Pre-Feasibility Study
GARMENTS STITCHING UNIT
(Polo T-shirt)
Small and Medium Enterprises Development Authority
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
6th Floor LDA Plaza Egerton Road, Lahore
Tel (042)111 111 456,
Fax: 36304926-7
REGIONAL OFFICE
PUNJAB
REGIONAL OFFICE
SINDH
REGIONAL OFFICE
KHYBER PAKTUNKHWA
REGIONAL OFFICE
BALOCHISTAN
8th Floor LDA Plaza,
Egerton Road,
Lahore. Tel: (042) 111 111 456,
Fax: (042) 36370474
5TH Floor, Bahria Complex II,
M.T. Khan Road,
Karachi. Tel: (021) 111-111-456
Fax: (021) 5610572
Ground Floor
State Life Building The Mall,
Peshawar. Tel: (091)111 111 456, 9213046-7
Fax: (091) 286908
Bungalow No. 15-A Chamn
Housing Scheme Airport Road,
Quetta. Tel: (081) 2831623, 2831702
Fax: (081) 2831922
March, 2012
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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-03
Revision 3
Prepared by SMEDA-Punjab
Issue Date Mar 28, 2001
Revised on March, 2012
Issued By Library Officer
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1 EXECUTIVE SUMMARY .................................................................................................... 3
2 INTRODUCTION TO SMEDA ............................................................................................ 4
3 PURPOSE OF THE DOCUMENT ....................................................................................... 4
4 PROJECT INTRODUCTION ............................................................................................... 5
4.1 PROJECT BRIEF .................................................................................................................. 5 4.2 OPPORTUNITY RATIONALE ................................................................................................ 5 4.3 PROPOSED CAPACITY: ....................................................................................................... 5 4.4 TOTAL PROJECT INVESTMENT: .......................................................................................... 5 4.5 PROPOSED BUSINESS LEGAL STATUS ................................................................................ 6 4.6 PROCESS FLOW CHART ...................................................................................................... 6
5 CURRENT INDUSTRY STRUCTURE ............................................................................... 6
6 MARKETING ......................................................................................................................... 8
6.1 GUIDELINES FOR GARMENTS EXPORT BUSINESS ............................................................... 8 6.2 TOTAL MARKET SIZE AND GROWTH ................................................................................. 9 6.3 WORLD EXPORTS OF POLO T-SHIRTS .............................................................................. 10
7 RAW MATERIAL ............................................................................................................... 10
8 HUMAN RESOURCE REQUIREMENTS ........................................................................ 11
9 MACHINERY & EQUIPMENT DETAILS ...................................................................... 12
9.1 MACHINERY LIST ............................................................................................................ 12 9.2 OTHER OPTIONS AVAILABLE FOR MACHINERY ............................................................... 12 9.3 FURNITURE & FIXTURE ................................................................................................... 12
10 LAND & BUILDING ....................................................................................................... 13
10.1 TOTAL LAND REQUIREMENT ........................................................................................... 13 10.2 RECOMMENDED MODE .................................................................................................... 13 10.3 SUITABLE LOCATIONS ..................................................................................................... 14 10.4 UTILITIES REQUIREMENTS ............................................................................................... 14
11 KEY SUCCESS FACTORS ............................................................................................. 14
12 THREATS FOR THE BUSINESS .................................................................................. 14
13 PROJECT COSTS & FINANCIAL ANALYSIS ........................................................... 16
13.1 TOTAL PROJECT COST AND RETURNS .............................................................................. 16 13.2 INCOME STATEMENT ....................................................................................................... 18 13.3 BALANCE SHEET ............................................................................................................. 19 13.4 CASH FLOW STATEMENT ................................................................................................. 20
14 ASSUMPTION .................................................................................................................. 21
15 ANNEXURE ...................................................................................................................... 23
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11 EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY
The local knitwear and apparel industries of Pakistan have, no doubt, made
tremendous strides over the last few decades. While there have been some periods
of slump in the past, for the past ten years the industry has been growing and
progressing quite steadily.
Pakistan's knitwear sector, which comprises 18,000 knitting machine, is the
leading growth sector in the entire textile chain with a growth potential estimated
at around 12% a year over the next five years, which would allow it to fetch more
than US$5bn in foreign exchange by 2014.1
The objective of the pre-feasibility study is to provide details about the investment
opportunity in a stitching unit for knitted garments. Mainly the production of this
unit will be for export purpose, and hence will contribute in the earning of foreign
exchange for the country. There is a vast range of knitted products like knitted T-
shirts, blouses, trousers and shorts etc. However, this unit is designed on basic
Polo T-shirt. Initially, for some time period, this unit will operate on CMT2
(commercial basis), but ultimately, this would be an export-oriented unit.
Therefore, all the calculations and financial workings have been done while
treating this as an export based project. This project will also have the potential
for horizontal as well as vertical integration.
The estimated cost of the project is Rs. 20.896 million. The project shall be
financed through 50% equity and 50% by Bank Loan. The project will be run by
qualified & experienced professionals. Projected IRR, NPV and Payback of the
proposed project are 34%, Rs. 33.089 million and 4.21 years respectively.
1 Pakistan Textile Journal
2 CMT: Cutting, Manufacturing and Trimming
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22 IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA
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
SMEDA’s areas of operation.
Along with the sectoral focus a broad spectrum of business development services
is also offered to the SMEs by SMEDA. These services include identification of
viable business opportunities for potential SME investors. In order to facilitate
these investors, SMEDA provides business guidance through its help desk
services as well as development of project specific documents. These documents
consist of information required to make well-researched investment decisions.
Pre-feasibility studies and business plan development are some of the services
provided to enhance the capacity of individual SMEs to exploit viable business
opportunities in a better way.
This document is in the continuation of this effort to enable potential investors to
make well-informed investment decisions.
33 PPuurrppoossee ooff tthhee DDooccuummeenntt
The objective of this proposed Pre-feasibility Study is primarily to facilitate
potential entrepreneurs with the investment information and provide an overview
about the "Garments Stitching Unit (Polo T-shirt)". The project pre-feasibility
study 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, 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 Textile
related 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.
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This particular Pre-feasibility is regarding setting up "Garments Stitching Unit
(Polo T-shirt)". This report is based on the information obtained from industry
sources as well as discussions made with businessmen and industry key players.
For financial model, since the forecast/projections relate to the future periods,
actual results are likely to differ because of the events and circumstances that
don’t occur as frequently as expected.
44 PPrroojjeecctt IInnttrroodduuccttiioonn
44..11 PPrroojjeecctt BBrriieeff
The subject pre-feasibility study provides details about the investment opportunity
in a stitching unit for knitted garments. Mainly the production of this unit will be
for export purpose, and hence will contribute in the earning of foreign exchange
for the country. There is a vast range of knitted products like knitted T-shirts,
blouses, trousers and shorts etc. However, this unit is designed on basic Polo T-
shirt. Initially, for some time period, this unit will operate on CMT3 (commercial
basis), but ultimately, this would be an export-oriented unit. Therefore, all the
calculations and financial workings have been done while treating this as an
export based project. This project will also have the potential for horizontal as
well as vertical integration.
44..22 OOppppoorrttuunniittyy RRaattiioonnaallee
Exports of knitted garments from Pakistan have been on a rise during the last few
years. The availability of suitable raw material, development of certain skill levels
and introduction of international brands with local garment manufacturers are
some of the favoring factors for further expansion of knit garments industry in the
country. Pakistan is fourth largest producer of Cotton after China, India and USA.
In addition to providing raw material to the local textile industry, the lint cotton is
an export item. During 2010-11, the crop was cultivated on an area of 2689
thousand hectares. The production is estimated at 11.5 million bales.4 Raw
material for Socks Manufacturing unit is easily available in local market so this
validates the opportunity to set up a new sock manufacturing unit to capture the
need of expanding market.
44..33 PPrrooppoosseedd CCaappaacciittyy::
1600 T-Shirts / Day (53 Stitching Machines)
44..44 TToottaall PPrroojjeecctt IInnvveessttmmeenntt::
The total cost of the project is estimated at Rs. 20.896 million.
3 CMT: Cutting, Manufacturing and Trimming
4 Economic Survey of Pakistan 2010-11 (Ch #2, Page # 17)
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TTaabbllee 44--11:: PPrroojjeecctt IInnvveessttmmeenntt
Capital Investment Rs. 16,573,117
Working Capital Requirement Rs. 4,323,083
Total Investment Rs. 20,896,200
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.
TTaabbllee 44--22:: PPrroojjeecctt FFiinnaanncciinngg
Debt 50% Rs. 10,448,100
Equity 50% Rs. 10,448,100
Total project Investment Rs. 20,896,200
44..55 PPrrooppoosseedd BBuussiinneessss LLeeggaall SSttaattuuss
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 Sole Proprietorship.
44..66 PPrroocceessss ffllooww CChhaarrtt
The following figure shows the production process flow of Garments Stitching
Unit (Polo T-shirt).
FFiigguurree 44--11:: PPrroodduuccttiioonn PPrroocceessss FFllooww
Finished Fabric
ReceiptInspection Cutting Stitching Trimming
Washing
(Optional)
Final
Inspection
Pressing Packing
55 CCUURRRREENNTT IINNDDUUSSTTRRYY SSTTRRUUCCTTUURREE
The local knitwear and apparel industries of Pakistan have, no doubt, made
tremendous strides over the last few decades. While there have been some
periods of slump in the past, for the past ten years the industry has been
growing and progressing quite steadily. The major problem with our industry
is that it is still geared to make lower value added products as against other
countries in the same region who have very quickly progressed to produce
higher value added products. Countries like Sri Lanka, Bangladesh, Vietnam,
Indonesia and now even India have improved the quality of their products. In
Pre-Feasibility Study Garments Stitching Unit (Polo T-shirt)
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Pakistan this has resulted in a concentration on low quality segments of the
textile products with very low margins.
At present there are about 18,000 knitting machines in this industry,
producing about 1.4 billion pieces. Out of this production, 60% comprises
jersey, knitted fabric, T-shirts, sweat shirts, polo shirts, jogging suits, track
suits and children outer wear5. Total exports of Pakistan for Polo T-Shirts
stood at 363 million US Dollars. Major partner Countries for exports are as
shown in the table below:
TTaabbllee 55--11:: PPaakkiissttaann’’ss EExxppoorrttss ooff PPoolloo TT--SShhiirrttss66
Partner Trade value in US $ (Millions) %age Change
2008 2009 2010 2009 2010
USA 275.20 216.58 273.06 -21% 26%
UK 32.33 25.07 40.68 -22% 62%
Spain 12.36 12.07 10.03 -2% -17%
Canada 5.12 4.34 7.92 -15% 82%
Belgium 3.91 5.22 7.09 34% 36%
Germany 6.31 3.90 6.26 -38% 61%
Italy 3.99 3.26 3.50 -18% 7%
France 1.28 1.45 2.36 14% 62%
Netherlands 3.75 3.21 1.95 -14% -39%
UAE 1.64 1.97 1.80 20% -8%
Rest of the World 9.49 8.01 9.20 -16% 15%
The industry is characterized by majority of the manufacturing units located in
few major cities. Major concentration of the industry is in Lahore and Karachi.
Other hubs are Faisalabad, Gujranwala, and Sialkot.
5 Pakistan Textile Journal
6 Source: UN Comtrade
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66 MMAARRKKEETTIINNGG
In view of the fact that main raw material and skilled manpower is available in
Pakistan, scope for garment exports from Pakistan is unlimited. Effective
marketing plays a very crucial role for making this business a success.
Export orders can be generated either through local or foreign buying houses
that have their presence in the country and source export orders for foreign
customers from local industry. The other way to get export orders is through
direct marketing in the international markets while initiating contacts with
potential customers directly and/or through participation in international trade
fairs, exhibitions etc. In the absence of export orders, other factories that have
excess export orders can also provide sub-contract work on CMT basis.
66..11 GGuuiiddeelliinneess ffoorr GGaarrmmeennttss EExxppoorrtt BBuussiinneessss
In order to enter into the export business of garments, following basic
guidelines can provide help to any new comer in this business:
a) Ensure best quality at all costs. This is a basic key for a successful
exporter in the garment exports.
b) Commitments with buyers regarding quality, price and shipment are
basic essentials to enter and grow in the export business. Pakistan has
lost much business and goodwill due to this factor alone. Therefore, for
any newcomer, commitments with the buyers should be met very
seriously.
c) Sourcing of export orders, through several apparel buying houses based
in Pakistan, can be a good startup point of marketing efforts. The prices
offered by these buying houses might be lower than those of direct
orders, but at least they can be good entry point and learning experience
for new exporters
d) Many garment factories are considering it worthwhile setting up their
overseas offices and warehouses in the potential markets. Overseas
office cannot only assist in sales, but also keep the garment factory
continuously informed about the latest design changes, buyers'
requirements and market trends. Warehouses of supplier(s) in the
customer's country make it convenient for the customer to make the
purchase decisions effectively as in this case customer gets the required
products on LDP (Landed Duty Paid) basis and without any hassle of
being involved in shipment and import procedures.
e) The professional marketing staff and owner(s) should regularly visit
international clothing fairs, shows and exhibitions. Such events provide
Pre-Feasibility Study Garments Stitching Unit (Polo T-shirt)
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very promising opportunities to penetrate in the international markets,
meeting new customers and negotiating orders7.
f) In order to be successful in the market, it is very important to be active
and quick in response to the customers. Being flexible with buyers
regarding their requests and requirements can help to develop mutual
understandings with them. Many buyers themselves guide the
manufacturer in correct designing, fabric and accessories selection and
procurement, improvements in production and quality control etc.
g) Regular subscriptions with local and foreign textile trade and fashion
magazines will ensure the flow of latest marketing and trade information
to the exporter.
66..22 TToottaall MMaarrkkeett SSiizzee aanndd GGrroowwtthh
Total global trade value of T-shirts is more than $5 billion. USA is the largest
importing country with a share of 29% and a total value of $1.60 billion. USA
is a rapidly growing market with annual growth rates of 12% from last year.
Germany is the second largest importer in this category with imports of $ 449
million. However, German market has been stagnant during last many years
and has grown by only 6% from last year.
China is the third largest importer with total imports of $416 million. Other
major importers are given in the following table:
TTaabbllee 66--11:: IInntteerrnnaattiioonnaall IImmppoorrtt MMaarrkkeett SSttaattiissttiiccss88
Country Value (US $ Million ) %age change
2009 2010 2010
USA 1,425 1,597 12%
Germany 424 449 6%
China 353 416 18%
UK 320 388 21%
Italy 349 364 4%
France 337 324 -4%
Japan 260 273 5%
Spain 247 238 -4%
7 The calendar of such events can be obtained from TDAP.
8 Source: UN Comtrade
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66..33 WWoorrlldd EExxppoorrttss ooff PPoolloo TT--SShhiirrttss
The total export volume for exports of Polo T-shirts in the world has been
around 5 billion US Dollars in the year 2010.
TTaabbllee 66--22:: WWoorrlldd eexxppoorrttss ooff PPoolloo TT SShhiirrttss99
Country Value (US $ Million ) %age Change
2009 2010 2010
China 861 1064 24%
China, Hong Kong SAR 480 564 18%
Pakistan 285 363 27%
India 414 351 -15%
Germany 227 235 4%
Peru 183 230 26%
Italy 196 205 5%
Turkey 188 170 -10%
77 RRAAWW MMAATTEERRIIAALL
The main raw materials used in the manufacturing of Polo T-shirts are listed
below:
Printed or dyed knitted fabric (may be 100% Cotton or Polyester/Cotton in
different ratios)
Buttons
Threads
Labels
Zippers
Packing material
9 Source: UN Comtrade
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88 HHUUMMAANN RREESSOOUURRCCEE RREEQQUUIIRREEMMEENNTTSS
For a garment-stitching unit of 52 stitching machines, following manpower is
required:
TTaabbllee 88--11:: HHuummaann RReessoouurrccee RReeqquuiirreemmeennttss
Positions Required No.
of Staff
Monthly Salary
(Rs.)
Annual Salary
(Rs.)
CEO 1 60,000 720,000
Production Manager 1 50,000 600,000
Marketing Manager 1 50,000 600,000
Production Planning
Officer
1 25,000 300,000
Accounts Officer 1 20,000 240,000
Purchase Officer 1 20,000 240,000
Marketing Staff 2 20,000 480,000
Stitching Supervisor 1 15,000 180,000
Cutting Master 1 15,000 180,000
Technician/Electrician 1 15,000 180,000
Spot Washer 1 10,000 120,000
Machine Operator 52 9,000 5,616,000
Rowing Inspector 2 8,000 192,000
Sampling Stitcher 2 8,000 192,000
Finishing Supervisor 1 7,500 90,000
R/I Supervisor 1 7,500 90,000
Cutting Helper 2 7,500 180,000
Clippers 6 7,500 540,000
Stain Remover 1 7,500 90,000
Iron Presser 3 7,500 270,000
Rafugar 1 7,500 90,000
Packing Staff 3 7,500 270,000
Helper (Machine
Operator)
4 7,500 360,000
Final Table Inspector 7 7,500 630,000
Office Boys 2 7,000 168,000
Security guards 3 9,000 324,000
Total 102 12,942,000
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99 MMAACCHHIINNEERRYY && EEQQUUIIPPMMEENNTT DDEETTAAIILLSS
99..11 MMaacchhiinneerryy LLiisstt
Following combination of stitching machines is required for manufacturing
1,600 knitted Polo T-shirts per day. Approx. prices for (JUKI) Japanese origin
machinery are given below:
TTaabbllee 99--11:: MMaacchhiinneerryy && EEqquuiippmmeennttss RReeqquuiirreedd
Stitching Machinery Machines
Required
Cost /
Machine
(Rs.)
Total Cost
(Rs.)
Cutting Machine 10" 1 63,000 63,000
Lock Stitch (Single Needle) 27 78,000 2,106,000
Safety Stitching Over lock (3
Thread) 12 47,000 564,000
Safety Stitching Over lock (4
Thread) 4 42,000 168,000
Flat Lock 7 100,000 700,000
Button Hole Machine 1 135,000 135,000
Button Stitching Machine 1 90,000 90,000
Steam Boiler 1 200,000 200,000
Factory Fixture 1 200,000 200,000
Generator Set – 60 kVA 1 800,000 800,000
Total 53 5,026,000
99..22 OOtthheerr OOppttiioonnss AAvvaaiillaabbllee ffoorr MMaacchhiinneerryy
Garments stitching machinery is available in quite a diversified range of
suppliers origins i.e. Japanese, Italian, Chinese, Korean, Taiwanese and Hong
Kong origin. However, there is a substantial difference between their prices.
European and Japanese machinery is 2 to 3 times more expensive as compared to
Chinese or Far Eastern machinery. Second hand machinery of different origins is
also available from the local market.
99..33 FFuurrnniittuurree && FFiixxttuurree
Furniture and fixture requirement is given in the table below:
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TTaabbllee 99--22:: MMaacchhiinneerryy && EEqquuiippmmeennttss RReeqquuiirreedd
Items No. of Items Cost/Item (Rs.) Total Cost
(Rs.)
Computers with UPS 8 45,000 360,000
Printers 1 20,000 20,000
Fax Machine 1 10,000 10,000
Telephone Sets 2 1,500 3,000
Air Conditioners 4 45,000 180,000
Tube Lights, Fans,
etc 56,000
Office Furniture Set
(Aprox) 250,000
Total 879,000
1100 LLAANNDD && BBUUIILLDDIINNGG
1100..11 TToottaall LLaanndd RReeqquuiirreemmeenntt
For garments stitching unit with production of about 1,600 garments per day,
approx. 7,000 square feet covered area is required. The details are listed below:
TTaabbllee 1100--11:: CCoovveerreedd AArreeaa rreeqquuiirreemmeenntt
Building & Civil works
Space
Required in
Sq. ft
Construction
Cost (Rs. /Sq.
Ft.)
Total Cost (Rs.)
Management building 1,000 1,500 1,500,000
Cutting room 600 1,000 600,000
Sampling room 400 1,000 400,000
Stitching room 1,500 1,000 1,500,000
Inspection room 500 1,000 500,000
Packing room 500 1,000 500,000
Finished garment store 1,000 850 850,000
Fabrics and Accessories
inventory room
1,500 850
1,275,000
Total Infrastructure
Cost
7,000
7,125,000
1100..22 RReeccoommmmeennddeedd MMooddee
Building for the business can be acquired on rent but it is proposed that it should
be purchased or built as machinery will be installed.
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1100..33 SSuuiittaabbllee LLooccaattiioonnss
The clusters of garments stitching industry exist predominantly in Lahore,
Karachi and Faisalabad. Most of the garment manufactures are based in these
major cities, so it is recommended that such unit should be started in these areas.
However, the basic criterion for the selection of location within these clusters
should be the accessibility of skilled manpower.
1100..44 UUttiilliittiieess RReeqquuiirreemmeennttss
Electricity
Telephone
Gas
Water
1111 KKEEYY SSUUCCCCEESSSS FFAACCTTOORRSS
The total commercial viability of this proposed stitching unit depends on the
regular supply of export orders, i.e. at least 300 days per year production. This
requires very aggressive marketing efforts at the entrepreneur's end and the
concerned management team.
Following are other key points that can be taken as the key success factors for any
export based stitching unit:
Assurance of high consistent quality
Surety of on time delivery
Competitive rates
Cost efficiency
Better services to the customer i.e. claim settlement etc.
Better communication with the customers
To run a garment manufacturing set-up is a full-time job, and requires
continuous hard work and attention. Anyone who is not prepared to put best
possible efforts, concentration and hard work, should not attempt to enter in
this business.
1122 TTHHRREEAATTSS FFOORR TTHHEE BBUUSSIINNEESSSS
The labor force at the lowest level i.e. skilled/semi skilled manpower, machine
operators are quite unorganized. Their job behavior and seriousness about the
completion of any assigned job is sometimes quite unpredictable.
Stitching expertise is not available at the very best possible level. This restricts the
industry only to the production of basic garments and it cannot enter in the
production of high quality or fashion garments.
In case of CMT based unit, the requirement of credit and/or delay of payments
from customer side might cause disturbance in the cash cycle.
Pre-Feasibility Study Garments Stitching Unit (Polo T-shirt)
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Asia pacific markets are emerging as new players in the world knitwear trade.
Competition from China, Hong Kong, Vietnam, Korea is likely to increase in the
coming years. NAFTA (North American Free Trade Agreement) is also one of the
threats.
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1133 PPRROOJJEECCTT CCOOSSTTSS && FFIINNAANNCCIIAALL AANNAALLYYSSIISS
1133..11 TToottaall PPrroojjeecctt CCoosstt aanndd RReettuurrnnss
Capital Investment Rs. in actuals
Land 1,244,444
Building/Infrastructure 7,125,000
Machinery & equipment 5,026,000
Furniture & fixtures 486,000
Office vehicles 725,535
Office equipment 393,000
Pre-operating costs 1,573,137
Total Capital Costs 16,573,116
Working Capital Rs. in actuals
Equipment spare part inventory 41,883
Raw material inventory 3,781,200
Cash 500,000
Total Working Capital 4,323,083
Total Investment 20,896,200
Initial Financing Rs. in actuals
Debt 50% 10,448,100
Equity 50% 10,448,100
Equity Project
Internal Rate of Return (IRR) 49% 34%
Payback Period (yrs) 3.69 4.21
Net Present Value (NPV) 22,692,860 33,089,210
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1133..22 IInnccoommee SSttaatteemmeenntt
Calculations SMEDA
Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 68,014,947 83,561,221 101,056,851 114,671,455 123,271,814 132,517,200 142,455,990 153,140,189 164,625,703 176,972,631
Cost of sales
Cost of goods sold 1 45,374,400 54,449,280 64,318,212 71,286,018 74,850,319 78,592,835 82,522,477 86,648,600 90,981,030 95,530,082
Cost of goods sold 2 - - - - - - - - - -
Operation costs 1 (direct labor) 8,085,000 8,872,167 9,735,974 10,683,882 11,724,080 12,865,553 14,118,161 15,492,725 17,001,119 18,656,372
Operating costs 2 (machinery maintenance) 251,300 276,430 304,073 334,480 367,928 404,721 445,193 489,713 538,684 592,552
Operating costs 3 (direct electricity) 1,636,729 1,800,402 1,980,442 2,178,486 2,396,335 2,635,968 2,899,565 3,189,522 3,508,474 3,859,321
Total cost of sales 55,347,429 65,398,279 76,338,700 84,482,866 89,338,662 94,499,077 99,985,396 105,820,560 112,029,307 118,638,327
Gross Profit 12,667,518 18,162,942 24,718,151 30,188,588 33,933,152 38,018,123 42,470,594 47,319,629 52,596,396 58,334,304
General administration & selling expenses
Administration expense 3,942,000 4,325,799 4,746,965 6,382,579 7,003,996 7,685,915 8,434,226 9,255,394 10,156,513 11,145,365
Administration benefits expense 39,420 43,258 47,470 63,826 70,040 76,859 84,342 92,554 101,565 111,454
Electricity expense 633,078 696,386 766,025 842,627 926,890 1,019,579 1,121,537 1,233,690 1,357,059 1,492,765
Travelling expense 39,420 43,258 47,470 63,826 70,040 76,859 84,342 92,554 101,565 111,454
Communications expense (phone, fax, mail, internet, etc.) 118,260 129,774 142,409 191,477 210,120 230,577 253,027 277,662 304,695 334,361
Office vehicles running expense 36,277 39,904 43,895 48,284 53,113 58,424 64,266 70,693 77,762 85,539
Office expenses (stationary, entertainment, janitorial services, etc.) 39,420 43,258 47,470 63,826 70,040 76,859 84,342 92,554 101,565 111,454
Promotional expense 680,149 835,612 1,010,569 1,146,715 1,232,718 1,325,172 1,424,560 1,531,402 1,646,257 1,769,726
Professional fees (legal, audit, consultants, etc.) 340,075 417,806 505,284 573,357 616,359 662,586 712,280 765,701 823,129 884,863
Depreciation expense 1,078,254 1,078,254 1,078,254 1,078,254 1,099,427 1,099,427 1,099,427 1,099,427 1,125,163 1,125,163
Amortization of pre-operating costs 314,627 314,627 314,627 314,627 314,627 - - - - -
Subtotal 7,260,980 7,967,936 8,750,436 10,769,398 11,667,370 12,312,257 13,362,350 14,511,631 15,795,274 17,172,144
Operating Income 5,406,538 10,195,006 15,967,715 19,419,191 22,265,782 25,705,865 29,108,244 32,807,998 36,801,122 41,162,160
Gain / (loss) on sale of office equipment - - - 196,500 - - - 317,447 -
Earnings Before Interest & Taxes 5,406,538 10,195,006 15,967,715 19,615,691 22,265,782 25,705,865 29,108,244 33,125,445 36,801,122 41,162,160
Interest on short term debt 426,049 590,267 164,218 - - - - - - -
Interest expense on long term debt (Project Loan) 1,325,849 1,133,058 909,421 650,001 349,075 - - - - -
Interest expense on long term debt (Working Capital Loan) 302,433 197,436 74,351 - - - - - - -
Subtotal 2,054,332 1,920,761 1,147,990 650,001 349,075 - - - - -
Earnings Before Tax 3,352,207 8,274,244 14,819,725 18,965,689 21,916,708 25,705,865 29,108,244 33,125,445 36,801,122 41,162,160
Tax 838,052 2,068,561 3,704,931 4,741,422 5,479,177 6,426,466 7,277,061 8,281,361 9,200,281 10,290,540
NET PROFIT/(LOSS) AFTER TAX 2,514,155 6,205,683 11,114,794 14,224,267 16,437,531 19,279,399 21,831,183 24,844,084 27,600,842 30,871,620
Pre-Feasibility Study Garments Stitching Unit (Polo T-shirt)
PREF-03/March, 2012/3
19
1133..33 BBaallaannccee SShheeeett
Calculations SMEDA
Balance Sheet
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Current assets
Cash & Bank 500,000 - - 4,160,943 13,280,501 24,905,048 40,854,515 58,880,891 78,792,211 101,541,640 136,959,253
Accounts receivable 8,385,404 9,343,736 11,380,566 13,298,320 14,667,736 15,767,816 16,950,402 18,221,682 19,588,308 21,057,432
Finished goods inventory 5,031,584 5,945,298 6,939,882 7,680,261 8,121,697 8,590,825 9,089,581 9,620,051 10,184,482 10,785,302
Equipment spare part inventory 41,883 48,375 55,873 64,534 74,537 86,090 99,434 114,846 132,647 153,207 -
Raw material inventory 3,781,200 4,673,563 5,686,266 6,491,346 7,020,391 7,592,553 8,211,346 8,880,571 9,604,337 10,387,091 -
Total Current Assets 4,323,083 18,138,927 21,031,174 29,037,271 41,354,010 55,373,123 73,523,936 93,916,291 116,370,928 141,854,729 168,801,987
Fixed assets
Land 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444
Building/Infrastructure 7,125,000 6,768,750 6,412,500 6,056,250 5,700,000 5,343,750 4,987,500 4,631,250 4,275,000 3,918,750 3,562,500
Machinery & equipment 5,026,000 4,523,400 4,020,800 3,518,200 3,015,600 2,513,000 2,010,400 1,507,800 1,005,200 502,600 -
Furniture & fixtures 486,000 437,400 388,800 340,200 291,600 243,000 194,400 145,800 97,200 48,600 -
Office vehicles 725,535 652,982 580,428 507,875 435,321 362,768 290,214 217,661 145,107 72,554 -
Office equipment 393,000 294,750 196,500 98,250 477,694 358,270 238,847 119,423 580,640 435,480 290,320
Total Fixed Assets 14,999,979 13,921,726 12,843,472 11,765,219 11,164,659 10,065,232 8,965,805 7,866,378 7,347,591 6,222,428 5,097,264
Intangible assets
Pre-operation costs 1,573,137 1,258,510 943,882 629,255 314,627 - - - - - -
Total Intangible Assets 1,573,137 1,258,510 943,882 629,255 314,627 - - - - - -
TOTAL ASSETS 20,896,200 33,319,163 34,818,528 41,431,744 52,833,296 65,438,355 82,489,741 101,782,669 123,718,520 148,077,157 173,899,251
Current liabilities
Accounts payable 6,207,243 7,454,940 8,775,390 9,704,642 10,220,165 10,764,041 11,337,915 11,943,530 12,582,741 11,850,736
Short term debt - 4,946,273 1,906,508 - - - - - - - -
Other liabilities
Total Current Liabilities - 11,153,516 9,361,448 8,775,390 9,704,642 10,220,165 10,764,041 11,337,915 11,943,530 12,582,741 11,850,736
Other liabilities
Deferred tax 569,723 (232,308) (1,688,886) (3,560,062) (5,726,339) (8,498,229) (11,610,357) (15,124,205) (19,005,621) (23,323,141)
Long term debt (Project Loan) 8,286,558 7,081,615 5,683,881 4,062,509 2,181,718 - - - - - -
Long term debt (Working Capital Loan) 2,161,542 1,552,054 837,569 - - - - - - - -
Total Long Term Liabilities 10,448,100 9,203,392 6,289,142 2,373,622 (1,378,344) (5,726,339) (8,498,229) (11,610,357) (15,124,205) (19,005,621) (23,323,141)
Shareholders' equity
Paid-up capital 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100
Retained earnings 2,514,155 8,719,838 19,834,632 34,058,899 50,496,430 69,775,829 91,607,012 116,451,095 144,051,937 174,923,557
Total Equity 10,448,100 12,962,255 19,167,938 30,282,732 44,506,999 60,944,529 80,223,928 102,055,111 126,899,195 154,500,037 185,371,657
TOTAL CAPITAL AND LIABILITIES 20,896,200 33,319,163 34,818,528 41,431,744 52,833,296 65,438,355 82,489,741 101,782,669 123,718,520 148,077,157 173,899,251
Liabilities & Shareholders' Equity
Assets
Pre-Feasibility Study Garments Stitching Unit (Polo T-shirt)
PREF-03/March, 2012/3
20
1133..44 CCaasshh FFllooww SSttaatteemmeenntt
Calculations SMEDA
Cash Flow Statement
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating activities
Net profit 2,514,155 6,205,683 11,114,794 14,224,267 16,437,531 19,279,399 21,831,183 24,844,084 27,600,842 30,871,620
Add: depreciation expense 1,078,254 1,078,254 1,078,254 1,078,254 1,099,427 1,099,427 1,099,427 1,099,427 1,125,163 1,125,163
amortization of pre-operating costs 314,627 314,627 314,627 314,627 314,627 - - - - -
amortization of training costs - - - - - - - - - -
Deferred income tax 569,723 (802,031) (1,456,579) (1,871,175) (2,166,277) (2,771,890) (3,112,128) (3,513,848) (3,881,416) (4,317,520)
Accounts receivable (8,385,404) (958,332) (2,036,830) (1,917,754) (1,369,416) (1,100,080) (1,182,586) (1,271,280) (1,366,626) (1,469,123)
Finished goods inventory (5,031,584) (913,714) (994,584) (740,379) (441,436) (469,129) (498,756) (530,469) (564,432) (600,820)
Equipment inventory (41,883) (6,492) (7,498) (8,660) (10,003) (11,553) (13,344) (15,412) (17,801) (20,560) 153,207
Raw material inventory (3,781,200) (892,363) (1,012,703) (805,080) (529,045) (572,162) (618,793) (669,225) (723,767) (782,753) 10,387,091
Accounts payable 6,207,243 1,247,697 1,320,450 929,251 515,523 543,877 573,873 605,615 639,211 (732,006)
Other liabilities - - - - - - - - - -
Cash provided by operations (3,823,083) (3,631,842) 5,151,984 8,526,391 11,478,044 13,806,264 15,949,467 18,026,376 20,491,960 22,749,429 35,417,613
Financing activities
Project Loan - principal repayment (1,204,943) (1,397,734) (1,621,372) (1,880,791) (2,181,718) - - - - -
Working Capital Loan - principal repayment (609,488) (714,485) (837,569) - - - - - - -
Short term debt principal repayment - (4,946,273) (1,906,508) - - - - - - -
Additions to Project Loan 8,286,558 - - - - - - - - - -
Additions to Working Capital Loan 2,161,542 - - - - - - - - - -
Issuance of shares 10,448,100 - - - - - - - - - -
Cash provided by / (used for) financing activities 20,896,200 (1,814,431) (7,058,492) (4,365,449) (1,880,791) (2,181,718) - - - - -
Investing activities
Capital expenditure (16,573,116) - - - (477,694) - - - (580,640) - -
Cash (used for) / provided by investing activities (16,573,116) - - - (477,694) - - - (580,640) - -
NET CASH 500,000 (5,446,273) (1,906,508) 4,160,943 9,119,558 11,624,547 15,949,467 18,026,376 19,911,320 22,749,429 35,417,613
Pre-Feasibility Study Garments Stitching Unit (Polo T-shirt)
PREF-03/March, 2012/3
21
1144 AASSSSUUMMPPTTIIOONN
TTaabbllee 1144--11:: PPrroodduuccttiioonn AAssssuummppttiioonnss
Number of Machines (cutting, stitching, buttoning) 53
Initial Year Capacity Utilization 70%
Capacity Utilization growth rate 10%
Capacity Utilization 95%
Total Production per day (garments) 1,600
Defective garment (% of total finished garments) 2%
Annual Production Capacity at 100% (garments) 528,000
Production of defective garments – Year 1 7,392
TTaabbllee 1144--22:: OOppeerraattiinngg AAssssuummppttiioonnss
Hours operational per day 8
Days operational per year 330
Maximum capacity utilization 100%
TTaabbllee 1144--33:: EEccoonnoommyy--RReellaatteedd AAssssuummppttiioonnss
Electricity growth rate 10%
Wage growth rate 10%
Exchange rate Rs. 90.5/US$
TTaabbllee 1144--44:: CCaasshh FFllooww AAssssuummppttiioonnss
Accounts Receivable cycle (in days) 45
Accounts payable cycle (in days) 45
Raw material inventory (in days) 30
Equipment spare part inventory (in days) 60
Finished Goods Inventory (in days) 30
TTaabbllee 1144--55:: RReevveennuuee AAssssuummppttiioonnss
Production of the unit for the first year 369,600
Sale price per garment in year 1 ($) 2.25
Export Sales Share 100%
Sale price of defective garments (Rs/garment) 55
Sale price growth rate 7.50%
Pre-Feasibility Study Garments Stitching Unit (Polo T-shirt)
PREF-03/March, 2012/3
22
TTaabbllee 1144--66:: EExxppeennssee AAssssuummppttiioonnss
Raw Material Cost per Garment Rs. 136.66
Cost of Goods sold growth rate 5%
Machine maintenance 5% of Machinery cost
Administration Benefit expense 1.0% of Admin Expense
Traveling Expense 1.0% of Admin Expense
Communication Expense 3.0% of Admin Expense
Office Vehicle running Expense 5.0% of Vehicle Cost
Office Expense 1.0% of Admin Expense
Promotional Expense 1.0% of Revenue
Professional Fee 0.5% of Revenue
Depreciation Rate on
Machinery and Equipment 10%
Office Equipment 25%
Furniture and Fixture 10%
Office Vehicles 10%
TTaabbllee 1144--77:: FFiinnaanncciiaall AAssssuummppttiioonnss
Project life (years) 10
Debt 50%
Equity 50%
Interest rate on long-term debt 16%
Interest rate on short term debt 16%
Debt tenure 5
Debt payments per year 12
Pre-Feasibility Study Garments Stitching Unit (Polo T-shirt)
PREF-03/March, 2012/3
23
1155 AANNNNEEXXUURREE
TTaabbllee 1155--11:: RRaaww MMaatteerriiaall && MMaacchhiinneerryy SSuupppplliieerr
Raw Material Suppliers Machinery Suppliers
TTOOWWNN CCRRIIEERR IINNTTEERRNNAATTIIOONNAALL
Labels, Stickers, packaging material
P-3, Fazal Centre Malik Road. Opp
Banking Court Faisalabad, Pakistan.
Tel: +92 - 41 - 2631555
Fax: +92 - 41 – 2622395
Email: [email protected]
MMUUNNIIRR EENNTTEERRPPRRIISSEESS
607-Main Gate, Jinnah Colony
Faisalabad, Pakistan.
Phone#: (+92)-(41) – 2624133, 5 .
Fax #: (+92)-(41) - 2624188
Contact : Munir-ul-Zafar
AABBUUZZEERR PPRRIINNTTEERR
Ali Market 1st Floor, Near Gawalmandi
Police Station, Lahore
Pakistan
Tel: +92 - 42-37222567, 37212145
Fax: +92 - 42-37212146
Email: [email protected]
NNOOOORRAANNII IINNDDUUSSTTRRIIEESS ((PPVVTT)) LLTTDD
Address: 143-Regency Arcade, First
Floor The Mall, Mills
Samundri Road, Faisalabad, Pakistan
Phone +92-41-2618432, 8541456,
8544683
Fax +92-41-2618079, 8545692
CCOORRRRUUBBOOAARRDD IINNDDUUSSTTRRIIEESS
Junction Lakhuder & Shadipura Stop
Bund Road Lahore
Pakistan
Tel: +92 - 42- 6851675, 6545398
Email: [email protected]
AALL MMUURRTTAAZZAA MMAACCHHIINNEERRYY CCOO.. ((PPVVTT..))
LLTTDD.. 63/1-C, Model Town, Jail Road
Faisalabad, Pakistan
Phone#: (+92)-(41) -2636830
Fax #: (+92)-(41) 2644967