PRE-FEASIBILITY STUDY OF AN EMBROIDERY UNIT

Introduction: The trend of usage of embroidery on garments of all sorts is on a rise since last few years. Initially, the embroidery work was used to be done on export garments as per foreign customer's requirements. However, with the passage of time the trend has changed and local market of ladies suits has also emerged as a main customer of embroidery work. Also, the cotton fabric of ladies suits, which is exported to middle east market, is embroided before being exported. Apart from these, the embroidery work is also done on bed sheets, table cloths, and sofa covers, badges etc. Almost 70% of the potential embroidery business exists with the local market while the remaining 30% is done for foreign market. So there is a potential for new people to come into the business of embroidery. 1. Project Brief: The proposed project is designed as a small-scale commercial embroidery unit. This unit will be capable of providing its services to local garments and fabric manufacturers as well as to those garment manufacturers who are dealing in export and require embroidery work on their garments. This sort of project is quite flexible in a way that there is no processing of raw materials required and each machine is independent in its working. The project can be started even with a single machine. However keeping in view the potential and industry norms, the project will be more feasible and economical with two embroidery machines. 1.1 Proposed Capacity 960,000Stitches/Hour per Machine/20 Heads Total Project Cost - Rs. 124.5 lakhs

2. Process Flow Chart

3. RAW Material Embroidery is the process of sewing a design onto a garment. With recent advancements in technology embroidery machines have become computerized and software has been developed to assist in the day to day operation of embroidery machines. This means that designs and set up costs can be low and the machines can run quicker with any number of colors being applied in a single operation. Designs are converted in to digital format known as digitizing and once this has been done can be used over and over again. These designs are individually stored on to computer disks, which are place in to the embroidery machine every time a design is required. This reduces the set-up times required and also means that you no longer require large volumes to make it cost effective. Main raw material required is thread and sequence which is readily available. Embroidery Products The embroidery work is done on the following products: Fabrics Women Suits Bed Sheets Table & Sofa Cloths Badges & Monograms Export Products (Clothes, T-shirts, Caps etc.) Target Customers Following are the target customers for a commercial embroidery unit: Small & medium scale garments manufacturers who dont have their own embroidery units and are dependent on commercial embroidery units for their garments.

Commercial exporters of embroidered garments who outsource their embroidery requirements to commercial embroidery units. 4. MACHINERY DETAILS 4.1 Machines Required A commercial embroidery unit can be started by using any number of machines but a combination of two machines (20 heads each) will be more economical and viable to start the project. Technical Details The technical details of Japanese machine are following: Technical Details of Machinery Estimated Price per Machine No. of Heads Load (KW) Electricity Phase (Rs) 5,616,0004 20 1.5 3 Phase

Production The production details of embroidery machine as follows: Estimated Production details Average Stitches per Head Average Stitches per head per hour Total stitches per Hour (20 Heads) 5. Other Equipment Other equipment required as following: Other Equipment Item Required Computer 1 Printer 1 Air conditioner 2 Designing Software 1 Electrical Appliances Total Rs 8,000 stitches in 10 Minutes 48,000 960,000

Cost 30,000 20,000 50,000 10,000 10,000 120,000

6. RAW MATERIAL
Raw Material Requirement Required raw materials and their approximate costs as follows: Sequence Per Reel Rs. 80 Embroidery Thread Per cone Rs. 39 Tile (Metallic thread per cone) Rs. 435 Cording Per KG Rs. 80

7. Utilities Requirement

Electricity Telephone Fax

8. Human Resources
8.1 Human Resource Requirement For a unit of 2 embroidery machines the human resource requirement is given in the: Positions Required Monthly Salary Annual Salary Chief Executive5 1 20000 240000 Designer/Tracer 1 6000 72000 Office Asstt./Comp Operator 1 10,000 120,000 Admin Officer 1 6,500 78,000 Supervisor 1 6,500 78,000 Machine operator 2 4,500 1,80,000 Helper 1 4,000 96,000 Clippers 2 4,000 1,92,000 Sweepers 1 2,500 30,000 Guard 1 4,500 54,000 Total 11 10,68,000 9. Working Time Working time estimates are given in the following table: Description Per Day Working Per Month Working Per Annum Working 10. Time 22 Hours (in 2 shifts) 25 Days (Excluding Holidays) (550 Hours) 300 Days (6600 Hours)

Land and Building: It is recommended that the embroidery unit should be established in a rented building, which can be easily found in the industrial zones. The maximum rent for a building having covered area of 1,950 Sq. feet can be Rs.23, 400/- per month.

11. PROJECT COST & REVENUES

11.1 Project Costs Estimates The detail of capital cost estimates is given in the Table; Account head Machinery & Equipment Furniture & Fixtures Office Equipment Pre-Operating Costs Total Capital Costs Equipment Spare Part Inventory8 217 Raw Material Inventory Prepaid building rental Total cost 1,15,01000 110,000 71,000 169,352 11,641,797 217 97,500 280,000

Prepaid insurance payment Total Working Capital Total Investment in the Project

230,800 608,537 12,246,173

11.2 Financing plan Own investment Debt - term loan

50% 50%

6,123,087 6,123,087

11.3 Revenue Estimates: The expected revenue estimates are given in Table: Average Stitches per Head Average Stitches per head per hour Total stitches per Hour (20 Heads) Total stitches per hour (40 Heads) Per Day Machine Production( Max)for 22 hours Per Annum Working Days No. of Machines Average Price for 1000 Stitches Total Annual Revenue (Max) 8,000 stitches in 10 Minutes 48,000 9,60,000 19,20,000 42,240,000 Stitches 300 Days 2 Rs. 1 Rs. 12,672,000

Number of Machines Installed - 2 Capacity Utilization 1st Year - 65% Total Production per hour (Stitches) per Head - 48,000 Total Production of the embroidery unit per day (Stitches) - 42,240,000 Annual Production Capacity (Stitches) - 8,236,800,000 Revenue in the first year = 82,36,800 INTEREST CALCULATION INTEREST ON LONG TERM LOAN S. No 1 2 3 4 5 Particulars Long term borrowings Rate of interest Instalment Repayment schedule Moratorium Period Amt.(Lakhs) 61.23 Lakhs 10.00% 10.205 6 years 12 Months

S. No 1 2 3

INT T/Loan 6.12 6.12 5.1

T.Loan/ Payment 0.00 10.2 10.2

Decrease Termloan 0.00 10.2 20.4

Rem.Term Loan 61.20 51.00 40.8

4 5 6 7

4.08 3.06 2.04 1.02

10.2 10.2 10.2 10.2

30.6 40.8 51.0 61.20

30.6 20.4 10.2 0.0

Year 1 Year 2 65% 75% Revenue 82.36 92.14 Cost of goods sold 37.05 43.25 Gross profit 45.31 49.88 General administrative and selling expenses Admis. Expenses 4.32 4.74 Rental expenses 2.8 3.08 (10 %) Utilities 5.15 5.67 Communication .3 .33 expenses Office expenses (5%) .216 .237 Promotional expenses .82 .93 Insurance 2.308 2.03 Profesional fees .41 .46 Depresiation 11.474 11.474 Sub total 27.93 29.13 Operating income 17.38 20.74 before interest and taxes. Interest on term loan 6.12 6.12 Profit before tax 11.26 14.62 Taxable earning for 11.26 14.62 the year Tax .82 .93 Net Profit After tax 10.44 13.69 Cumulative profit 10.44 24.13

Year 3 80% 104.78 50.25 54.52 5.20 3.39 6.23 .363 .26 1.04 1.81 .52 11.474 30.48 24.04

Year 4 85% 117.35 58.15 59.20 5.70 3.73 6.86 .399 .28 1.17 1.58 .58 11.474 31.97 27.22

Year 5 90% 130.92 67.06 63.86 6.26 4.11 7.54 .439 .31 1.31 1.35 .65 11.474 33.63 30.22

Year 6 95% 145.55 77.10 88.45 6.87 4.52 8.3 .483 .34 1.45 1.12 .72 11.474 35.47 32.97

Year 7 95% 161.32 88.40 72.91 7.54 4.97 9.13 .531 .37 1.61 .90 .80 11.474 37.92 35.39

Year 8 95% 169.39 96.07 73.31 8.27 5.47 100.4 .584 .41 1.69 .67 .85 11.474 39.62 33.36

5.1 18.94 18.94 1.04 17.9 42.03

4.08 23.14 23.14 1.17 21.97 64.00

3.06 27.16 27.16 1.31 26.03 90.03

2.04 30.93 30.93 1.45 29.48 119.51

1.02 34.37 34.37 1.61 33.21 152.72

0.00 33.36 33.36 1.69 31.67 184.39

Payback Period Years 1 2 3 4 5 6 7 8 Payback period = 6.2 years

Cumulative profit
10.44 24.13

42.03 64.00 90.03 119.51 152.72 184.39

Account rate of return(ARR) ARR = Average income / Average Investment Average income = (10.44+13.69+17.9+21.97+26.03+29.98+33.21+31.67)/8 = 23.11125 Average investment = Initial cash flow / 2 = 122.46173 / 2 = 61.23 = 23.11125/61.23 = 0.377 = 37.7 %

ARR