Pre-Feasibility Study

LEATHER GARMENTS MANUFACTURING UNIT

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: (042) 36304926-7
helpdesk@smeda.org.pk
REGIONAL OFFICE

REGIONAL OFFICE

REGIONAL OFFICE

PUNJAB

SINDH

KHYBER PAKTUNKHWA

BALOCHISTAN

8th Floor LDA Plaza,

Egerton Road,
Lahore.
Tel: (042) 111 111 456,
Fax: (042) 36370474
helpdesk.punjab@smeda.org.pk

5TH Floor, Bahria Complex II,

M.T. Khan Road,
Karachi.
Tel: (021) 111-111-456
Fax: (021) 35610572
helpdesk.sindh@smeda.org.pk

Ground Floor
State Life Building The Mall,
Peshawar.
Tel: (091)111 111 456, 9213046-7
Fax: (091) 286908
helpdesk.NWFP@smeda.org.pk

Bungalow No. 15-A Chamn

Housing Scheme Airport Road,
Quetta.
Tel: (081) 2831623, 2831702
Fax: (081) 2831922
helpdesk.balochistan@smeda.org.pk

April, 2011

REGIONAL OFFICE

Pre-Feasibility Study

Leather Garments Manufacturing Unit

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

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

CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT ....................... 6

3.1
3.2
3.3
3.4

STRENGTHS .................................................................................................................................... 6
WEAKNESSES ................................................................................................................................. 6
OPPORTUNITIES .............................................................................................................................. 6
THREATS ........................................................................................................................................ 6

KEY SUCCESS FACTORS/PRACTICAL TIPS FOR SUCCESS .................................................. 7

PROJECT PROFILE ........................................................................................................................... 7

5.1
5.2
5.3
5.4
5.5
5.6

CURRENT INDUSTRY STRUCTURE ........................................................................................... 10

6.1
6.2

PROJECT BRIEF............................................................................................................................... 7
OPPORTUNITY RATIONALE ............................................................................................................. 7
VIABLE ECONOMIC SIZE ................................................................................................................ 7
PROJECT COST ............................................................................................................................... 7
PROCESS FLOW CHART .................................................................................................................. 8
PROCESS DESCRIPTION................................................................................................................... 9

EXISTING CAPACITY .................................................................................................................... 10

PRODUCTION SEASONALITY ......................................................................................................... 11

MARKETING ..................................................................................................................................... 11
7.1
7.2

TOTAL MARKET SIZE ................................................................................................................... 11

TARGET CUSTOMERS ................................................................................................................... 12

RAW MATERIAL.............................................................................................................................. 12

MANPOWER REQUIREMENTS .................................................................................................... 13

9.1

10

TYPES OF SKILLS REQUIRED ........................................................................................................ 13

MACHINERY DETAILS................................................................................................................... 14
10.1

OTHER OPTIONS AVAILABLE FOR MACHINERY............................................................................ 14

11

FURNITURE & FIXTURE................................................................................................................ 14

12

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

12.1
12.2
12.3
12.4

TOTAL LAND REQUIRED (AREA).................................................................................................. 15

RECOMMENDED MODE FOR ACQUIRING LAND ............................................................................ 15
SUITABLE LOCATIONS .................................................................................................................. 15
UTILITIES REQUIREMENTS ........................................................................................................... 15

13

PROJECT ECONOMICS.................................................................................................................. 16

14

REGULATIONS ................................................................................................................................. 16
14.1

15

SPECIAL INCENTIVES .................................................................................................................... 16

FINANCIAL ANALYSIS................................................................................................................... 17
15.1
15.2
15.3

PROJECTED INCOME STATEMENT ................................................................................................. 17

PROJECTED CASH FLOW STATEMENT........................................................................................... 18
PROJECTED BALANCE SHEET ....................................................................................................... 19
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Leather Garments Manufacturing Unit

KEY ASSUMPTIONS ........................................................................................................................ 20

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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.

DOCUMENT CONTROL
Document No.

PREF-13

Revision

Prepared by

SMEDA-Punjab

Issue Date

April 2002

Revised In

April 2011

Issued by

Library Officer

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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 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 sectors including, fruits and
vegetables, marble and granite, gems and jewelry, 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.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk.

2 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 leather garments manufacturing
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 leather
garment manufacturing start-up, production, finance and business management. The
document also provides sectoral information, brief on government policies and
international scenario, which have some bearing on the project itself.
This particular pre-feasibility is regarding Leather Garments which comes under
Leather sector. Before studying the whole document one must consider following
critical aspects, which form the basis of any investment decision.

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CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR

INVESTMENT

Before making the decision, whether to invest in this project or not, one should carefully
analyze the associated risk factors. A SWOT analysis can help in analyzing these factors
which can play important role in making the decision.
3.1

Strengths
Large domestic population of cattle resulting in excess supply of hides and skins.
Meat eating habits of population.
Availability of skilled workforce.
Access to international markets.
Well established repute of country in international markets.

3.2

Weaknesses
Shortage created in local market due to exports of raw and finished leather
Requirement of high working capital
Tendency of skilled labour to shift towards textile sector
High cost of electricity
High cost of raw material inventory and obsolescence
Exports mostly in low to medium end segment
Quality hides and skins are abundantly and cheaply available immediately after
religious festival (Bakar Eid). Rest of the year prices are very high.

3.3 Opportunities
Recovery in the world economy especially in the western hemisphere.
Better policies by government in livestock sector resulting in higher availability of
hides and skins
Low to medium end garments stitching being shifted from China to Pakistan
Conducive policies of government for encouraging leather garment exports by
providing export and freight rebates.
3.4 Threats
Exponential increase in prices of finished leather due to exports.
Non availability of leather during peak production season
Negative impact of environment regulations compliance on tanning industry
resulting in shortages of finished leather.
Abrupt change in international fashion trend can result in increased inventory of
finished leather and accessories.
Increasing prices of POL
Animal protection rights issue in western markets.
Stakes concentrated in few traditional international markets.
Hot local climate not conducive for local leather garments consumption.
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KEY SUCCESS FACTORS/PRACTICAL TIPS FOR SUCCESS

A high break even of 50% requires consistent availability of export orders.
Availability of consistent quality raw material & accessories.
Knowledge of international fashion trends both in garments and leathers.
Participation in international trade fairs.
Better production operations management especially in cutting and finishing
sections.

PROJECT PROFILE

5.1 Project Brief

The proposed project presents an investment opportunity in Leather Garments
Manufacturing Unit. Major products will include Leather Jackets, Biker Jackets and Overcoats for men, women and children. However, the product line can be extended to
manufacture all kinds of leather garments.
5.2 Opportunity Rationale
The size of the total global export market of leather garments in CY 2009 was around
$3.48 billion which is fairly high. However, due to recession in the world economy, the
international exports have dropped by 18.80% since CY 2006. However, the recovery in
international markets will provide promising opportunities in the coming years. This
makes the business an attractive export opportunity. Pakistan has an inherent advantage
due to local availability of quality hides & skins. The country has also developed a large
tanning base. As a result, good quality leather for leather garments is easily available.
In addition to easy availability of primary raw material, Pakistan is also well recognized in
the international market as a manufacturer of quality leather garments and is ranked third
amongst the top three exporters of leather garments in the world. Moreover, because of the
presence of large number of leather garments manufacturing units in the country, a pool of
trained skilled workers is also available.
5.3 Viable Economic Size
This pre feasibility report is based on a unit capable of manufacturing 60 leather garments
per day. Total number of stitching machines required to obtain this production is 31.
5.4 Project Cost
Total project cost of a unit producing 60 leather garments per day is Rs 8.92 million. This
includes a fixed cost of Rs 3.32 million and a working capital of Rs 5.60 million.

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5.5

Leather Garments Manufacturing Unit

Process Flow Chart

P ro c e s s F lo w f o r L e a th e r G a rm e n ts M a n u fa c tu rin g

F in is h e d L e a t h e r

S h e e p , G o a t, C o w &
B u ffa l o
A v e ra g e l e a t h e r re q u ir e d
p e r g a rm e n t 3 5 S q .F t.

M a t c h in g

G ra in a n d c o lo u r m a t c h i n g
o f l e a t h e r o n p er g a r m e n t
basis

C u tt in g

P a n e l cu tt in g w it h t h e h e lp
o f d e sig n te m p la t e s
P a n e l s= F ro n t , B a ck ,
C o lla r , B e l t, S l e e v e s, C u ff

A s s e m b ly

F u si n g (H a l f & F u ll)
P a n e l s a r e r o l le d to g e t h e r
w i th a c c e s so r i es
F u si n g , P a d d i n g , L i n i n g ,
E la s ti c , L a b el s , Z i p p er s,
S h o u ld er s p a d , B u tt o n s

T h ick n e s s 0 .6 -1 .4 m m

F in is h in g

B u tto n i n g , T ri m m in g , T o u c h i n g a n d
Iro n in g

S titc h in g

T w o M et h o d s
1 ) O n e S tit c h er

o n e G a rm e n t

2 ) C h a i n p ro c e s s
F o l d i n g , L i n i n g , S le e v e s,
b a c k , F ro n t, P o ck e ts ,
J o i n in g , F in is h i n g

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5.6 Process Description

The process starts with customer providing the manufacturer details regarding quantity
requirement, type of leather, design specifications , accessories detail, stitching style etc.
Upon recieving the information, a sample garment is prepared and sent onward to the
customer for final approval. Once the sample is approved and order is confimed, the
design template for producing the the required quantity are developed by Pattern Cutting
department.

Matching

Leather made from different skin/hides inhernently vary in grain style from each other.In
the matching process the grain and colour of leather are matched on per grament
requirement. This the most critical part in the whole process and requires expertise of the
matcher.

Cutting

After the matching, the cutter cuts different panels of a jacket with the help of the design
patterns and knives. The list of panels include Front , Back, Collar, Sleeves, Cuff etc.
Generally, design patterns made of cardboard are used in cutting process. In case single
type/design garments are to be manufacturered in large quanities, then press machines
with metal dyes can also be used. Average wastage of leather in cutting process ranges
between 15 to 25%. In Pakistan, a cutter cuts 15 to 20 jackets per day per shift (shift 8
hours).

Assembly

After the cutting process, fusing is added to different panels of the garment, as per design
requirement. Fusing machines or electric irons are used for this purpose. Generally, half
fusing is done on the end area where stitching is to done and full fusing is applied on front
& back panel for providing garment outlook. Fusing reduces stretchability and adds
stiffness to the leather making it convenient for the stitcher to stitch. In this process,
accessories are added and rolled together for stitching. Major accessories include lining
(cotton, viscose, satin), zippers (metal, nylon), padding, wadding, shoulder pads, buckles,
buttons, labels and thread.

Stitching

Next to assembly is the stitching of different panels of the garments by using sewing
machines. Two stitching methods, depending upon the quantity produced, are currently
being employed in the industry.
1. One stitcher one garment
2. Chain process (Assembly Line)
In the first method, one stitcher stitches together all the panels of the garment. All the
allied processes (folding etc.) required during sticthing are also perfomed by one person.
Depending upon the garment type & size, on an average, output per stitcher per shift is
between 1 to 2 garments.
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The second method is more efficient and average productivity level per stitcher in some
cases rises between 4-8 garments per day. In the chain process , an assembly line is made
in which each stitcher is assigned one specific process out of the total processes required
for garment manufacturing. Ultimately, the stitcher gets specialized by constantly
performing one task resulting in production efficencies and better quality. In each
assembly line, there are seven stitchers who perform the following sub-processes:
1. Folding
2. Lining Stitching
3. Sleeves
4. Back
5. Front
6. Pocket
7. Panel Joining

Finishing

Finishing is the last process in leather garments manufacturing. In the finishing process,
buttons/snaps are attached to the garment, extra thread and fibres are clipped off. After
this process garments passs through touching process, in which chipped off and out of
matching leather grains are treated to give the garment a good look. The garment then
moves to ironing stage after which hangtags, price tickets, etc are attached.. The final
stage is the quality check by the quality inspectors. Their job is to check the conformance
of the manufactured garment to the customers specifications. The quality check is follwed
by the final packing of the garment.

CURRENT INDUSTRY STRUCTURE

6.1 Existing Capacity

There are about 355 leather garment manufacturing units in the organized sector in the
country. Total annual installed capacity of these units is estimated to be 15.39 Million
leather garments (of all kinds) per annum.
Sialkot has the largest number of leather garments manufacturing units in the country.
There are more than 186 installed in the city that covers 60% of total installed
manufacturing capacity. Karachi is the second largest cluster with 130 units, followed by
Lahore with around 21 units.1. The overall geographical distribution of leather garment
units is exhibited in the table 6-1:

Industrial Information Network

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Table 6-1: Geographical Distribution of Leather Garment Units in Pakistan2

City

Production Capacity
(Million Pieces/Annum)

No. of Units

Karachi
Gujranwala
Islamabad
Kasur
Lahore
Multan
Rawalpindi
Sahiwal
Sialkot
Mirpur
Total

130
3
3
3
21
2
4
2
186
1
355

4.64
0.10
0.04
0.05
1.14
0.06
0.08
0.22
9.05
0.01
15.39

6.2 Production Seasonality

Leather garments is seasonal product as such the capacity utilization of the manufacturig
unit correspondingly varies with the demand over the year. The period between June to
Oct is the peak season with capacity utliization reaching 100%. During the months of
November, December, January and May, the production capacity utiliztion comes down to
50%. February, March and April months are catgorised as the lean months and most of the
garment units operate at about 10% or even below of their installed capacity.

MARKETING

7.1 Total Market Size

The total international imports during CY 2009 stood at US$ 3.25 billion. The major
importers are:
Table 7-1: Major Importers
Market
Germany
USA
France
Italy
Spain
United Kingdom
Japan
2

Imports ($ Million)
445
431
319
225
199
176
166

Industrial Information Network

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7.2 Target Customers

Export market is the primary market for a leather garment-manufacturing unit. In the
export market, major customers include chain stores and major garment brands in Europe
and USA. Major customers of Pakistani leather garments are Germany, USA, United
Kingdom, and UAE & France. The business is done either directly to the buyers or
through middlemen.
Figure 7-1: Pakistans Export Partners for Year 2009

RAW MATERIAL

Table 8-1: Raw Material

Description
Leather3 (Local)
Lining (Satin, Cotton)
Wadding
Accessories
Packing

Price/Unit (Rs)
135/Sq. ft
55/yards
80/yard
205
20

Required
34 sq. ft4.
2.25 yards
0.2 yards
1
1

Total Cost/Piece

Cost (Rs.)
4,590
124
16
205
20

4,955

For the purpose of this pre-feasibility, the leather garments are categorized according to
the type of leather used. The different kinds of leather used are; cow, goat, buffalo and
sheep leathers. The sales price of leather garments also depends on leather type. The
garments made from cow and sheep leather are expensive as compared to garments from
buffalo and goat leather.

3
4

The prices of leather range from Rs. 120 to Rs.160 per sq. ft depending on the type.
Leather required for a normal jacket
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MANPOWER REQUIREMENTS

Table 9-1: Manpower Requirements

Job Description
Production Staff
Stitching Supervisor
Quality Controllers
Final Inspector
Electrician (part time)
Skilled Stitches5
Cutting Masters7
Semi Skilled Workers
Total Production Staff
Administrative Staff
Factory Manager/Owner
Office Assistant
Accounts/ Store Clerk
Security Guards
Marketing Staff
Merchandiser
Export Documentation Officer
Total Marketing & Admin.
Staff
Total Staff

Nos.

Salary Rs/Month

Annual (Rs.)

1
2
1
1
30
4
3
42

25,000
12,000
14,000
5,000
350/piece
40/piece
8,000

1
1
1
2

70,000
12,000
15,000
9,000

840,000
144,000
84,000
216,000

1
1
7

30,000
12,000

360,000
144,000
1,884,000

49

300,000
288,000
168,000
60,000
3,150,0006
360,0008
288,000
4,614,000

6,498,000

9.1 Types of Skills Required

Pattern-making, designing, cutting & stitching are the primary skills required for running
the unit. Moreover, matching of leather from different skins also requires an experienced
matching expert. Development of leathers and its timely procurements is an important
skill also. Similarly knowledge about international trends in fashion and prices is also
comes as a handy skill.

Each skilled stitcher stitches 2 pieces per day.

Calculated at 50% production capacity.
7
Each cutting master cuts 7-8 pieces per day.
8
Calculated at 50% production capacity
6

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10 MACHINERY DETAILS
Mostly Chinese machinery is being proposed in this pre-feasibility study, as these have
gained market share in the recent years due to improvement in quality. Spare parts and
technicians are easily available now.
Table 10-1: Machinery List
Machinery and Other Equipment

Machines

Lock Stitch Machine Single Needle

(Chinese)
Lock Stitch Machine Double Needle
(Chinese)
Fusing Machine (Local)
Skiving Machine
Snap Attachment Machine (manual)
Over lock Machine 3-Threads(Chinese)
Electric Iron
Strapping Machine
Other Equipment
Electric wiring (per machine)
Machine base table
Generator (30 KVA)
Weighing Scale (100kg)
Total Cost

30

Cost / Machine
Total
(Rs.)
Cost (Rs.)
24,000
720,000

35,000

35,000

1
1
2
1
2
1

80,000
120,000
10,000
23,000
5,000
75,000

80,000
120,000
20,000
23,000
10,000
75,000

35
31
1

1,000
2,000
400,000
40,000

35,000
62,000
400,000
40,000
1,720,000

10.1 Other Options Available for Machinery

Stitching machinery from Korea, Taiwan, and Japan is also available in the local market.
Second hand machinery is also available and can be used.

11 FURNITURE & FIXTURE

Following is the proposed furniture & fixture required for the project:
Table 11-1: Furniture & Fixture
Furniture & Fixture
Factory Tables
Office Chairs
Office Tables
Computer with UPS
Printer (Laser)
Telephone
Fax Machine

Required
15
10
5
5
2
5
1
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Cost (Rs.)
7,000
3,000
10,000
35,000
25,000
1,000
20,000

Total (Rs.)
105,000
30,000
50,000
175,000
50,000
5,000
20,000

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Curtains/Carpets/etc
Air-conditioners (Split 18,000 BTU)
Miscellaneous
Total Cost

1
2
1

20,000
40,000
30,000

20,000
80,000
30,000
565,000

12 LAND & BUILDING

12.1 Total Land Required (Area)
Table 12-1: Building Covered Area Requirement
Description
Raw Materials Store
Matching & Cutting Section
Role Checking and Fusing
Stitching Hall
Finishing
Inspection & Packing Section
Manager Office
Accounts / Export Section
Cafeteria
Misc. (washrooms)
Pavements/Driveway
Free Space
Total Construction Cost

Area (Sq. ft)

1,000
1,000
625
1,650
625
625
150
350
500
250
400
700
7,875

Construction
(Rs. / Sq. ft)
900
900
900
900
900
900
1,200
1,100
1,100
1,100
300

Total
900,000
900,000
562,500
1,485,000
562,500
562,500
180,000
385,000
550,000
275,000
120,000
6,482,500

12.2 Recommended Mode for Acquiring Land

It is recommended that this project should be started in a rented building. This will help to
reduce the initial capital cost of the project. Usually, appropriate premises are available in
the commercial/industrial areas of under-mentioned clusters. These premises can be easily
hired at approximately Rs. 50,000 / kanal.
12.3 Suitable Locations
Suitable locations for a leather garment-manufacturing unit in order of preference are:
Sialkot
Karachi
Kasur
12.4 Utilities Requirements
Electricity
Telephone
Water
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13 PROJECT ECONOMICS
The project entails the following costs at the start of project.
Table 13-1: Project Costs
Account Heads

Cost (Rs.)
1,720,000
565,000
158,000
580,000
302,300
3,325,300
4,459,275
85,950
1,050,000
5,595,225
8,920,525

Plant and Machinery

Furniture / Fixture & Equipment
Pre-operational Expenses9
Vehicles
Contingencies
Total Fixed Cost
Stocks & Raw Material
Up-Front Insurance payment
Up front for building rental
Total Working Capital
Total Project Cost

Table 13-2: Financing Plan

Financing
Equity
Debt

Ratio
50%
50%

Rs.
4,460,263
4,460,263

Table 13-3: Project Returns

IRR
NPV (Rs.)
Payback Period (Years)

88.87%
63,789,027
3.71

14 REGULATIONS
14.1 Special Incentives

Government offers 2.42 % of FOB value of export as rebate on the exports of leather
garments.

Pre operating cost includes salaries of staff hired and utility bills before the starting of business
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15 FINANCIAL ANALYSIS
15.1 Projected Income Statement
Year-1

Year-2

Year-3

Year-4

Year-5

Year-6

Year-7

Year-8

Year-9

Year-10

Sales

55,440,000

75,675,600

75,675,600

97,796,160

114,559,033

127,362,690

133,730,824

148,218,330

155,629,247

163,410,709

COST OF GOODS SOLD

Raw Material
Payroll (Production Staff)
Machine Maintenance
Direct Electricity
POL
Stationary
Freight
Total

44,592,750
4,614,000
27,000
357,159
277,200
138,600
792,000
50,798,709

46,822,388
5,075,400
35,451
392,874
378,378
189,189
1,029,600
53,923,280

49,163,507
5,582,940
44,068
432,162
378,378
189,189
1,267,200
57,057,444

51,621,682
6,141,234
47,291
475,378
488,981
244,490
1,346,400
60,365,456

54,202,766
6,755,357
47,764
522,916
572,795
286,398
1,346,400
63,734,396

56,912,905
7,430,893
51,079
575,208
636,813
318,407
1,425,600
67,350,905

59,758,550
8,173,982
51,590
632,728
668,654
334,327
1,425,600
71,045,432

62,746,477
8,991,381
55,001
696,001
741,092
370,546
1,504,800
75,105,297

65,883,801
9,890,519
55,551
765,601
778,146
389,073
1,504,800
79,267,491

69,177,991
10,879,571
56,106
842,161
817,054
408,527
1,504,800
83,686,210

Gross Profit

4,641,291

21,752,320

18,618,156

37,430,704

50,824,637

60,011,785

62,685,392

73,113,033

76,361,755

79,724,499

OPERATING EXPENSE
Payroll (Admin)
Payroll (Marketing and Sale)
Fixed electricity
Insurance Expense
Administrative & Factory Overheads
Amortization (Pre-operational Expenses)
Depreciation
Total

1,236,000
648,000
270,220
85,950
1,663,200
46,030
286,500
4,235,900

1,359,600
712,800
297,242
77,355
2,285,403
46,030
286,500
5,064,930

1,495,560
784,080
326,966
68,760
2,300,690
46,030
286,500
5,308,585

1,645,116
862,488
359,662
60,165
2,993,151
46,030
286,500
6,253,113

1,809,628
948,737
395,629
51,570
3,529,802
46,030
286,500
7,067,895

1,990,590
1,043,610
435,191
42,975
3,950,816
46,030
286,500
7,795,713

2,189,649
1,147,972
478,710
34,380
4,176,468
46,030
286,500
8,359,709

2,408,614
1,262,769
526,582
25,785
4,660,386
46,030
286,500
9,216,665

2,649,476
1,389,046
579,240
17,190
4,926,776
46,030
286,500
9,894,257

2,914,423
1,527,950
637,164
8,595
5,208,505
46,030
286,500
10,629,167

405,392

16,687,390

13,309,571

31,177,591

43,756,742

52,216,072

54,325,684

63,896,368

66,467,499

69,095,332

892,053
1,050,000
1,942,053

1,914,858
1,155,000
3,069,858

431,845
1,270,500
1,702,345

0
1,397,550
1,397,550

0
1,537,305
1,537,305

0
1,691,036
1,691,036

0
1,860,139
1,860,139

0
2,046,153
2,046,153

0
2,250,768
2,250,768

0
2,475,845
2,475,845

(1,536,661)
0
(1,536,661)

13,617,533
3,404,383
10,213,150

11,607,226
2,901,806
8,705,419

29,780,041
7,445,010
22,335,031

42,219,437
10,554,859
31,664,578

50,525,036
12,631,259
37,893,777

52,465,544
13,116,386
39,349,158

61,850,215
15,462,554
46,387,661

64,216,730
16,054,183
48,162,548

66,619,487
16,654,872
49,964,615

Operating Profit
NON-OPERATING EXPENSE
Financial Charges on Running Finance
Building Rental
Total
PROFIT BEFORE TAX
Tax
PROFIT AFTER TAX

17
PREF-13/April, 2011/ Rev3

Pre-Feasibility Study

Leather Garments Manufacturing Unit

15.2 Projected Cash Flow Statement

Year-1
Operating activities
Net profit
Amortization (Pre-operational Expenses)
Depreciation
Accounts receivable
Equipment Spare Parts Inventory
Up-Front Insurance payment
Stocks-RM
Accounts payable
Cash provided by operations

Year-2

Year-3

Year-4

Year-5

Year-6

Year-7

Year-8

Year-9

Year-10

(1,536,661)
46,030
286,500
(8,316,000)
(2,250)
8,595
(222,964)
4,927,724
(4,809,026)

10,213,150
46,030
286,500
(3,035,340)
(704)
8,595
(234,112)
246,445
7,530,564

8,705,419
46,030
286,500
0
(718)
8,595
(245,818)
258,766
9,058,774

22,335,031
46,030
286,500
(3,318,084)
(269)
8,595
(258,108)
271,655
19,371,350

31,664,578
46,030
286,500
(2,514,431)
(39)
8,595
(271,014)
285,214
29,505,432

37,893,777
46,030
286,500
(1,920,548)
(276)
8,595
(284,565)
299,498
36,329,011

39,349,158
46,030
286,500
(955,220)
(43)
8,595
(298,793)
314,448
38,750,676

46,387,661
46,030
286,500
(2,173,126)
(284)
8,595
(313,732)
330,194
44,571,838

48,162,548
46,030
286,500
(1,111,637)
(46)
8,595
(329,419)
346,679
47,409,249

49,964,615
46,030
286,500
(1,167,219)
(46)
8,595
6,917,799
(362,356)
55,693,918

0
1,050,000
(1,155,000)

0
1,155,000
(1,270,500)

0
1,270,500
(1,397,550)

0
1,397,550
(1,537,305)

0
1,537,305
(1,691,036)

0
1,691,036
(1,860,139)

0
1,860,139
(2,046,153)

0
2,046,153
(2,250,768)

0
2,250,768
(2,475,845)

0
2,475,845
(2,723,430)

Financing activities
Long term debt principal repayment
Add: building rent expense
Building rent payment
Addition to long term debt
Running Finance Repayment
Issuance of share
Cash provided by/ (used for) financing activities

(4,460,263)

(9,574,288)

(2,159,224)

(4,565,263)

(9,689,788)

(2,286,274)

Total

(9,374,288)

(2,159,224)

6,772,500

19,231,595

29,351,702

36,159,907

38,564,662

44,367,223

47,184,172

55,446,333

Investing activities
Capital expenditure
Cash (used for)/ provided by investing activities
Net Cash

(9,374,288)

(2,159,224)

6,772,500

19,231,595

29,351,702

36,159,907

38,564,662

44,367,223

47,184,172

55,446,333

18
PREF-13/April, 2011/ Rev3

0
(139,755)

0
(153,731)

0
(169,104)

0
(186,014)

0
(204,615)

0
(225,077)

0
(247,585)

Pre-Feasibility Study

Leather Garments Manufacturing Unit

15.3 Projected Balance Sheet

Year-1

Year-2

Year-3

Year-4

Year-5

Year-6

Year-7

Year-8

Year-9

Year-10

Current Assets
Cash
Equipment Spare Parts Inventory
Up-Front Insurance payment
Stocks and Inventory
Receivable
Pre-paid building rent
Total

200,000
2,250
77,355
4,682,239
8,316,000
1,155,000
14,432,844

200,000
2,954
68,760
4,916,351
11,351,340
1,270,500
17,809,905

6,972,500
3,672
60,165
5,162,168
11,351,340
1,397,550
24,947,395

26,204,095
3,941
51,570
5,420,277
14,669,424
1,537,305
47,886,611

55,555,796
3,980
42,975
5,691,290
17,183,855
1,691,036
80,168,933

91,715,704
4,257
34,380
5,975,855
19,104,403
1,860,139
118,694,738

130,280,366
4,299
25,785
6,274,648
20,059,624
2,046,153
158,690,874

174,647,588
4,583
17,190
6,588,380
22,232,750
2,250,768
205,741,260

221,831,761
4,629
8,595
6,917,799
23,344,387
2,475,845
254,583,016

277,278,094
4,676
0
0
24,511,606
2,723,430
304,517,805

Gross Fixed Assets

Less: Accumulated depreciation
Net Fixed Assets

2,865,000
286,500
2,578,500

2,865,000
573,000
2,292,000

2,865,000
859,500
2,005,500

2,865,000
1,146,000
1,719,000

2,865,000
1,432,500
1,432,500

2,865,000
1,719,000
1,146,000

2,865,000
2,005,500
859,500

2,865,000
2,292,000
573,000

2,865,000
2,578,500
286,500

2,865,000
2,865,000
0

414,270
414,270

368,240
368,240

322,210
322,210

276,180
276,180

230,150
230,150

184,120
184,120

138,090
138,090

92,060
92,060

46,030
46,030

0
0

17,425,614

20,470,145

27,275,105

49,881,791

81,831,583

120,024,858

159,688,464

206,406,320

254,915,546

304,517,805

9,574,288
4,927,724

2,159,224
5,174,169

0
5,432,935

0
5,704,590

0
5,989,804

0
6,289,302

0
6,603,750

0
6,933,944

0
7,280,623

0
6,918,267

14,502,012

7,333,394

5,432,935

5,704,590

5,989,804

6,289,302

6,603,750

6,933,944

7,280,623

6,918,267

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

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

4,460,263
(1,536,661)
2,923,602

4,460,263
8,676,489
13,136,751

4,460,263
17,381,908
21,842,171

4,460,263
39,716,939
44,177,201

4,460,263
71,381,516
75,841,779

4,460,263
109,275,294
113,735,556

4,460,263
148,624,452
153,084,714

4,460,263
195,012,113
199,472,376

4,460,263
243,174,661
247,634,923

4,460,263
293,139,276
297,599,539

Total Liabilities And Equity

17,425,614

20,470,145

27,275,105

49,881,791

81,831,583

120,024,858

159,688,464

206,406,320

254,915,546

304,517,805

19
PREF-13/April, 2011/ Rev3

Pre-Feasibility Study

Leather Garments Manufacturing Unit

16 KEY ASSUMPTIONS
Table 16-1: Machinery Assumptions
Number of Machines Installed
Maximum Capacity Utilization
Capacity Utilization (Year 1)
Total Production of units per day (garments)
Total Production of units per month
Total Production of units per year
Total Production of units in Year 1

35
100%
50%
60
1,500
18,000
9,000

Table 16-2: Operating Assumptions

Hours operational per day
Days operational per month
Days operational per year

8
25
300

Table 16-3: Economy-Related Assumptions

Electricity growth rate
Wage growth rate

10%
5%

Table 16-4: Cash Flow Assumptions

Accounts Receivable cycle (in days)
Accounts payable cycle (in days)
Raw material inventory (in day)
Equipment and spare part inventory (in months)

45
30
30
1

Table 16-5: Revenue Assumptions

Production capacity in first year
Sale price per unit in year 1 (in Rs.)
Sale price growth rate
Export sales
Rupee Dollar Exchange Rate

50%
6,160
5%
100%
Rs 88 / $

20
PREF-13/April, 2011/ Rev32

Pre-Feasibility Study

Leather Garments Manufacturing Unit

Table 16-6: Expense Assumptions

Administrative & Factory overhead (% of Sales)
Office expenses (stationery, entertainment etc)(% of
Sales)
Machine maintenance (per piece)
Machine maintenance growth rate
Pre-paid building Rent (months)
Rent growth rate
Petrol Oil & Lubrication(% of Sales)
Raw Material Price Growth Rate
Insurance rate (% of net fixed assets)
Freight Charges/Piece (in Rs)

3.5%
0.25%
Rs. 3
1%
12
10%
0.5%
5%
3%
$1

Table 16-7: 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)
Minimum Cash Balance Required

21
PREF-13/April, 2011/ Rev32

10
50%
50%
14%
14%
5
1
20%
Rs.50,000