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Pre-Feasibility Study

DENIM JEANS STITCHING UNIT

Small and Medium Enterprises Development Authority


Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,
Lahore
Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7
helpdesk@smeda.org.pk
REGIONAL OFFICE
PUNJAB

REGIONAL OFFICE
SINDH

REGIONAL OFFICE
KPK

REGIONAL OFFICE
BALOCHISTAN

3rd Floor, Building No. 3,


Aiwan-e-Iqbal Complex,
Egerton Road Lahore,
Tel: (042) 111-111-456
Fax: (042) 36304926-7
helpdesk.punjab@smeda.org.pk

5TH Floor, Bahria


Complex II, M.T. Khan Road,
Karachi.
Tel: (021) 111-111-456
Fax: (021) 5610572
helpdesk-khi@smeda.org.pk

Ground Floor
State Life Building
The Mall, Peshawar.
Tel: (091) 9213046-47
Fax: (091) 286908
helpdesk-pew@smeda.org.pk

Bungalow No. 15-A


Chaman Housing Scheme
Airport Road, Quetta.
Tel: (081) 831623, 831702
Fax: (081) 831922
helpdesk-qta@smeda.org.pk

June 2010

Pre-Feasibility Study

Garments Stitching Unit (Denim Jeans)

1.

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

2.

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

3.

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

4.

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


4.1.

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

4.2.

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

4.3.

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

4.4.

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

5.

PROJECT 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


EXPORT MARKET ......................................................................................... 8

6.1.
7.

MARKET 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 REQUIREMENTS ................................................ 13

10.

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

10.1.

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

10.2.

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

11.

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


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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

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

DOCUMENT CONTROL
Document No.

PREF-01

Revision

Prepared by

SMEDA-Punjab

Issue Date

July, 2001

Revised in

June, 2010

Issued by

Library Officer
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Garments Stitching Unit (Denim Jeans)

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 units 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.

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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 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.

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.

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4. CRUCIAL FACTORS AND STEPS IN DECISION MAKING


4.1.

4.2.

4.3.

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.

4.4.

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.
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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 has also been on a rise.
5.2.

Project 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 Project Cost

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

Project 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

Project 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.

yarn count

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5.6.

Garments Stitching Unit (Denim Jeans)

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

Pakistans export of denim jeans is increasing over the years. Pakistans 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:

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Table 6-1:

Garments Stitching Unit (Denim Jeans)

Pakistans Exports in the year 2008 and 20092


2008

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

2009

Export Value (USD)


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

Export Value (USD)


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 worlds 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%

10%

http://comtrade.un.org

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Mexico
Others

Pre-Feasibility Study

Table 6-2:

Garments Stitching Unit (Denim Jeans)

Trade Value for Top Importers


Country

Trade Value (USD)


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

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

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 for Top Exporters


Country

Trade Value (USD)


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

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

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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

Major 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.
Joes 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
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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 for 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
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.

Consumption/ Piece
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

Packing Cost

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.

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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

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

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

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

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

Number
1
1
2
1
1
1
1
1
2
11

Salary/Month
75,000
50,000
15,000
40,000
25,000
25,000
20,000
15,000
8,500

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

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10.

Garments Stitching Unit (Denim Jeans)

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
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

Quantity
2
15
3
1
1
2
3
1
1
1
1
1
32
1
Lumpsum
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

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 Office Equipment

Furniture
Table
Chairs
Shelves
Stools

Quantity
9
18
6
13

Cost/Unit (Rs.)
10,000
3,000
10,000
800
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Total Cost (Rs.)


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

Pre-Feasibility Study

Garments Stitching Unit (Denim Jeans)

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
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.)

Required area (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.

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Table 11-2:

Garments Stitching Unit (Denim Jeans)

Building Rent

Rent cost
Estimated Building rent

Monthly rent (Rs.)


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: Project Costs


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

Total (Rs.)
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

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13.

Garments Stitching Unit (Denim Jeans)

FINANCIAL ANALYSIS

13.1. Projected Income Statement


PROJECTED INCOME STATEMENT
Year 1
107,054,171

Year 2
125,510,319

Year 3
148,040,625

Year 4
173,022,480

Year 5
201,520,300

Year 6
221,672,330

Year 7
243,839,563

Year 8
268,223,519

Year 9
295,045,871

Year 10
324,550,459

79,027,200
6,174,000
790,272
7,296,000
209,191
1,641,543
95,138,206
11,915,965

88,905,600
6,945,750
889,056
8,025,600
219,651
1,805,697
106,791,354
18,718,965

99,574,272
7,779,240
995,743
8,828,160
230,633
1,986,267
119,394,315
28,646,310

111,087,547
8,678,715
1,110,875
9,710,976
242,165
2,184,893
133,015,171
40,007,308

129,384,320
9,648,689
1,293,843
10,682,074
254,273
2,403,383
153,666,581
47,853,719

142,322,752
10,131,123
1,423,228
11,750,281
266,987
2,643,721
168,538,091
53,134,239

156,555,027
10,637,679
1,565,550
12,925,309
280,336
2,908,093
184,871,994
58,967,569

172,210,529
11,169,563
1,722,105
14,217,840
294,353
3,198,902
202,813,293
65,410,226

189,431,582
11,728,041
1,894,316
15,639,624
309,070
3,518,793
222,521,427
72,524,445

208,374,741
12,314,443
2,083,747
17,203,586
324,524
3,870,672
244,171,714
80,378,745

3,564,000
882,000
261,286
712,800
802,906
60,000
151,100
522,572
6,956,664
4,959,301

3,920,400
970,200
235,157
784,080
972,705
66,000
151,100
522,572
7,622,214
11,096,751

4,312,440
1,067,220
209,029
862,488
1,188,026
72,600
151,100
522,572
8,385,475
20,260,835

4,743,684
1,173,942
182,900
948,737
1,440,845
79,860
151,100
522,572
9,243,640
30,763,669

5,218,052
1,291,336
156,772
1,043,610
1,745,216
87,846
151,100
522,572
10,216,505
37,637,214

5,739,858
1,420,470
130,643
1,147,972
2,000,875
96,631

6,313,843
1,562,517
104,514
1,262,769
2,299,139
106,294

6,945,228
1,718,768
78,386
1,389,046
2,647,847
116,923

7,639,751
1,890,645
52,257
1,527,950
3,056,372
128,615

8,403,726
2,079,710
26,129
1,680,745
3,535,935
141,477

522,572
11,059,020
42,075,219

522,572
12,171,648
46,795,920

522,572
13,418,770
51,991,457

522,572
14,818,162
57,706,282

522,572
16,390,293
63,988,452

1,132,026
0
1,800,000
2,932,026
2,027,274
506,819
1,520,456

967,419
1,013,997
1,980,000
3,961,416
7,135,335
1,783,834
5,351,501

776,475
678,673
2,178,000
3,633,148
16,627,687
4,156,922
12,470,765

554,979
0
2,395,800
2,950,779
27,812,890
6,953,222
20,859,667

298,044
0
2,635,380
2,933,424
34,703,790
8,675,948
26,027,843

0
0
2,898,918
2,898,918
39,176,301
9,794,075
29,382,226

0
0
3,188,810
3,188,810
43,607,111
10,901,778
32,705,333

0
0
3,507,691
3,507,691
48,483,766
12,120,941
36,362,824

0
0
3,858,460
3,858,460
53,847,823
13,461,956
40,385,867

0
0
4,244,306
4,244,306
59,744,146
14,936,037
44,808,110

Sales
Cost of goods sold
Raw Material
Washing Cost (OUTSOURCED)
Freight Charges
Payroll (Production Staff)
Machine Maintenance
Direct Electricity
Total
Gross Profit
Operating Expenses
Payroll (Admin)
Fixed electricity
Insurance expense
Office Expense (Stationary,Entertainment,etc)
Administrative & Factory Overheads
Other expenses
Amortization (Pre-operational Expenses)
Depreciation
Total
Operating Profit
Non-operating Expenses
Financial Charges on Long-term Loan
Financial Charges on Short-Term Loan
Building Rentel
Total
Profit Before Tax
Tax
Profit After Tax

17
PREF-01/June, 2010/Rev 3

Pre-Feasibility Study

Garments Stitching Unit (Denim Jeans)

13.2. Projected Balance Sheet


PROJECTED BALANCE SHEET
Const. Year
Year 1
Current Assets
Cash
Stocks and Inventory
Receivable
Equipment and spare part inventory
Pre-paid insurnace payment
Pre-paid building rent
Total
Gross Fixed Assets
Less: Accumulated depreciation
Net Fixed Assets
Intangible Assets
Pre-operational Expenses
Total
Total Assets
Current Liabilities
Running Finance
Accounts payable
Total
Long-term liabilities
Long-term Loan
Total
Equity
Paid-up Capital
Retained Earnings
Total
Total Liabilities And Equity

Year 2

Year 3

Year 4

Year 6

Year 7

Year 8

Year 9

Year 10

2,154,373
3,951,360
0
2,092
261,286
1,800,000
8,169,111
5,225,720
0
5,225,720

2,154,373
4,445,280
16,058,126
2,197
235,157
1,980,000
24,875,132
5,225,720
522,572
4,703,148

2,154,373
4,978,714
18,826,548
2,306
209,029
2,178,000
28,348,969
5,225,720
1,045,144
4,180,576

6,040,009
5,554,377
22,206,094
2,422
182,900
2,395,800
36,381,602
5,225,720
1,567,716
3,658,004

22,300,710
6,469,216
25,953,372
2,543
156,772
2,635,380
57,517,993
5,225,720
2,090,288
3,135,432

43,901,477
7,116,138
30,228,045
2,670
130,643
2,898,918
84,277,891
5,225,720
2,612,860
2,612,860

71,166,496
7,827,751
33,250,850
2,803
104,514
3,188,810
115,541,224
5,225,720
3,135,432
2,090,288

101,488,037
8,610,526
36,575,934
2,944
78,386
3,507,691
150,263,518
5,225,720
3,658,004
1,567,716

135,173,827
9,471,579
40,233,528
3,091
52,257
3,858,460
188,792,742
5,225,720
4,180,576
1,045,144

172,560,094
10,418,737
44,256,881
3,245
26,129
4,244,306
231,509,392
5,225,720
4,703,148
522,572

225,474,392
0
48,682,569
3,408
0
4,668,736
278,829,105
5,225,720
5,225,720
0

755,500
755,500
14,150,331

604,400
604,400
30,182,680

453,300
453,300
32,982,845

302,200
302,200
40,341,806

151,100
151,100
60,804,525

0
0
86,890,751

0
117,631,512

0
151,831,234

0
189,837,886

0
232,031,964

0
278,829,105

0
0

7,242,833
8,297,856
15,540,689

4,847,668
9,335,088
14,182,756

0
10,455,299
10,455,299

0
11,664,192
11,664,192

0
13,585,354
13,585,354

0
14,943,889
14,943,889

0
16,438,278
16,438,278

0
18,082,106
18,082,106

0
19,890,316
19,890,316

0
21,879,348
21,879,348

7,075,165
7,075,165

6,046,370
6,046,370

4,852,967
4,852,967

3,468,620
3,468,620

1,862,777
1,862,777

0
0

0
0

0
0

0
0

0
0

0
0

7,075,165
0
7,075,165
14,150,331

7,075,165
1,520,456
8,595,621
30,182,680

7,075,165
6,871,957
13,947,122
32,982,845

7,075,165
19,342,722
26,417,887
40,341,806

7,075,165
40,202,389
47,277,555
60,804,525

7,075,165
66,230,232
73,305,397
86,890,751

7,075,165
95,612,458
102,687,623
117,631,512

7,075,165
128,317,791
135,392,956
151,831,234

7,075,165
164,680,615
171,755,780
189,837,886

7,075,165
205,066,482
212,141,647
232,031,964

7,075,165
249,874,592
256,949,757
278,829,105

18
PREF-01/June, 2010/Rev 3

Year 5

Pre-Feasibility Study

Garments Stitching Unit (Denim Jeans)

13.3. Projected 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 6

Year 7

Year 8

Year 9

Rs `000'
Year 10

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

19
PREF-01/June, 2010/Rev 3

Year 5

Pre-Feasibility Study

14.

Garments Stitching Unit (Denim Jeans)

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%

20
PREF-01/June, 2010/Rev 3

Pre-Feasibility Study

Table 14-7

Garments Stitching Unit (Denim Jeans)

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)

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

21
PREF-01/June, 2010/Rev 3

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

Pre-Feasibility Study

Garments Stitching Unit (Denim Jeans)

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: mailho@crescentbahuman.com
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

Pre-Feasibility Study

Garments Stitching Unit (Denim Jeans)

Phone: 042-35321406, 35321401


Fax: 042-35321407
Email: buckleup@leatherconnections.com.pk
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: amcl-l@almurtaza.com
ii) Rex Machinery Pvt. Ltd.
Address: Rex Market, 6, Allama Iqbal Road
Lahore
Ph: 042-36375524-36369309
Email: rex@nexlinx.net.pk

23
PREF-01/June, 2010/Rev 3

Pre-Feasibility Study

Garments Stitching Unit (Denim Jeans)

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

24
PREF-01/June, 2010/Rev 3