT

The objective of this proposed Pre-feasibility is primarily to facilitate potential entrepreneurs with the investment information and provide an overview about the "Absorbent Cotton Business". 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 marketing, finance and business management. The document also provides sectoral information and international scenario, which have some bearing on the project itself. The purpose of this document is to facilitate potential investors of the Absorbent Cotton business by providing them a macro and micro view of the business with the hope that the information provided herein will aid the potential investors in crucial investment decisions. This particular Pre-feasibility is regarding setting up "Absorbent Cotton". Our report is based on the information obtained by us from industry sources as well as our discussions with businessmen. For financial model, since the forecast/projections relate to the future

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periods, actual results are likely to differ because of the events and circumstances that dont occur as frequently as expected.

PROJECT INTRODUCTION

Absorbent Cotton also known as Surgical Cotton or Cotton Wool is mainly used for medical purposes in hospitals, nursing homes, dispensaries etc. Because of high fluid absorbency power, it is better known as absorbent cotton. The absorbent cotton should be chemically inert and soft to give maximum protection and should not cause irritation. These properties can be achieved by manufacturing the product as per standard method of manufacture. The raw cotton is processed by series of steps which render the cotton hydro-phillic in character and free from external impurities needed to be fit for use in surgical dressings and personal hygiene. Absorbent Cotton is also used for making conventional type of Sanitary napkins or pads besides medical purposes. And fairly good quality of cotton wool is consumed in beauty parlours for removing make up and dirt etc. With the development of medical facilities and growing awareness towards personal hygiene, the absorbent cotton industry registered steady growth rate in past and is picking up pace with the spread of education and upward economic growth of towns and villages. It is important to note that this unit should initially cater to the local market and finally export absorbent cotton because the demand in the export market is increasing at a higher rate. The proposed project could be set up in Karachi, Lahore, Multan, Okara, and Faisalabad. The project will have a capacity to produce 1,000 kg per day on 8-hour shift and 330 working days per year. The surgical cotton rolls would be manufactured in the sizes of 100 grams-1000 grams, depending on the clients requirement. The proposed project will be financed through both debt and equity and the ratio would be 50:50.

MARKET/INDUSTRY ANALYSIS

In roughly two generations, from 1947 till 2010-11, the estimated population of Pakistan has grown from 32.7 million to roughly 187.34 million, which has made Pakistan the seventh most populous country in the world. This tremendous growth rate of population has hampered Pakistans attempts to become a prosperous country of South East Asia. More then 17.2% of the population of Pakistan lives below the poverty line. The governments inability to provide basic necessities to the majority of population specially, those living in the rural areas of the country has not helped the cause. 5.1 Health System in Pakistan

The health of 187 million citizens of Pakistan is among the poorest in the world and its number is growing at the rate of 1.57 per cent per annum. At this rate the population will double by the year 2027. Health is not only related to availability of health services to a

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community but also to better hygienic atmosphere, which include clean drinking water, adequate dietary intake etc. Government of Pakistan primarily did majority of investment in health sector by setting up hospitals, health centers in different areas of Pakistan, but these facilities are not up to standard and are very less in numbers as compared to population. Generally, Health care in Pakistan is government sponsored, but over the years private health care providers have become more common due to the tremendous increase in population. Pakistan has made great strides in reducing mortality rates due to the increasing investment in health care by the private sector. It is, however, a constant struggle to meet the health care needs of the rapidly expanding population. The total allocation for health sector in the federal budget 2010-11 was Rs 17.0 billion Table 5-1: Distribution of Hospitals Province Wise1 in 2008. Description Punjab Sindh Khyber Pakhtunkhwa Balochistan Federal Total Table 5-2: Details of Dispensaries Province Wise2 in 2008 Description Punjab Sindh Khyber Pakhtunkhwa Balochistan Federal Total 5.2 Target Market Numbers 1,496 2,096 562 564 76 4,794 Numbers 306 330 202 98 12 948

5.2.1 Local Market

Demand for absorbent cotton depends on various factors. The demand of this product is directly related with the increase in population and expansion of Public Health Services. The consumption of surgical cotton or cotton wool increases with the increase in population and number of hospitals, dispensaries, health care centers, nursing homes etc. Progressive increase in health amenities offered by government and coming up of new hospitals and health care centers in private sector even at small towns are contributing to
1 2

Pakistan Statistical Year Book 2009 Pakistan Statistical Year Book 2009

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the growth of absorbent cotton industry. Govt. hospitals and big nursing homes are the largest consumers for cotton wool. Absorbent Cotton is used for surgical and cosmetic application.

5.2.2 Export Market

Absorbent cotton has good export market potential. Presently it is being exported to the countries like Netherlands, Italy and several European countries. The export of surgical cotton can be done provided it is made according to standards and specifications of international market. Table 5-3: Exports from Pakistan Dressing, Wadding, gauze, bandages and similar articles other articles having an adhesive layer (Quantity in 000 kgs) Period 2005 2006 2007 2008 2009 HS Code 3005 3005 3005 3005 3005 Trade Value $9,268,935 $14,987,655 $36,250,728 $25,881,974 $25,597,851 Net Weight (kg) 3,548,651 5,788,295 10,384,559 8,401,878 10,465,491

Table 5-4: Major Export Markets in 2009 Period HS Code Total Export ($) Country Netherlands Italy Germany UK France Spain Poland Sri Lanka Ireland Thailand Tunisia Uganda Amount in $ 7,016,227 4,319,358 3,251,016 1,967,829 1,941,976 930,700 636,841 582,361 515,498 458,118 380,619 379,957 %age 27.41 % 16.87 % 12.70 % 7.69 % 7.59 % 3.64 % 2.49 % 2.28 % 2.01 % 1.79 % 1.49 % 1.48 %

2009

3005

25,597,851

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Table 5-5: Major Export Markets in year 2008 Period HS Code Total Export ($) Country Italy Netherlands Saudi Arabia Germany UK USA France Sri Lanka Spain Ireland Belgium South Africa Amount in $ 5,598,959 5,233,462 1,835,559 1,763,292 1,622,369 1,555,999 1,343,294 898,297 753,851 720,029 580,441 502,250 %age 21.63 % 20.22 % 7.09 % 6.81 % 6.27 % 6.01 % 5.19 % 3.47 % 2.91 % 2.78 % 2.24 % 1.94 %

2008

3005

25,881,974

5.2.3 Industrial Market

The industrial market comprise of those institutions, which buys surgical cotton in bulk, like provincial health departments and other government agencies related to health like population planning etc. Another substantial industrial market for surgical cotton is hospitals in both public and private sector. This particular market segment has shown an impressive growth in the last one decade.

5.2.4 Consumer Market

Consumer market or open market consists of individual users of surgical cotton, and this segment buys surgical cotton from medical stores, pharmacies, and departmental stores. 5.3 Market Demand

As drugs and medicines have a direct relationship with the demand of surgical cotton, so with the increase in the population the demand for surgical cotton has also increased by approximately the same proportion.

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6.1

PRODUCTION & PRODUCT OFFER

Current Product Mix

Supply such absorbent products as cotton wool and cotton balls, zigzag cotton wool, cotton buds and cotton pads 6.2 Proposed Product Mix The proposed product mix of the surgical cotton manufacturing unit will be as follows:

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Table 6-1: Product Mix Description 500 grams 350 grams 250 grams 6.3 Cotton-Raw Material Percentage of Total Production 60% 20% 20% Total Production Capacity in Rolls (per day) 1,047 499 698

Cotton is a highly absorbent fiber and therefore suited very well for absorption of body fluids such as urine, blood and other fluids. It is used for bandages and wound dressings, absorbent pads (demake-up), tampons, sponges, swabs. Cotton also offers the positive property of being a naturally breathing fiber, i.e. it largely prevents the passage of fluids, but lets gas and water vapor pass. With this property cotton is also predestined for surgical gowns and drapes. The quick water absorption by cotton is caused by the structural network of micro fibrils; this makes cotton particularly interesting for applications where liquids have to be removed from surfaces (wipes). Moreover, cotton offers an excellent resistance to heat as well as dimensional stability and strength even at temperatures of up to 175C. It is also speaking in favor of cotton that this fiber has renewable resources and is bio-degradable. In the past, the use of cotton for the medical industry often failed because of the higher price as compared to viscose, for example. The price of cotton varies depending on quality and crop yield as it is a natural fiber. It can however be observed already that, in the long term, the market share of cotton will rise because of its many advantages. In summary, cotton is characterized by the following excellent properties Good absorbency of liquids bio-degradable breathable drape easily sterilized heat-resisting high wet strength insulating properties non allergenic non-irritant renewable resources softness water retaining capacity

Usually cotton with a staple length of 7-25 mm is used for non woven products, depending on the web forming process used and the intended application. The titer ranges from about 1.2 to1.8 denier. Where mainly volume and absorbency of the products are
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required, linters and comber noils are used. In most cases bleached cotton is employed which provides the fiber with good absorbency, but makes it more difficult to handle on a card because the fibers can break and naps can form. 6.4 Raw Material Cotton is regarded as the most important cash crop of Pakistan. The lint is used for the production of textile and stuffing material. Cotton produces raw material not only to the ginning factories and rapidly expending textile industry, but also the oil mills, which provides edible oil and oil cakes for milk animals as feed. Cotton the silver fiber held for the unique quality of its fiber viz: Strength, durability, ease of dyeing, color retaining properties and suitability for the manufacture of textile fabrics. The fiber is obtaining from the thick growth of wooly seed hair. The longer fiber known as lint is used for making house hold fabrics and the shorter fibers called linters are used for making pad and sterile absorbent surgical cotton. Table 6-2: Raw Material Requirement Dessi Comber Noil Delenter Chemicals Caustic Soda Soda Ash Detergent Opticle Brightner Hydrogen Peroxide Acitic Acid-Formacide Packing Paper, labels, gum, PE sheets, sacks etc Mix 15% 50% 35%

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6.5

Process Flow for the Product Production Process-Flow Sheet For Absorbent Cotton Wool - BPC

Raw Cotton Q.C. LAB for Testing Before Processing Villow Treatment of Cotton De Sizing Cooking Chemical Treatment of Cotton (90 950C) Hydro - Extraction Opener Drying Lapping Carding Rolling & Paper Pasting Cutting Weighing & Labeling Packing

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Raw cotton received in bale or otherwise is opened in opener where it is loosened and dust and other foreign particles are removed. Loosen cotton is then loaded into a kier and chemicals, such as caustic soda, soda ash, detergent etc., are added along with adequate water and steam boiled for about 3-4 hours. By this process most of the natural waxes and oils are removed while remaining foreign matter get soften and disintegrate. The treated cotton is transferred to washing tanks where it is washed thoroughly. Washed cotton is bleached to remove radish brown colour developed due to chemical treatment. For this purpose, bleaching agent such as sodium hypo-chloride or hydrogen peroxide are used. The bleaching process improves whiteness assisting in disintegration of any remaining foreign matters. The bleached cotton is thoroughly washed again to remove the chemicals. A little quantity of dilute hydro-chloride acid or sulphuric acid is also added to neutralize excess alkali. The water of cotton is removed with the help of hydro-extractor which is then sent to a wet cotton opening machine. The cotton so obtained is dried by passing through dryer or alternatively subjected to sun drying where provision for dryer is not made. Dried cotton is sent to blow room where it is thoroughly opened and made into laps. The laps are then fed into carding machine wherein cotton is wrapped around rollers in thin layers. Cotton so obtained is compressed and rolled into rolls along with papers. The rolls are then weighed and cut according to weight & sizes and labeled properly before packing in polythene sheets and heat sealed. 6.6 Quality Control and Standard

Surgical cotton or absorbent cotton is covered under Drug Control Act 1976; hence it should be manufactured to meet its requirements.

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TECHNOLOGY
Price per Unit (in Rs.) Total Cost (in Rs.)

Table 7-1: Machinery Details Description Raw Cotton Carding Section Willow Machinery Carding Machine Weighting Scale Cooking Section Kier Kier Pumps Washing Section Washing Tanks Crane System Hydro extractor Tube Well Drying Section Hot air oven Boiler Carding Section Blow Machine Weight Balance Rolling Section Rolling Machine Rolling Rods Cutting Section Cutter (Saw) Cutter Round Cutting Table Transformer (200 KVA) Generator (220 KVA) TOTAL 100 Kgs. Per hours/Machine 0-5 kgs As per required As per required As per required As per required As per required Capacity Quantity

1,000 Kgs 1,000 Kgs 1-600 kgs 1,000 Kgs As per required As per required 1-2 tons 300 Liters As per required 1,000 Kgs. Per 8 hours

2 3 1 1 1 3 1 3 1 1 1 1 1 1 1 1 1 1 1 1

180,000 300,000 300,000 1,200,000 56,000 15,000 800,000 100,000 65,000 1,200,000 900,000 30,000 35,000 120,000 50,000 7,000 22,000 35,000 500,000 1,740,000

360,000 900,000 300,000 1,200,000 56,000 45,000 800,000 300,000 65,000 1,200,000 900,000 30,000 35,000 120,000 50,000 7,000 22,000 35,000 500,000 1,740,000 8,665,000

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7.1 Machinery Recommendations Mostly machinery used for surgical cotton manufacturing unit is available locally, but some of the machinery can be second hand imported machinery from Europe. It is recommended that local machinery can be used to manufacture absorbent cotton, as the quality of the finished product would not be affected by using local machinery. Apart from this the project cost would not be high. 7.2 Area Required For Proposed Unit Total area required is 01 Acre (4,000 sq. yards) and the price of the land is approximately Rs. 2.0 million. Following area is required for a surgical cotton manufacturing unit having a capacity of 1,000 kgs: Table 7-2: Area Required Description Management building Raw Cotton Carding Section Cooking Section Washing Section Drying Section Carding Section Rolling Section Cutting Section Store Washrooms Pavement/driveway Total Area (in Sq. ft) 500 2,000 2,500 2,500 2,500 2,000 2,000 1,000 1,500 500 1,000 18,000 Rate (in Rs.) 1,200 1,000 1,000 1,000 1,000 1,000 1,000 1,000 500 850 350 Amount (in Rs.) 600,000 2,000,000 2,500,000 2,500,000 2,500,000 2,000,000 2,000,000 1,000,000 750,000 425,000 350,000 16,625,000

7.3 Utilities Required For Unit and Costs Involved Electricity Water Gas 7.4 Office Equipment and Furniture Detail of office equipment and furniture requirement is given below. Table 7-3: Office Equipment Office Equipment & Furniture Computers + UPS Computer printer (s) Telephones Fax machines Total Office Equipment Units 5 1 4 1 Per unit Cost in Rs. 45,000 20,000 1000 25,000 Total Cost in Rs. 225,000 20,000 4,000 25,000 274,000

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Table 7-4: Furniture & Fixture Details Furniture & Fixture Eclectic Wiring and Lighting Air Conditioners 1.5 ton (Split) Furniture Set for Office and Factory Total Furniture & Fixture Units 1 3 1 Per unit Cost in Rs. 200,000 45,000 400,000 Total Cost in Rs. 200,000 135,000 400,000 735,000

HUMAN RESOURCE REQUIREMENT

No. of Employees per Shift 1 1 1 1 1 1 2 1 1 1 1 1 1 2 2 3 2 3 3 2 3 3 2 37
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Table 8-1: Requirement of Technical Staff Description CEO Operations manager Technologist Accountant Purchase Officer & Supervisor Marketing Executive Sales person Carding Master Chamber Master Willow Master Cutting Master Rolling Master Kier/ Boiler Operator Worker (Carding Section) Worker (Cooking Section) Worker (Washing Section) Worker (Drying Section) Worker (Blow room Section) Worker (Rolling Section) Worker (Cutting Section) Worker (Packing Section) Janitorial Staff Security Guard TOTAL Salary per Month (in Rs.) 60,000 40,000 25,000 15,000 20,000 40,000 12,000 10,000 10,000 10,000 10,000 10,000 10,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 8,500 Salary per Annum (in Rs.) 720,000 480,000 300,000 180,000 240,000 480,000 288,000 120,000 120,000 120,000 120,000 120,000 120,000 168,000 168,000 252,000 168,000 252,000 252,000 168,000 252,000 252,000 204,000 5,544,000

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9.1

FINANCIAL ANALYSIS
Project Costs

Total project cost for the Surgical Cotton Manufacturing Unit of Capacity 1,000 kgs per day is estimated to be around Rs. 37.525 million. It includes capital expenditure as well as working capital required for setting up the project. Table 9-1: Project Cost Details
Capital Investment Land Building/Infrastructure Machinery & equipment Furniture & fixtures Office vehicles Office equipment Pre-operating costs Total Capital Costs Working Capital Equipment spare part inventory Raw material inventory Upfront insurance payment Cash Total Working Capital Total Investment Rs. in actuals 2,000,000 16,625,000 8,665,000 735,000 1,492,400 274,000 2,024,906 31,816,305 Rs. in actuals 67,183 4,735,500 406,296 500,000 5,708,979 37,525,284

9.2

Capital Structure

The proposed financing plan of the project is as follows: Table 9-2: Capital Structure Details
Initial Financing Debt Equity 50% 50% Rs. in actuals 18,762,642 18,762,642

9.3

Project Returns

The projected returns of the project are as follows Table 9-3: Project Returns
Internal Rate of Return (IRR) Payback Period (yrs) Net Present Value (NPV) Equity 43% 4.05 26,706,371 Project 32% 4.27 38,721,651

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9.4

Projected Income Statement

SMEDA

Calculations
Income Statement
Year 1 45,492,150 28,413,000 2,303,400 403,095 4,762,523 586,320 36,468,338 9,023,812 2,904,000 725,205 145,200 203,280 74,620 145,200 454,922 406,296 45,492 1,947,890 404,981 7,457,086 1,566,726 1,566,726 469,182 2,457,454 427,861 3,354,497 (1,787,771) (1,787,771) Year 2 62,076,630 34,095,600 2,527,662 483,714 5,987,172 737,088 43,831,236 18,245,394 3,186,738 797,726 159,337 223,072 82,082 159,337 620,766 365,666 62,077 1,947,890 404,981 8,009,671 10,235,723 10,235,723 559,776 2,077,377 358,070 2,995,223 7,240,500 1,810,125 5,430,375 Year 3 76,819,830 40,275,428 2,773,759 571,387 7,409,125 912,146 51,941,845 24,877,984 3,497,003 877,498 174,850 244,790 90,290 174,850 768,198 325,037 76,820 1,947,890 404,981 8,582,208 16,295,777 16,295,777 90,594 1,634,056 276,255 2,000,905 14,294,871 3,573,718 10,721,154 Year 4 89,196,358 44,638,599 3,043,816 633,287 8,602,818 1,059,103 57,977,623 31,218,734 3,837,476 965,248 191,874 268,623 99,319 191,874 891,964 284,407 89,196 1,947,890 404,981 9,172,852 22,045,882 22,045,882 1,116,966 180,347 1,297,313 20,748,569 5,187,142 15,561,427 Year 5 98,115,994 46,870,529 3,340,166 664,952 9,463,099 1,165,014 61,503,760 36,612,234 4,211,098 1,061,773 210,555 294,777 109,251 210,555 981,160 243,778 98,116 1,947,890 404,981 9,773,933 26,838,300 26,838,300 513,832 67,916 581,748 26,256,552 6,564,138 19,692,414 Year 6 107,927,593 49,214,055 3,665,370 698,199 10,409,409 1,281,515 65,268,549 42,659,044 4,621,096 1,167,950 231,055 323,477 120,176 231,055 1,079,276 203,148 107,928 1,947,890 10,033,051 32,625,993 32,625,993 32,625,993 8,156,498 24,469,495 Year 7 118,720,352 51,674,758 4,022,235 733,109 11,450,350 1,409,667 69,290,119 49,430,233 5,071,013 1,284,745 253,551 354,971 132,194 253,551 1,187,204 162,518 118,720 1,947,890 10,766,356 38,663,876 38,663,876 38,663,876 9,665,969 28,997,907 Year 8 130,592,387 54,258,496 4,413,846 769,765 12,595,385 1,550,633 73,588,125 57,004,262 5,564,734 1,413,220 278,237 389,531 145,413 278,237 1,305,924 121,889 130,592 1,947,890 11,575,667 45,428,596 45,428,596 45,428,596 11,357,149 34,071,447 Year 9 143,651,626 56,971,421 4,843,584 808,253 13,854,924 1,705,696 78,183,878 65,467,748 6,106,524 1,554,542 305,326 427,457 159,955 305,326 1,436,516 81,259 143,652 1,947,890 12,468,447 52,999,301 52,999,301 52,999,301 13,249,825 39,749,476

Revenue Cost of sales Cost of goods sold Operation costs 1 (direct labor) Operating costs 2 (machinery maintenance) Operating costs 3 (direct electricity) Operating costs 5 (direct gas) Total cost of sales Gross Profit General administration & selling expenses Administration expense Electricity expense Travelling expense Communications expense (phone, fax, mail, internet, etc.) Office vehicles running expense Office expenses (stationary, entertainment, janitorial services, etc.) Promotional expense Insurance expense Professional fees (legal, audit, consultants, etc.) Depreciation expense Amortization of pre-operating costs Subtotal Operating Income Earnings Before Interest & Taxes 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 Tax NET PROFIT/(LOSS) AFTER TAX

Year 10 158,016,789 59,819,992 5,315,162 848,666 15,240,416 1,876,266 83,100,502 74,916,287 6,701,064 1,709,996 335,053 469,074 175,950 335,053 1,580,168 40,630 158,017 1,947,890 13,452,895 61,463,392 61,463,392 61,463,392 15,365,848 46,097,544

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9.5

Projected Cash flow Statement

Calculations
Cash Flow Statement
Year 0 Operating activities Net profit Add: depreciation expense amortization of pre-operating costs Deferred income tax Accounts receivable Finished goods inventory Equipment inventory Raw material inventory Advance insurance premium 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 Cash provided by / (used for) financing activities Investing activities Capital expenditure Acquisitions Cash (used for) / provided by investing activities NET CASH Year 1 (1,787,771) 1,947,890 404,981 (3,739,081) (1,741,563) (17,467) (1,231,230) 40,630 2,865,820 (3,257,793) Year 2 5,430,375 1,947,890 404,981 1,604,688 (681,554) (351,619) (20,342) (1,433,880) 40,630 593,214 7,534,383 Year 3 10,721,154 1,947,890 404,981 37,310 (1,287,439) (387,326) (17,193) (1,211,850) 40,630 616,154 10,864,311 Year 4 15,561,427 1,947,890 404,981 37,310 (1,114,509) (288,242) (12,524) (882,777) 40,630 437,291 16,131,477 Year 5 19,692,414 1,947,890 404,981 37,310 (875,185) (168,392) (13,808) (973,262) 40,630 267,178 20,359,756 Year 6 24,469,495 1,947,890 (253,935) (769,777) (179,789) (15,223) (1,073,021) 40,630 284,796 24,451,066 Year 7 28,997,907 1,947,890 (253,935) (846,754) (192,052) (16,783) (1,183,006) 40,630 303,732 28,797,628 Year 8 34,071,447 1,947,890 (253,935) (931,430) (205,253) (18,504) (1,304,264) 40,630 324,095 33,670,676 Year 9 39,749,476 1,947,890 (253,935) (1,024,573) (219,472) (20,400) (1,437,951) 40,630 346,008 39,127,672

SMEDA

Year 10 46,097,544 1,947,890 (253,935) (1,127,030) (234,796) 219,427 15,466,740 40,630 (1,051,823) 61,104,646

(67,183) (4,735,500) (406,296) (5,208,979)

15,908,153 2,854,489 18,762,642 37,525,284

(2,284,114) (405,126) (2,689,240)

(2,664,190) (474,918) (5,447,033) (8,586,141)

(3,107,512) (556,732) (1,051,758) (4,716,002)

(3,624,602) (652,641) (4,277,243)

(4,227,735) (765,072) (4,992,807)

(31,816,305) (31,816,305) 500,000

(5,947,033)

(1,051,758)

6,148,309

11,854,234

15,366,949

24,451,066

28,797,628

33,670,676

39,127,672

61,104,646

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Absorbent Cotton Manufacturing Unit

9.6

Projected Balance Sheet

SMEDA

Calculations
Balance Sheet
Year 0 Assets Current assets Cash & Bank Accounts receivable Finished goods inventory Equipment spare part inventory Raw material inventory Pre-paid insurance Total Current Assets Fixed assets Land Building/Infrastructure Machinery & equipment Furniture & fixtures Office vehicles Office equipment Total Fixed Assets Intangible assets Pre-operation costs Legal, licensing, & training costs Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Accounts payable Short term debt Other liabilities 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 500,000 3,739,081 1,741,563 84,650 5,966,730 365,666 11,897,691 4,420,635 2,093,182 104,992 7,400,610 325,037 14,344,456 6,148,309 5,708,074 2,480,508 122,185 8,612,460 284,407 23,355,943 18,002,543 6,822,583 2,768,750 134,709 9,495,237 243,778 37,467,599 33,369,492 7,697,768 2,937,142 148,517 10,468,499 203,148 54,824,565 57,820,557 8,467,545 3,116,932 163,739 11,541,520 162,518 81,272,811 86,618,185 9,314,299 3,308,984 180,523 12,724,525 121,889 112,268,405 120,288,861 10,245,729 3,514,237 199,026 14,028,789 81,259 148,357,902 159,416,533 11,270,302 3,733,710 219,427 15,466,740 40,630 190,147,341 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Year 10

67,183 4,735,500 406,296 5,708,979

220,521,179 12,397,332 3,968,505 236,887,017

2,000,000 16,625,000 8,665,000 735,000 1,492,400 274,000 29,791,400

2,000,000 15,793,750 7,798,500 661,500 1,343,160 246,600 27,843,510

2,000,000 14,962,500 6,932,000 588,000 1,193,920 219,200 25,895,620

2,000,000 14,131,250 6,065,500 514,500 1,044,680 191,800 23,947,730

2,000,000 13,300,000 5,199,000 441,000 895,440 164,400 21,999,840

2,000,000 12,468,750 4,332,500 367,500 746,200 137,000 20,051,950

2,000,000 11,637,500 3,466,000 294,000 596,960 109,600 18,104,060

2,000,000 10,806,250 2,599,500 220,500 447,720 82,200 16,156,170

2,000,000 9,975,000 1,733,000 147,000 298,480 54,800 14,208,280

2,000,000 9,143,750 866,500 73,500 149,240 27,400 12,260,390

2,000,000 8,312,500 10,312,500

2,024,906 2,024,906 37,525,284

1,619,924 1,619,924 41,361,125

1,214,943 1,214,943 41,455,019

809,962 809,962 48,113,635

404,981 404,981 59,872,420

74,876,515

99,376,871

128,424,575

162,566,182

202,407,731

247,199,516

2,865,820 5,447,033 8,312,853

3,459,034 1,051,758 4,510,792

4,075,188 4,075,188

4,512,479 4,512,479

4,779,657 4,779,657

5,064,453 5,064,453

5,368,185 5,368,185

5,692,280 5,692,280

6,038,288 6,038,288

4,986,465 4,986,465

15,908,153 2,854,489 18,762,642

13,624,039 2,449,363 16,073,402

1,604,688 10,959,849 1,974,445 14,538,982

1,641,998 7,852,337 1,417,713 10,912,048

1,679,308 4,227,735 765,072 6,672,115

1,716,618 1,716,618

1,462,683 1,462,683

1,208,748 1,208,748

954,813 954,813

700,878 700,878

446,943 446,943

18,762,642 18,762,642 37,525,284

18,762,642 (1,787,771) 16,974,870 41,361,125

18,762,642 3,642,603 22,405,245 41,455,019

18,762,642 14,363,757 33,126,399 48,113,635

18,762,642 29,925,184 48,687,826 59,872,420

18,762,642 49,617,598 68,380,240 74,876,515

18,762,642 74,087,093 92,849,735 99,376,871

18,762,642 103,085,000 121,847,642 128,424,575

18,762,642 137,156,447 155,919,089 162,566,182

18,762,642 176,905,923 195,668,565 202,407,731

18,762,642 223,003,467 241,766,109 247,199,516

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Absorbent Cotton Manufacturing Unit

10 KEY ASSUMPTIONS
Table 10-1: Operating Assumptions Hours operational per day Days operational per year Table 10-2: Production Assumptions Annual production capacity in Kgs Annual production capacity in Rolls after Wastage at full capacity 500 Gram Roll 350 Gram Roll 250 Gram Roll Capacity utilization (1st Year) Capacity growth rate (yearly) Maximum Capacity utilization First Year utilized production (Rools) 500 Gram Roll 350 Gram Roll 250 Gram Roll Table 10-3: Economic Assumptions Electricity growth rate Wages growth rate Machine maintenance growth rate Table 10-4: Cash Flow Assumptions Accounts Receivable cycle (in days) Accounts Payable cycle (in days) Raw material inventory (in days) Finished Goods inventory (in days) Table 10-5: Expense Assumptions Professional fees (audit, legal etc.) Office Expenses (stationery, entertainment, etc.) Promotional Expenses Communication Expenses 0.1% of Revenue 5% of administrative expenses 1% of revenue 5% of administrative expenses 30 30 60 15 10% 10% 5% 330,000 8 330

410,293 109,412 218,823 70% 10% 95% 241,857 115,170 161,238

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Absorbent Cotton Manufacturing Unit

Table 10-6: Raw Material Assumptions Dessi Comber Noil Delenter Chemicals Caustic Soda Soda Ash Detergent Opticle Brightner Hydrogen Peroxide Acitic Acid-Formacide Packing Paper, labels, gum, PE sheets, sacks etc Raw Material Cost per Kg in Rs. Table 10-7: Expense Assumptions Professional fees (audit, legal etc.) Office Expenses (stationery, entertainment, etc.) Promotional Expenses Communication Expenses Table 10-8: Depreciation Rates Depreciation Method Building & infrastructure Machinery & Equipment Furniture & Fixtures Table 10-9: Financial Assumptions Project life (Years) Debt: Equity Interest rate on long and short term debt Table 10-10: Product Sale Price Size 500 Gram Roll 350 Gram Roll 250 Gram Roll Price (Rs) 110 80 60 10 50:50 16% Straight Line Method 5% 10% 10% 0.1% of Revenue 5% of administrative expenses 1% of revenue 7% of administrative expenses Wastage 10% 5% 25% Cost per Kg.(in Rs) 98 105 38

39.25

3.25 123

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Absorbent Cotton Manufacturing Unit

11 ANNEXURE
Table 11-1: Raw Material & Machinery Supplier Raw Material Suppliers SULTAN TRADING COMPANY P-130, Gole Lakkarwala, Faisalabad Faisalabad Tel: 041-2643262-2648262 Fax: 041-2647262 Email: muzammil@fsd.comsats.net.pk FABRICHEM TRADING COMPANY 1419-B Peoples Colony No 1 Faisalabad, Pakistan Tel: 041-8547430,8541344 Fax: 041-8555634 Mobile: 0300-8654191 Machinery Suppliers Noorani Industries Samundri Road Faisalabad, Pakistan Tel: 041-8544683 Fax: 041- 8545692 Mobile: 0300-8650205 Email: noorani@fsd.comsats.net.pk Jamil Engineering Works Muhallah Naseerabad, Nishatabad Opposite Total Petrol Pump Sheikhupura Road, Faisalabad. Tel: (92-41) 8750941 Fax: (92-41) 8750741 Mobile: (92-300) 6692741 Ishaq Engineering Works Sheikhupura Road, Under bridge Nishatabad Faisalabad, Pakistan Tel: 041-8755818 Fax: 041-8753632 Cell: 0301-7149435 Email: ishaqeng@cyber.net.pk

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