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

REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

PUNJAB SINDH NWFP BALOCHISTAN

8th Floor LDA Plaza 5TH Floor, Bahria

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

January 2009
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.

Pre-Feasibility Study Cotton Towels Manufacturing Unit

1 INTRODUCTION TO SMEDA 4
2 PURPOSE OF THE DOCUMENT 4
3 PROJECT BRIEF 4
3..1 Opporrttuniitty Rattiionalle 5
3..2 Prroposed Capaciitty 5
3..3 Tottall 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

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5..2 Tottall 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 Tottall 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 fellow Statement 19
15..3 Projected Balance Sheet 20

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 sect oral 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 sect oral 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

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requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.
Along with the sect oral 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 PROJECTS 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 bed wear 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 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

Pre-Feasibility Study Cotton Towels Manufacturing Unit

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

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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, and 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.

Pre-Feasibility Study Cotton Towels Manufacturing Unit

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3.4 Production Process Flow

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 hydro extractors that improve the quality of their final product. Due to the
quality issues, a hydro extractor 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.
Pre-Feasibility Study Cotton Towels Manufacturing Unit

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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
Northern Region Number of units
Lahore 14
Kasur 3
Faisalabad 4
Gujanwala 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
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

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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
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

Pre-Feasibility Study Cotton Towels Manufacturing Unit

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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

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%
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:
Pre-Feasibility Study Cotton Towels Manufacturing Unit

Table 5-3: Percentage Share in World Imports9

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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).

Pre-Feasibility Study Cotton Towels Manufacturing Unit

7 MACHINERY DETAILS

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 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 35,000 35,000
Kier 1 400,000 400,000
Winch 2 300,000 600,000
Hydro-extractor 1 250,000 250,000
Sizing 9 drum with double dip system 1 4,950,000 4,950,000
Warping 1 200,000 200,000
Tumble 1 375,000 375,000
Stenter 1 375,000 375,000
Inspection Rolling Machine 2 375,000 750,000
Boiler 1 900,000 900,000
Stitching machines 5 40,000 200,000
Cutter 1 100,000 100,000
Other Equipments-Furnace Oil Tank, Frames, 499,125
Trollies and Water Pump
Sales tax 2,554,065
Installation costs for machines Including
Transformer, Cable and Control Panel
Total Cost of installed machinery 16,765,190

Pre-Feasibility Study Cotton Towels Manufacturing Unit

8 HUMAN RESOURCE REQUIREMENTS

For a unit of 20 looms, following manpower is required:

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 Table 8-1: Permanent Employees

Salary per Salary per Salary

Employee No. of Employee per Month Per
Month Annum
Chief Executive 1 70,000 70,000 840000
Export & Marketing Manager 1 50,000 50,000 600000

Accountant 1 25,000 25,000 300000

Accounts Clerk 1 12,000 12,000 144000
Store Clerk 1 10,000 10,000 120000
Technician/Electrician 1 10,000 10,000 120000
Security Guard 4 8000 32,000 384000
Peons 2 7000 14,000 168000
TOTAL 12 192,000 223,000 2,676,000
PRODUCTION FIXED
COSTS
Production Supervisor 1 26,000 26,000 312000
Weaving Manager 1 38,000 38,000 456000
Dying Master 1 25,000 25,000 300000
Boiler Engineer 1 28,000 28,000 336000
Asstt. Dying Master 1 20,000 20,000 240000
Asstt. Weaving Manager 1 20,000 20,000 240000
Total Production Fixed Costs 6 157,000 157,000 1,884,000

TOTAL FIXED PAYROLL 18 349,000 380,000 4,560,000

Table 8-2 Contractual employees 10

Employee No. of Salary per Salary per Salary
Employee per Month Per
Month Annum
Warping Labor 3 5000 15,000 180000
Sizing labor 3 5000 15,000 180000
weavers 4 6500 26,000 312000
Fabric handlers - Drying Department 20 5000 100,000 1200000
Cutting Master 1 9000 9000 108000
Cutting Helper 3 5000 15,000 180000
Stitching machines operators 5 7000 35,000 420000
Packing staff 5 5000 25,000 300000
TOTAL 44 47,500 240,000 2,880,000

9 LAND & BUILDING

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 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
Yarn & Dyeing Material Store 800
Sizing Section 1,000
Warping Section 1,000
Weaving Section 125 per machine
Dyeing & Finishing Hall 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 700.00
Total Factory Area 17,000
Office Building 1500
Total Area 18,500
Table 9-2: Construction Cost
Cost Required Area(S. ft) Cost per Sq. Ft.(Rs)
Land 18,500 200
Factory Building 17,000 600

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

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Electricity
Gas
Furnace Oil
Telephone
Fax
Internet

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Pre-Feasibility Study Cotton Towels Manufacturing Unit

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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 are
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

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

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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-finances 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

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