Garments Stitching Unit Mens Dress Trousers

Pre-Feasibility Study
GARMENTS STITICHING UNIT

(Men’s Dress Trousers)
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 REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

PUNJAB SINDH KPK BALOCHISTAN
3rd Floor, Building No. 3, 5TH Floor, Bahria Ground Floor Bungalow No. 15-A
Aiwan-e-Iqbal Complex, Complex II, M.T. Khan Road, State Life Building Chaman Housing Scheme
Egerton Road Lahore, Karachi. The Mall, Peshawar. Airport Road, Quetta.
Tel: (042) 111-111-456 Tel: (021) 111-111-456 Tel: (091) 9213046-47 Tel: (081) 831623, 831702
Fax: (042) 36304926-7 Fax: (021) 5610572 Fax: (091) 286908 Fax: (081) 831922
helpdesk.punjab@smeda.org.pk helpdesk-khi@smeda.org.pk helpdesk-pew@smeda.org.pk helpdesk-qta@smeda.org.pk
November 2007
Pre-Feasibility Study Garments Stitching Unit (Men’s Dress Trousers)
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.
DOCUMENT CONTROL
Document No. PREF-58
Revision 2
Prepared by SMEDA-Punjab
Approved by GM Punjab
Revision Date November, 2007
Issued by Library Officer
2
PREF-58/November, 2007/Rev 2
1 INTRODUCTION
1.1 Project brief

This pre-feasibility study provides information and guideline about the investment
opportunity in a stitching unit for woven dress trousers for men. The production of
this unit will be for export purpose, and therefore will earn foreign exchange for the
country. There is a vast variety in dress pants in relation to quality of the fabric used,
style, stitching techniques, etc. This project will start its operation on CMT1 basis
(commercial basis), but ultimately, this would be an export-oriented unit. Problems
like lower margin and longer cash cycles are not prevalent in the export business
because it is operated on LCs (letter of credit) basis. This unit will also be capable of
producing other similar garments like twill and denim trousers with little
modification of process.
1.2 Opportunity Rationale

The main competitive advantage of this industry is the availability of fine quality
organic fiber of Pakistan, mainly, the cotton and wool, besides the synthetic. The
apparel segment is the highest value added link in the entire textile value chain. The
trade in the sector accounts for 53% of the total value of global textiles trade and has
been consistently growing since the last two decades. According to WTO estimates,
with the elimination of quotas in the year 2005, the total trade of textiles and
clothing will exceed the US $500 billion mark, and this growth will be driven
primarily by the clothing sector, which will constitute almost 70% of the total trade.
Readymade garments industry of Pakistan enjoys active demand in the foreign as
well as domestic markets. Besides being a potential source of foreign exchange
earnings, it provides an important means of diversification within textile industry, by
allowing conversion of domestically made cloth into a higher value added
production in the form of garments. This industry also provides an employment
opportunity for skilled and semi-skilled labor, which is easily available in the areas
where the clusters of this industry exist. Needless to say that import of one industrial
sewing machine valued at about US $500 creates 3 jobs and earns US $27,000 per
year in the shape of foreign exchange. The development of this industry not only
offers attractive return on capital but is also advantageous to the economy as its
exports maximize value addition to raw cotton.
1
Cut, Manufacture and Trim
3
According to statistics, the global textile market possesses a worth of more than
$400 billions presently. In a more globalize environment, the industry has faced high
competition as well as opportunities. It is predicted that Global textile production
will grow by 25 percent between 2002 and 2010 and Asian region will largely
contribute in this regard. The world trade organization (WTO) has taken so many
steps for uplifting this sector. In the year 1995, WTO had renewed its MFA and
adopted Agreement on Textiles and Clothing (ATC), which states that all quotas on
textile and clothing will be removed among WTO member countries.
However the level of exports in textiles from developing countries is increasing even
if in the presence of high tariffs and quantitative restrictions by economically
developed countries.
Moreover the role of multifunctional textiles, eco-textiles, e-textiles and customized
textiles are considered as the future of textile industry.
Because this project is 100% export oriented, the Government of Pakistan has
exempted on the import of machinery by an exporter from custom duty, sales tax and
income tax. The export of trousers are zero rated (sales tax rate zero percent) and the
whole input sales tax is refundable.
This unit can be established with low investment and industrial technological
complications and provides better returns on investments, which are the main
deriving force of medium type industries.
1.3 Proposed Capacity

The proposed unit is able to stitch approximately 800 pieces per day with 40
stitching machines.
During the first two years, the unit will provide CMT services with 40 stitching
machines. This will help to establish harmonized system flow and synergies, which
will lead to better productivity and efficiency. In the third and forth year, it will start
its own manufacturing and export by utilizing 50% of its capacity, remaining 50%
will continued to be used for CMT. In the fifth year, the unit will utilize 100% of its
capacity for own manufacture and export.
1.4 Project Cost

The total project cost of this Dress Trouser Manufacturing unit is Rs. 3.68 million.
This includes a fixed cost of Rs 2.314 million and a working capital of Rs 1.369
million.
4
1.5 Production process flow chart

Procurement of
Finished Fabric
Inspection
Cutting
Stitching
Washing
(Outsourced)
Trimming
Final Inspection
Pressing
Packing
Dispatch/shipment
5
2 CURRENT INDUSTRY STRUCTURE
The readymade garments industry generally operates on small and medium scale,
and mostly, in an unorganized way. According to an estimate, about 70 percent of its
units are in the unorganized sector and are established in shops, commercial plazas
and houses. These units normally do not have modern machines like over-locking,
creasing, buttoning, and cutting. These units are mostly equipped with 4 to 10
machines, which are usually locally, assembled. The locally assembled machines
operate at slow speed up to 250 stitches per minutes. The industrial sewing machines
are mainly imported from Japan, Italy, Korea and China and are capable of working
at high speed up to 4,500 stitches per minutes. These are especially suitable for
assembly line operations.
In spite of the fact that industry has shown rapid growth, no figures of production
data of formal wear dress pants are available. However, the export data of men’s
trousers is available which includes formal wear trousers and casual wear trousers.
Determination of production in this industry is difficult to make. Firstly, due to pre-
dominance of unorganized cottage scale units where the major portion of work is
performed manually. Secondly, the capacity of the same machines varies
significantly. Thirdly, it is easy to switch over from one product to another.
According to Pakistan Readymade Garments Manufacturer and Exporters
Association (PRGMEA), the number of existing manufacturers/exporters of trousers
(includes all type of trousers) in Punjab north zone (Lahore) is 73 till mid august
2007 follows:
Table 2-1: Manufacturing Units of Trousers in No of Companies Exporting

Against Specific HS Code in Lahore2
HS Code No Of companies dealing in specific HS Code
6013.42 1
6103.41 4
6103.42 20
6103.43 3
6103.49 6
6104.61 1
6104.62 11
6104.63 1
6104.69 5
6203.41 18
6203.411 1
6203.42 60
6203.43 5
2
Source PRGMEA (Pakistan Readymade Garments Manufacturer and Exporters Association)
6
6203.49 10
6204.61 1
6204.62 26
6204.63 5
6204.69 16
Table 2-2 Pakistan’s Export (Means, boys suits, jackets, trousers etc knit or
crochet-2003-2006) (HS code 6103)
Reporting Countries Trade Value in $Millions
USA 27.794484
United Kingdom 4.204848
Spain 2.241756
Italy 2.373816
Germany 1.947852
Pakistan's Export
Trade Value
30
20 Series1
10
0
USA
Kindom
Spain
Germany
Italy
United
Reporting Countries
7
3 MARKETING
For formulating strategies for marketing in the foreign markets, the following should
be considered:
 A market opportunity analysis to determine suitable sales market(s) and suitable
sales channels.
1. Selection of target markets to identify suitable markets for selling trousers. The
evaluation is based on the following five criteria:
a. Market potential
b. Product standard
c. Trade situation
d. Export conditions
e. Exporting experience ( exporting country)
2. Sales channel assessment to estimate the requirements of potential sales channels
in respect to product standards, logistics and marketing. The sales channel within
the international market must be assessed and identified on each particular
market, which best suits the product and the unit.
3. Company assessments of the unit’s performance in respect to product standards,
logistics and marketing.
4. Supply and demand comparison to compare the requirement of the sales
channels with the unit’s performance, so as to identified the most suitable sales
channel(s)
 Building up trade relations consists of the following:
a. Reviewing the product mix, packaging, seasonal influences
b. Identifying a suitable trade partner
c. Participation in trade fairs
d. Organizing sales campaign by internet, e-mail, Fax and telephone
e. Drawing up an offer
f. Free sampling and personal visits
g. Handling up contract
h. Sales promotion
While the USA and the European Union remain to be the largest markets for
garments and other apparel products with a combined share of 73% in total global
clothing trade, the apparel production centers are shifting to the countries with lower
production cost and/or strategic geographic location. Asian countries have the
advantage, especially in the first case with low wage rates and indigenous production
of the major raw materials. In 1997, over 59% of textile exports and 70% of clothing
export originated from Asia. However, this competitive advantage of Asia is
vulnerable to two basic developments; one is the emerging regional trade blocks that
allow for preferential trade treatments and the other is the threat from countries that
are located on the borders of major markets. Apparel is a rapidly changing business
with very short product life cycles, consumer preference depends not only on
seasons but also on numerous other factors. Responding quickly to these changing
demands is vital for the success of garment exports. Countries like Mexico and
8
Turkey have the advantage of minimal lead times and are expected to give tough
competition to the exporters from Asia.
At present, the major thrust of garment exports from Pakistan is on the USA market.
The European Union is the second largest market for garment manufacturers from
Pakistan. Major markets that Pakistani manufactures have so far not been able to
explore include the Japanese market, the Far East and some markets in the European
Union. These markets demand high product standards and in return offer higher unit
price realizations.
Marketing research and development is one of the fundamental aspects that our
industry lacks. Garment industry in Pakistan comprises of numerous small players
with little resources available for marketing purposes.
Pakistan has an opportunity to survive and compete in the quota free environment
i.e. post January 1, 2005 scene. The three important factors that the exporter must
adhere to are 3 Cs i.e. compatibility, competitiveness and credibility on an individual
level and on a collective level.
3.1 World Trade Analysis
Table 3-1 (Means, boys suits, jackets, trousers etc knit or crochet-2003-2006)
(HS code 6103)
Exporter Countries Trade Value in $Millions

China 11,338
Honkong, SAR 663
Thailand 597
Cambodia 595
Mexico 551
Top Exporters
Trade Value in Millions $
12,000
10,000
8,000
6,000 Series1
4,000
2,000
0
a a o
in A
R n d di ic
Ch ,S la bo ex
ng hai m M
ko T Ca
on
H
Reporters Title
9
It is evident from the chart above that China is the biggest exporter of trousers, and
occupies a large share of the world market. Whereas Pakistan is on 19th position in
the global trade.
Table 3-2 (Means, boys suits, jackets, trousers etc knit or crochet-2003-2006
(HS code 6103)
Importer Countries Trade Value in $Millions
USA 3,336
United Kingdom 1,007
Japan 726
China, Honkong, SAR 631
Italy 576
T o p Im po r te r s
Trade Value in Millions
4 ,0 0 0
3 ,5 0 0
3 ,0 0 0
2 ,5 0 0
2 ,0 0 0 Se r ie s1
1 ,5 0 0
1 ,0 0 0
500
0
R
SA om pa
n
SA al
y
U gd Ja g, It
in
K k on
ted on
ni ,H
U a
in
Ch
R e po r te r T i tl e
Table 3-1: Top twenty exporters of world (US $ million)3
Statistics shows that US is the main importer of dress trousers followed by United
Kingdom, and the quantity difference is significantly high from other importing
countries
Table 3-3 Pakistan’s Export of Trousers in 20064

Reporter Countries Trade Quantity
USA 72,260,076
Germany 25,114,920
United Kingdom 21,680,820
Belgium 10,826,928
Italy 9,960,120
3
Source: Trade Analysis System/ITC
4
UN comtrade (comtrade.un.org)
10
France 10,310,388
Spain 9,581,520
Netherlands 6,212,256
Canada 3,351,444
Sweden 1,954,224
Ireland 1,625,700
3.2 Raw material

The basic raw material for the manufacturing of dress trousers is dyed woven fabric
with different sorts of finishes on it. The woven fabric that is used in the
manufacturing of dress trousers is made of cotton, or polyester/cotton (P/C), wool
and other blends of man-made fibers. The weight of these fabrics normally varies
from 200-240 grams/sq. m (for the light qualities of P/C 65:35 fabrics) and from
240-300 gram/sq. m (for heavy qualities of P/C 65:35 fabrics). In case of 100%
cotton, light quality fabric weight should be at least 180 grams/ sq. m. For the fabric
of blended 50/50 polyester/cotton, the weight varies from 100 grams/ sq. m (plain) to
215 gram sq. m (twill). The weight of the finish is not included in these figures.
Prices of these fabrics range from Rs. 60 to Rs. 3000 per meter.
During the last few years, the Dyeing and Finishing Industry has performed
remarkably. Traditionally, the griege fabric was being exported and the dyed fabric
was then imported at a higher price. But due to the installation of new dyeing plants,
production of high quality dyed finished fabric has increased. This has helped in the
reduction of the cost of finished fabric. The industry uses both locally produced and
imported raw materials, but it mainly uses locally produced raw material. Some
exporters however, prefer to purchase yarn, and process it by paying service charges
according to their own requirement and buyers specification. This strategy also
further reduces the cost of fabric.
Besides fabric, other raw materials used in manufacturing of men’s formal wear are
listed below:
 Sewing thread
 Buckles
 Hooks
 Buttons
 Zipper
 Labels
 Fusing (called ‘Buckram’ in the local language)
 Packing Material
11
4 MANPOWER REQUIREMENT
Table 5-1: Manpower Requirement at Start

Positions Number Salary/month (Rs.) Annual Salary
Chief Executive 1 45,000 540,000
Commercial Manager 1 18,000 216,000
Final Table Inspector 2 4,600 110,400
Production In charge 1 15,000 180,000
Finishing supervisor 1 10,000 10,000
Stitching Supervisor 1 10,000 120,000
Cutting Master 1 15,000 180,000
Cutting Helpers 2 4,600 110,400
Rowing Inspector 2 6,500 156,000
Helper (machine operator) 4 4,600 220,800
Clippers 3 5,000 180,000
Iron Presser 2 4,600 110,400
Packing Staff 2 4,600 110,400
Store Keeper 1 5,000 60,000
Stain remover 1 4,600 55,200
Store keeper 1 4,600 55,200
Accounts officer 1 15,000 180,000
Security Guards 2 5,000 120,000
Driver 1 5500 66,000
Total 30 2,780,800
4.1 Labor
In order to achieve high degree of value addition, as in the apparel and textile made-
ups sector, the engine of export growth, the skilled labor has a pivotal role in labor
intensive processes like stitching.
This sector normally follows piecework system under “trolley system” (division of
labor) in which one garment is prepared by different persons during different stages
of process. Normally there are 25-30 different processes involved in dress trouser
manufacturing. Each process has its separate predetermined piece rate.
The garment industry of Pakistan, especially export based, is dependent on job
orders and thus, there is an aversion to employ workers on long term basis. So the
exporters prefer to employ labor under contract system. This means that the
designated contractor is the primary employer and the units in which the workers
produce goods are the secondary employers. The result is that there has been more
productivity and efficiency through contract workers. The exporters usually demand
that the contractors must have trained and skilled workers on their rolls, so that the
12
production is accelerated and there is better quality and minimum hassle in training
or orienting the workers to produce as per requirements. However, the units, which
have regular export orders, prefer to employ permanent labor on piece rate system.
5 MACHINERY DETAILS
The industrial sewing machines are mainly imported from Japan and are capable of
working at high speed up to 4,500 stitches per minute. These are especially suitable
for assembly line operation and are mostly used by the organized sector. Besides
industrial sewing machines, household sewing machines along with parts and
electric irons etc. are also being imported. Imports of sewing machines and their
parts are given in Table.
The other important machine used by the ready-made garment industry is the over
locking, which is used to trim the edges of cut cloth. In addition, specialized
machines are used for cutting, making button holes and stitching of buttons.
According to an estimate, one specialized machine is required for very five sewing
machines.
Table 6-1: Machinery List

Description Qty Price(Rs.) Total Machinery
Cost
Cutting Machine (ZJ- 10") 1 15,500 15,500
5 thread safety over lock machines (ZJ-
732-38) 3 36,000 108,000
1 Needle Lock Stich Machine (ZJ 8800A)) 29 15,500 449,500
Button Holding Machine (ZJ -781) 1 90,000 90,000
Button stitching Machine(ZJ-373) 1 45,000 45,000
Belt loops making machine(TK-KING) 1 70,000 70,000
Waist Band Making machine(TK-KING) 1 65,000 65,000
Feed Off Arm Machine with puller (ZJ -
926) 1 125,000 125,000
Computer Controlled Bartaking
Machine(ZJ-1900) 1 150,000 150,000
2 Needle Lock stitch machine(ZJ 842) 2 48,000 96,000
Electric Steam Boiler 1 120,000 120,000
Electric Steam Iron 3 7,000 21,000
Total 45 1,360,915
13
The investment layout in different years is given in the financial calculation.
Table 6-2: Other Equipment

Furniture and Fixture Qty Per unit Total Cost
Cost in Rs.
Wooden stool for Labor 69 175 12,075
Trolleys for Stitching Department 5 7,500 37,500
Cutting Table 1 8,000 8,000
Finishing Table 2 4,000 8,000
Others 1 10,000 10,000
Total 75,575
Table 6-3: Office Equipment

Description QTY Price (Rs) Total Cost in Rs.
Fax, Telephone etc 1 15,000 15,000
Air conditioner 2 35,000 70,000
Computer 1 27,000 27,000
Tube lights -- 30,000 30,000
Office furniture 1 50,000 50,000
Total Cost 192,000
14
6 L AND AND B UI L DI NG
Project should be located where skilled manpower is within reach, and where
electricity gas water and public transport are easily available. Easy access to the
normal public transport is must for a success of any garment factory; otherwise the
workers will have to be provided transport in company arranged buses. Potential
industrial locations in Pakistan for setting up the unit include Karachi, Hyderabad,
Sukkur, Rawalpindi, Lahore, Faislabad, Multan, Chounia, Lasbella, Hattar, Gadoon
Amazai, Islamabad, etc.
Karachi, Lahore and Faisalabad are comparatively better and recommended
locations because necessary technical and skilled manpower is easily available.
Secondly good quality and sufficient quantity of raw material at competitive prices is
easily available.
Since this industry is export oriented, so Karachi has the advantage of being near to
seaport. However, final selection of site will depend upon investor’s own choice and
convenience.
For manufacturing unit with installation of the above said machines, approximately
5,300 sq. ft. area is required which includes space for admin office, stitching unit and
stores. It is recommended that the machinery unit may be established in a rented
building, which can be easily found in the industrial zones. The rent has been taken
as Rs. 65,000 per month.
Table 7-1: Total Area Requirement

Description Area
Fabric & Accessories inventory room 938
Stitching room 2,050
Packing & Inspection Room 600
Finishing Hall 600
Finished Garment Store 500
Management Building 300
Total 5,300
15
7 PROJECT ECONOMICS
Table 8-1 Project Economics

Account Head Total Cost (Rs)
Plant and Machinery 1,360,915
Furniture/ Fixture & Equipment 267,575
Preliminary Expenses5 311,200
Vehicles 375,000
Total Capital Cost 2,314,690
Working Capital6 1,369,419
Total Project Cost 3,684,109
Table 8-2 Project Returns

Project
IRR 36.53%
NPV (Rs) 34,539,877
Payback Period (Years) 7.394
Table 8-3 Financing Plan

Financing Ratio Rs
Equity 50% 1,842,055
Debt 50% 1,842,055
5
Includes registration cost, and 1 month salaries chief executive, Production manager, Commercial
manager and Accounts Officer
6
Includes 12 months Prepaid Rent
16
8 KEY SUCCESS FACTORS & THREATS
8.1 Key Success Factors

The changing global trade patterns offer more opportunities than it poses threats.
The apparel export product mix from Pakistan is heavily tilted towards men's wear
and knitted garments. As the global market demand characteristics are changing,
woven segment of the garments is a much larger market than the knit garments and
offers higher price realizations. The following are the main key success factors:
 Strong marketing skills/knowledge is required from entrepreneur
 Assurance of high consistent quality
 Assurance of on time delivery
 Competitive rates
 Cost efficiency
 Better services to the customer i.e. claim settlement etc.
 Better communication development with customers
8.2 Threats and Weakness of the Business

One major threat that garments manufacturers and exporters from developing
countries like Pakistan will have to face is the introduction of non-tariff trade
barriers. While the free trade regime is increasingly gaining foothold in the
international export arena, developed countries are becoming increasingly selective
in their import preferences. Issues like compliance to environmental standards and
self-defined working environment can severely restrict exports from the developing
countries. The main threats and weakness of the business are as follows:
 Continuous increase in utility rates
 Non friendly attitudes of Government agencies
 Less productive labor due to lack of education and training
 Lack of market research especially in prospective markets
 Growing demand for International Standards Certifications
 Lack of financial and human resources to attain immediate certification.
17
9 REGULATIONS
 For an exporter, registration is compulsory with Income Tax Department,
Chamber of Commerce and Industry, Sales Tax Department and Export
Promotion Bureau.
 Income tax on export is deducted at source on export proceeds at the rate of
0.75%, which is full and final discharge of income tax liability.
 Sales tax on export is charged at zero percent called zero-rated and whole input
sales tax consumed in exports is refundable.
 If the project is 100% export oriented there is an exemption of custom duty, sales
tax, income tax, on the import of machinery by an exporter.
 Government provides an export rebate of 2.62% of the F.O.B value on Trousers
export.
18
10 FINANCIAL ANALYSIS
10. 1 Projected Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Sales 5,136,768 6,215,489 33,983,010 41,119,442 88,497,932 107,082,497 119,460,018 131,406,020 144,546,622 159,001,284
Cost of goods sold
Raw Material 2,935,296 3,390,267 26,338,332 31,093,794 65,297,015 75,418,052 80,311,181 84,326,740 88,543,077 92,970,230
Washing Cost (OUTSOURCED) 0 0 2,032,358 2,280,306 5,117,007 5,741,282 5,939,097 6,057,879 6,179,037 6,302,618
Payroll (Production Staff) 1,658,800 1,824,680 2,007,148 2,207,863 2,428,649 2,671,514 2,938,665 3,232,532 3,555,785 3,911,364
Machine Maintenance 108,000 115,560 123,649 132,305 141,566 151,476 162,079 173,424 185,564 198,554
Direct Electricity 428,033 470,837 517,920 569,712 626,683 689,352 758,287 834,116 917,527 1,009,280
Total 5,130,129 5,801,343 31,019,407 36,283,980 73,610,920 84,671,675 90,109,309 94,624,691 99,380,990 104,392,045
Gross Profit 6,639 414,146 2,963,603 4,835,462 14,887,011 22,410,822 29,350,709 36,781,329 45,165,632 54,609,239
Operating Expenses
Payroll (Admin) 1,122,000 1,234,200 1,357,620 1,493,382 1,642,720 1,806,992 1,987,691 2,186,461 2,405,107 2,645,617
Fixed electricity 133,825 147,208 161,929 178,122 195,934 215,527 237,080 260,788 286,867 315,553
Insurance expense 100,175 90,157 80,140 70,122 60,105 50,087 40,070 30,052 20,035 10,017
Office expenses 11,220 12,342 13,576 14,934 16,427 18,070 19,877 21,865 24,051 26,456
Administrative Overheads 51,368 62,155 339,830 411,194 884,979 1,070,825 1,194,600 0 0 0
Amortization (Pre-operational Expenses) 31,120 31,120 31,120 31,120 31,120 31,120 31,120 31,120 31,120 31,120
Depreciation 200,349 200,349 200,349 200,349 200,349 200,349 200,349 200,349 200,349 200,349
Total 1,650,057 1,777,531 2,184,564 2,399,223 3,031,634 3,392,971 3,710,787 2,730,635 2,967,528 3,229,113
Operating Profit (1,643,418) (1,363,385) 779,039 2,436,239 11,855,377 19,017,851 25,639,922 34,050,694 42,198,103 51,380,125
Non-operating Expenses
Financial Charges on Long-term Loan 257,888 218,873 174,397 123,695 65,893 0 0 0 0 0
Financial Charges on Short-Term Loan 0 456,886 1,054,992 1,549,216 1,933,450 1,713,292 0 0 0 0
Building Rentel 780,000 858,000 943,800 1,038,180 1,141,998 1,256,198 1,381,818 1,519,999 1,671,999 1,839,199
Total 1,037,888 1,533,759 2,173,189 2,711,091 3,141,342 2,969,489 1,381,818 1,519,999 1,671,999 1,839,199
Profit Before Tax (2,681,306) (2,897,144) (1,394,150) (274,852) 8,714,035 16,048,362 24,258,104 32,530,695 40,526,104 49,540,926
Tax 0 0 0 0 2,924,912 0 0 0 0 0
Profit After Tax (2,681,306) (2,897,144) (1,394,150) (274,852) 5,789,123 16,048,362 24,258,104 32,530,695 40,526,104 49,540,926
Retained Earnings beginning of year 0 (2,681,306) (5,578,450) (6,972,600) (7,247,452) (1,458,329) 14,590,033 38,848,137 71,378,832 111,904,936
Retained Earnings end of year (2,681,306) (5,578,450) (6,972,600) (7,247,452) (1,458,329) 14,590,033 38,848,137 71,378,832 111,904,936 161,445,862
19
PREF-58/November, 2007/ Rev 2
10.2 Projected Cash Flow Statement
Const. Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year
Operating activities
Net profit (2,681,306) (2,897,144) (1,394,150) (274,852) 5,789,123 16,048,362 24,258,104
Amortization (Pre-operational Expenses) 31,120 31,120 31,120 31,120 31,120 31,120 31,120
Depreciation 200,349 200,349 200,349 200,349 200,349 200,349 200,349
Up-front insurance payment (100,175) 10,017 10,017 10,017 10,017 10,017 10,017 10,017
Equipment and spare part inventory (680) (34) (36) (38) (39) (41) (43) (46)
Accounts receivable (740,880) (155,585) (4,004,931) (1,029,293) (6,833,436) (2,680,466) (1,785,219)
Stocks-RM (141,120) (21,874) (1,103,272) (228,628) (1,644,386) (486,588) (235,247) (193,056)
Accounts payable 295,809 45,850 2,312,629 479,239 3,446,885 1,019,964 493,113
Cash provided by operations (241,975) (2,906,797) (3,868,700) (3,073,632) (2,227,844) 2,157,429 14,394,056 23,014,383
Financing acivities
Long term debt principal repayment (278,673) (317,687) (362,163) (412,866) (470,667) 0 0
Add: buliding rent expense 780,000 858,000 943,800 1,038,180 1,141,998 1,256,198 1,381,818
Building rent payment (780,000) (858,000) (943,800) (1,038,180) (1,141,998) (1,256,198) (1,381,818) (1,519,999)
Adition to debt 1,842,055
Issuance of share 1,842,055
Running Finance Repayment (3,263,470) (7,535,657) (11,065,832) (13,810,359) (12,237,797) 0
Cash provided by/ (used for) financing activities 2,904,109 (356,673) (3,666,957) (7,992,200) (11,582,515) (14,395,226) (12,363,417) (138,182)
Total 2,662,134 (3,263,470) (7,535,657) (11,065,832) (13,810,359) (12,237,797) 2,030,640 22,876,201
Investing activities
Capital expenditure (2,314,690)
Cash (used for)/ provided by invetsing activities (2,314,690)
Cash balance brought forward 0 347,444 347,444 347,444 347,444 347,444 347,444 2,378,084
Net Cash 347,444 (2,916,026) (7,188,213) (10,718,387) (13,462,915) (11,890,353) 2,378,084 25,254,285
Running Finance 0 3,263,470 7,535,657 11,065,832 13,810,359 12,237,797 0 0
Cash carried forward 347,444 347,444 347,444 347,444 347,444 347,444 2,378,084 25,254,285
20
10. 3 Projected Balance Sheet

Const. Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Current Assets
Cash 347,444 347,444 347,444 347,444 347,444 347,444 2,378,084 25,254,285 56,353,403 95,270,529 147,700,038
Stocks and Inventory 141,120 162,994 1,266,266 1,494,894 3,139,280 3,625,868 3,861,114 4,054,170 4,256,879 4,469,723 0
Receivable 0 740,880 896,465 4,901,396 5,930,689 12,764,125 15,444,591 17,229,810 18,952,791 20,848,070 22,932,877
Equipment and spare part inventory 680 714 750 788 827 868 912 957 1,005 1,056 1,108
Pre-paid insurnace payment 100,175 90,157 80,140 70,122 60,105 50,087 40,070 30,052 20,035 10,017 0
Pre-paid building rent 780,000 858,000 943,800 1,038,180 1,141,998 1,256,198 1,381,818 1,519,999 1,671,999 1,839,199 2,023,119
Total 1,369,419 2,200,189 3,534,865 7,852,824 10,620,342 18,044,590 23,106,588 48,089,274 81,256,113 122,438,594 172,657,143
Gross Fixed Assets 2,003,490 2,003,490 2,003,490 2,003,490 2,003,490 2,003,490 2,003,490 2,003,490 2,003,490 2,003,490 2,003,490
Less: Accumulated depreciation 0 200,349 400,698 601,047 801,396 1,001,745 1,202,094 1,402,443 1,602,792 1,803,141 2,003,490
Net Fixed Assets 2,003,490 1,803,141 1,602,792 1,402,443 1,202,094 1,001,745 801,396 601,047 400,698 200,349 0
Intangible Assets
Pre-operational Expenses 311,200 280,080 248,960 217,840 186,720 155,600 124,480 93,360 62,240 31,120 0
Total 311,200 280,080 248,960 217,840 186,720 155,600 124,480 93,360 62,240 31,120 0
Total Assets 3,684,109 4,283,410 5,386,617 9,473,107 12,009,156 19,201,935 24,032,464 48,783,681 81,719,051 122,670,063 172,657,143
Current Liabilities
Running Finance 0 3,263,470 7,535,657 11,065,832 13,810,359 12,237,797 0 0 0 0 0
Accounts payable 295,809 341,660 2,654,288 3,133,528 6,580,413 7,600,377 8,093,490 8,498,164 8,923,073 9,369,226
Total 0 3,559,279 7,877,317 13,720,120 16,943,887 18,818,210 7,600,377 8,093,490 8,498,164 8,923,073 9,369,226
Long-term liabilities
Long-term Loan 1,842,055 1,563,382 1,245,695 883,533 470,667 0 0 0 0 0 0
Total 1,842,055 1,563,382 1,245,695 883,533 470,667 0 0 0 0 0 0
Equity
Paid-up Capital 1,842,055 1,842,055 1,842,055 1,842,055 1,842,055 1,842,055 1,842,055 1,842,055 1,842,055 1,842,055 1,842,055
Retained Earnings 0 (2,681,306) (5,578,450) (6,972,600) (7,247,452) (1,458,329) 14,590,033 38,848,137 71,378,832 111,904,936 161,445,862
Total 1,842,055 (839,251) (3,736,395) (5,130,546) (5,405,397) 383,726 16,432,088 40,690,192 73,220,887 113,746,991 163,287,917
Total Liabilities And Equity 3,684,109 4,283,410 5,386,617 9,473,107 12,009,156 19,201,935 24,032,464 48,783,681 81,719,051 122,670,063 172,657,143
21
11 KEY ASSUMPTIONS
Table 12-1: Machinery Assumptions

Capacity of stitching unit 244,608
Production per day -(pieces) approximately 800
Production Capacity for Year 1 55%
Maximum Production Capacity 98%
Defected garment 2%
Machine maintenance cost (per month / machine) 200
Machine maintenance growth rate 7%
Table 12-2: Operating Assumptions

Hours operational per day 8 hours
Days operational per month 26 days
Days operational per year 312 days
No of shifts per day Single
Table12-3: Economy Related Assumptions

Electricity cost growth rate 10%
Wages growth rate 10%
Table 12-4: Cash Flow Assumptions

Accounts receivable (average) 45days
Accounts payable average 30 days
Table 12-5: Revenue Assumptions

Sale Price of Trousers for export sales Rs.285 or 4.78$
Dollar rate Rs. 60 / dollar
CMT rate per piece Rs 35
Sales price growth rate per annum (both for export & CMT) 3%
Wastage price growth rate 3%
22
Table 12-6: Expense Assumptions

Consumption of fabric per piece 1.5 meters or 250kg
Fabric purchase price (per meter) Rs.125
Raw material price growth rate 2%
Insurance rate on machines (on written down value) 1%
Tax on CMT service (% of total CMT Revenue) 5%
Tax on Export Sales (% of total Export Revenue) 0.75%
Packaging cost per piece Rs.9
Average Freight charges per piece Rs.5
Table 12-7: Financial Assumptions

Project life (Years) 10
Debt 50%
Equity 50%
Interest rate on long-term debt 14%
Debt tenure (Years) 5
Debt payments per year 2
23
24
PREF-58/August, 2002/ Rev 1

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Pre-Feasibility Study

GARMENTS STITICHING UNIT

Small and Medium Enterprises Development Authority

REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

1.1 Project brief

1.2 Opportunity Rationale

1.3 Proposed Capacity

1.4 Project Cost

1.5 Production process flow chart

2 CURRENT INDUSTRY STRUCTURE

Table 2-1: Manufacturing Units of Trousers in No of Companies Exporting

3.1 World Trade Analysis

Exporter Countries Trade Value in $Millions

Table 3-3 Pakistan’s Export of Trousers in 20064

3.2 Raw material

Table 5-1: Manpower Requirement at Start

Table 6-1: Machinery List

The investment layout in different years is given in the financial calculation.

Table 6-2: Other Equipment

Table 6-3: Office Equipment

Table 7-1: Total Area Requirement

Table 8-1 Project Economics

Table 8-2 Project Returns

Table 8-3 Financing Plan

8 KEY SUCCESS FACTORS & THREATS

8.1 Key Success Factors

8.2 Threats and Weakness of the Business

10. 1 Projected Income Statement

10.2 Projected Cash Flow Statement

10. 3 Projected Balance Sheet

Table 12-1: Machinery Assumptions

Table 12-2: Operating Assumptions

Table12-3: Economy Related Assumptions

Table 12-4: Cash Flow Assumptions

Table 12-5: Revenue Assumptions

Table 12-6: Expense Assumptions

Table 12-7: Financial Assumptions

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