Pre-Feasibility Study

DENIM JEANS STITCHING 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 REGIONAL OFFICE

PUNJAB SINDH KHYBER PAKTUNKHWA BALOCHISTAN

8th Floor LDA Plaza, 5TH Floor, Bahria Complex II, Ground Floor Bungalow No. 15-A Chamn
Egerton Road, M.T. Khan Road, State Life Building The Mall, Housing Scheme Airport Road,
Lahore. Karachi. Peshawar. Quetta.
Tel: (042) 111 111 456, Tel: (021) 111-111-456 Tel: (091)111 111 456, 9213046-7 Tel: (081) 2831623, 2831702
Fax: (042) 36370474 Fax: (021) 35610572 Fax: (091) 286908 Fax: (081) 2831922
helpdesk.punjab@smeda.org.pk helpdesk.sindh@smeda.org.pk helpdesk.NWFP@smeda.org.pk helpdesk.balochistan@smeda.org.pk

June, 2010
Pre-Feasibility Study Garments Stitching Unit (Denim Jeans)

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

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

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

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

4.1. STRENGTHS.................................................................................................. 6
4.2. WEAKNESSES ............................................................................................... 6
4.3. OPPORTUNITIES ........................................................................................... 6
4.4. THREATS...................................................................................................... 6

5. PROJECT PROFILE...................................................................................... 6
5.1. OPPORTUNITY RATIONALE .......................................................................... 6
5.2. PROJECT BRIEF ............................................................................................ 7
5.3. PROPOSED CAPACITY................................................................................... 7
5.4. TOTAL PROJECT COST ................................................................................. 7
5.5. PROPOSED BUSINESS LEGAL STATUS .......................................................... 7
5.6. PROPOSED LOCATION .................................................................................. 8
5.7. KEY SUCCESS FACTORS ............................................................................... 8

6. CURRENT INDUSTRY ANALYSIS ............................................................ 8

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

7. MARKET ANALYSIS.................................................................................. 11
7.1. DOMESTIC MARKET ................................................................................... 11
7.2. TARGET CUSTOMERS ................................................................................. 11

8. PRODUCTION PROCESS FLOW ............................................................. 11

8.1. RAW MATERIAL......................................................................................... 12
8.1.1. Packing Cost.......................................................................................... 12

9. HUMAN RESOURCE REQUIREMENTS ................................................ 13

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

10.1. MACHINERY LIST ...................................................................................... 14
10.2. FURNITURE AND EQUIPMENT LIST ............................................................. 14

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

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11.1. LAND/BUILDING REQUIREMENT ................................................................ 15

11.2. RECOMMENDED MODE .............................................................................. 15
11.3. SUITABLE LOCATIONS ............................................................................... 16
11.4. UTILITIES REQUIREMENTS ......................................................................... 16

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

13. FINANCIAL ANALYSIS ............................................................................. 17

13.1. PROJECTED INCOME STATEMENT ............................................................... 17
13.2. PROJECTED BALANCE SHEET ..................................................................... 18
13.3. PROJECTED CASH FLOW STATEMENT ........................................................ 19

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

ANNEXURE 1: RAW MATERIAL & MACHINERY SUPPLIERS ................ 22

ANNEXURE 2: INCOME TAX DEDUCTION SLABS...................................... 24

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

For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk

DOCUMENT CONTROL

Document No. PREF-01

Revision 3

Prepared by SMEDA-Punjab

Issue Date July, 2001

Revised in June, 2010

Issued by Library Officer

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Pre-Feasibility Study Garments Stitching Unit (Denim Jeans)

1. EXECUTIVE SUMMARY
The proposed Denim Jeans Stitching unit is a project of the Textile Sector,
producing standard five pocket jeans trouser. The unit will cater to the local as well
as export denim market. The jeans produced will be of export, high quality fabric.
Through the use of high-tech equipment and modern techniques the company can
produce jeans of latest trends without compromising on quality. The process flow
includes purchase of raw material, cutting, stitching, washing, finishing, pressing
and packing. Quality control checks will be taken care of through out the process.
Pakistan has become denim hub in the region in less than a decade and is considered
as one of the leading supplier of quality denim fabric to the world's known brands.
Pakistan's denim is second to none. There has been a phenomenal increase in the
production capacity of denim mills in Pakistan and at present numerous denim mills
are in operation. The denim industry is contributing substantially towards exports
creating job opportunities and has invested billions in the denim sector. The denim
industry is not only fully catering to the needs of the local apparel industry but is
also catering to the foreign market and earning valuable foreign exchange for the
country.
This particular stitching unit is proposed to have an installed capacity for producing
1000 denim jeans per day. The unit’s initial capacity utilization is kept at 70%,
which eventually goes up to 90% in the fifth year. A Denim Garment Stitching Unit
with an installed capacity to produce 1,000 pieces per day needs an investment
estimated at Rs. 14.150 million. The project is financed through 50% debt and 50%
equity. Projected IRR, Net Present Value and Payback of this project are 71.11%,
Rs. 165.680 million and 3.71 years respectively. The legal business status of this
project is proposed as ‘Sole Proprietorship’.

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2. INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was
established with the objective to provide fresh impetus to the economy through the
launch of an aggressive SME support program.

Since its inception in October 1998, SMEDA had adopted a sectoral SME
development approach. A few priority sectors were selected on the criterion of SME
presence. In depth research was conducted and comprehensive development plans
were formulated after identification of impediments and retardants. The 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 jewellery, marine fisheries, leather and
footwear, textiles, surgical instruments, transport and dairy. Whereas the task of
SME development at a broader scale still requires more coverage and enhanced
reach in terms of 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.

3. PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential
entrepreneurs to facilitate investment and provide an overview about Garment
Stitching Unit. The project pre-feasibility may form the basis of an important
investment decision and in order to serve this objective, the document covers various
aspects of the business concept development, start-up, production, marketing, and
finance and business management.
This particular pre-feasibility is regarding “Garment Stitching Unit” which comes
under “Textile” sector.

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4. CRUCIAL FACTORS AND STEPS IN DECISION MAKING

4.1. Strengths
• There is a “ready made” market for this product.
• Relatively low labour costs
• Ample available work force.
• Well-situated industrial estate with all major facilities available.

4.2. Weaknesses
• The requirement of credit and/or delay of payments from customer side
might cause disturbance in the cash cycles.
• Very small base of available skilled machinists.
• Lack of trained technicians and line / middle management.
• Uncertain investment climate

4.3. Opportunities
• WAPDA/KESC will provide “off peak hour rates” and “bulk rates” for
industrial consumers to lower the electricity cost of manufacturing.
• Manufacturers-cum-exporters are allowed to import samples of each kind or
quality having value up to US$ 100 at zero duty rates.
• Two special export zones focusing on textile sector particularly in dyeing,
processing and finishing sectors will be established at Karachi and in one of
the industrial cities of Punjab.

4.4. Threats
• Skilled operators in the denim garments are quite unorganized. Stitching
expertise is not available at the best possible level. This restricts the industry
to the basic garments and only limits the entry into the manufacturing of high
quality garments.
• Cost of doing business may increase as the energy, raw material prices,
wages and mark up rates may rise.

5. PROJECT PROFILE

5.1. Opportunity Rationale

During the last decade, the usage of denim garments, especially denim jeans, has
been on a rise in the international as well as the local markets. This has led to a rise
in the demand of denim garments. The competitive edge of Pakistan in this field
stems from the ready availability of cotton yarn required to weave denim fabric i.e.

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NE 7/1 to NE 14/11. During the past few years, the denim fabric manufacturing
capacity has also been enhanced that has provided the opportunity to industry to
strengthen. The export of denim garments from Pakistan has also been on a rise.

5.2. Project Brief

The proposed project presents an investment opportunity in manufacturing of denim
jeans. The project profile has been prepared for a standard five pocket jeans trouser.
The proposed stitching unit will be having the potential for its own manufacturing
and supply for the local market as well as for the export market. However washing
will be outsourced.

5.3. Proposed Capacity

The proposed capacity of the unit is 1000 garments per day.

5.4. Total Project Cost

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

Table 5-1 Project Investment

Capital Investment Rs. 5,981,220
Working Capital Rs. 8,169,111
Total Investment Rs. 14,150,331
The proposed pre-feasibility is based on the assumption of 50% debt and 50%
equity. However this composition of debt and equity can be changed as per the
requirement of the investor.
The project seems to be viable with the following returns on investment.

Table 5-2 Project Returns

Internal rate of return (project) 71.11%
Net Present Value @ 20% Rs. 165,680,748
Payback period – based on cash inflows 3.71 years

5.5. Proposed Business Legal Status

The proposed legal structure of the business entity is either sole proprietorship or
partnership. Although selection totally depends upon the choice of the entrepreneur
but this financial feasibility is based on a Sole Proprietorship.

1
yarn count
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5.6. Proposed Location

The proposed locations for a garment manufacturing unit will be
• Lahore
• Karachi
• Faisalabad
• Hyderabad
• Sialkot
• Gujranwala

5.7. Key Success Factors

The total commercial viability of this proposed stitching unit depends on the regular
orders for the purchase of the finished product. This requires aggressive marketing
efforts at the entrepreneur's end.
Following are other key points that are important for the successful operation of the
proposed stitching unit.
• Surety of high consistent quality
• Surety of on time delivery
• Competitive rates
• Cost efficiency
• Better services to the customer.
• Better communication development with customers

6. CURRENT INDUSTRY ANALYSIS

6.1. Export Market

Pakistan’s export of denim jeans is increasing over the years. Pakistan’s denim
exports increased rapidly in the last years, due to a series of advantages including a
falling currency, cotton fibre and yarn availability, modern equipment and strong
incentives from the government. The country has progressively built a wealthy
denim industry, allowing progressive denim apparel production and direct denim
fabric exports to other Asian countries and to Turkey.
Turkey and Bangladesh are the major countries importing Pakistani denim products.
Other major export markets are Italy, Syria and Egypt. Total Export of Pakistan in
the year 2009 was USD 55.748 million, which shows approximately a 100%
increase as compared to the export of USD 25.776 million in 2008
Major partners are given in the table below:

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Table 6-1: Pakistan’s Exports in the year 2008 and 20092

2008 2009
Export Partners Export Value (USD) Export Partners Export Value (USD)
World 25,776,377 World 55,748,551
Turkey 17,298,943 Turkey 32,421,589
Bangladesh 2,470,708 Bangladesh 8,007,672
Syria 2,261,119 Italy 3,120,928
UAE 586,008 Syria 2,112,099
Belgium 400,932 Egypt 1,848,727
Iran 386,009 Colombia 881,696
Italy 314,115 UAE 738,513
Sri Lanka 269,393 Sri Lanka 711,244
Lebanon 235,019 Peru 662,473
Mexico 196,199 Greece 597,849

A comparative picture of the world’s top importers and exporters and their trade
value is given in the figures below.

Figure 6-1 Top Importers

World's Top Importers

17%
Turkey
China
43% 11% China, Hong Kong SAR
Colombia
Mexico
11%
Others

8% 10%

2
http://comtrade.un.org
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Table 6-2: Trade Value for Top Importers

Country Trade Value (USD)
Turkey 179,156,828
China 117,011,111
China, Hong Kong SAR 115,373,606
Colombia 102,077,109
Mexico 87,067,153
Others 449,304,425
Total Import 1,049,990,232

Figure 6-1 Top Exporters

World's Top Importers

20%
China
China, Hong Kong SAR
4% 47% Turkey
6% Pakistan
Italy
9% Others

14%

Table 6-3: Trade Value for Top Exporters

Country Trade Value (USD)
China 683,592,128
China, Hong Kong SAR 211,100,320
Turkey 126,434,925
Pakistan 81,524,928
Italy 64,217,277
Others 290,755,006
Total Export 1,457,624,584

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7. MARKET ANALYSIS
Major concentration of the denim garment stitching industry is in Karachi and
Lahore. Other important hubs are Sialkot, Faisalabad and Gujranwala.
The average production capacity of majority of small and medium sized jeans
manufacturing units is about 1,000 jeans per day. However, large size manufacturers
are producing as much as 30,000 jean trousers per day.

7.1. Domestic Market

Almost all the established manufacturers are catering solely to the export market.
Only the B-Class products are sold in the domestic market. The size of the
manufacturers, whose primary market is domestic, is quite small.

7.2. Target Customers

In case of direct exports, the customers are retail chain stores, direct distributors and
wholesalers. The export can either be through buying houses and/or through direct
customers.

Table 7-1 Major Players

U. S. Apparel and Textile Pvt. Ltd. Lahore
Artistic Milliners Ltd Karachi
Siddiqsons Denim Mills Ltd Karachi
Pak Denim Ltd Karachi
RAJBY Industries Karachi
Ali Murtaza Associates Pvt. Ltd. Karachi
Azgard Nine Ltd. Lahore
Talon Sports Pvt. Ltd. Sialkot
Al Karam Textile Mills Pvt. Ltd. Karachi
Mr. Denim Pvt. Ltd. Lahore
Abdullah Apparels Pvt. Ltd. Karachi
Digital Apparel Pvt. Ltd. Karachi
Joe’s Fashion Export Pvt. Ltd. Karachi

8. PRODUCTION PROCESS FLOW

The proposed business is stitching denim jeans. The process will involve purchasing
of raw material from the market i.e. denim fabric, which will be put through the
process. Washing of the fabric will be outsourced as washing in house requires a
plant which is expensive and will greatly increase the project cost. Therefore, it is

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recommended that the proposed project should outsource washing. Washing cost per
piece is taken as Rs. 30. The production process flow is given in figure 8-1.

Figure 8-1 Process Flow Chart for Denim Garments Stitching Unit:

Denim Fabric Inspection Cutting Stitching

Raw Material

Buttoning/ Riveting Threading Stone Washing (To

Pressing be outsourced)

Final Inspection/
Packing

8.1. Raw Material

The proposed business will be using the raw material listed in the Table 8-1.

Table 8-1: Raw Material

Raw Material Consumption/ Piece Rate (Rs.)
Fabric (Metre) 1.30 200 / m
Pocket Lining (Metre) 0.2 100 / m
Stitching thread (Metre) 350 10 / piece
Imported buttons 1 3 / unit
4.5 YG Zip 1 15 / unit
Main label 1 5 / unit
Care and size label 1 2 / unit
Rewet per unit 6 9 / unit
Packing cost 1 15 / piece

8.1.1. Packing Cost

Packing cost includes one poly bag and one small carton for the packing of each
finished garment. Total cost of packing for one piece is taken as Rs. 15.

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9. HUMAN RESOURCE REQUIREMENTS

For a garment-stitching unit of 32 stitching machines, following manpower is
required:

Table 9-1: Manpower Required

Production Staff Number Salary/Month Annual Salary
Production Manager 1 50,000 600,000
Production Planning Officer 1 25,000 300,000
Pattern Master 1 25,000 300,000
Cutting Master 1 15,000 180,000
Cutting Helper 2 8,500 204,000
Final Table inspector 2 12,000 288,000
Finishing Supervisor 1 15,000 180,000
Rowing Inspector 1 12,000 144,000
Machine Operator 40 9,000 4,320,000
Helper (machine operator) 2 7,500 180,000
Clippers 2 7,500 180,000
Iron Presser 1 10,000 120,000
Packing Staff 2 7,500 180,000
Store keeper 1 10,000 120,000
Total 58 7,296,000

Administration Staff Number Salary/Month Annual Salary

Chief executive 1 75,000 900,000
Finance & Admin. Manager 1 50,000 600,000
Accounts officer 2 15,000 360,000
Marketing Manager 1 40,000 480,000
Merchandiser 1 25,000 300,000
Export Officer 1 25,000 300,000
Purchase Officer 1 20,000 240,000
Technician/Electrician 1 15,000 180,000
Security Guards 2 8,500 204,000
Total 11 3,564,000

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10. MACHINERY AND EQUIPMENT DETAILS

10.1. Machinery List

Following combination of stitching machines is required for manufacturing 1,000
denim jeans per day. Approximate prices for Japanese origin machinery are given
below:

Table 10-1: Stitching Machinery and Equipment

Machinery Quantity Unit cost (Rs.) Total cost (Rs.)
Cutting Machine 2 108,500 217,000
Lock Stitch (Single Needle) 15 28,500 427,500
Lock Stitch (Double Needle) 3 133,000 399,000
Safety Stitching Over lock 1 46,500 46,500
Safety Stitching Over lock 1 50,000 50,000
Feed Off Arm 2 40,500 81,000
Bar Tracking 3 318,000 954,000
Waist Belt Machine 1 136,000 136,000
Eyelet Machine 1 1,055,000 1,055,000
Button Stitching Machine 1 320,000 320,000
Loop Making Machine 1 156,500 156,500
Snap Fastener 1 50,000 50,000
Total machinery cost 32 3,892,500
Other Equipment
Steam Boiler 1 138,320 138,320
Other tools Lumpsum 25,000 25,000
Machine Installation and wiring 32 4,000 128,000
Total other equipment cost 291,320
Total Cost 4,183,820

10.2. Furniture and Equipment List

Furniture and Equipment requirement for the Administration and Factory building is
given in the table below:

Table 10-2: Furniture and Office Equipment

Furniture Quantity Cost/Unit (Rs.) Total Cost (Rs.)
Table 9 10,000 90,000
Chairs 18 3,000 54,000
Shelves 6 10,000 60,000
Stools 13 800 10,400
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Machine Table 40 5,000 200,000

Lay Table 12 10,000 120,000
Total 98 534,400
Equipment
Computers 9 25,000 225,000
Printer 1 15,000 15,000
UPS 9 7,500 67,500
Networking 1 25,000 25,000
Air conditioner 4 40,000 160,000
Tele/Fax 1 15,000 15,000
Total 24 507,500
Total Cost 1,041,900
11. LAND & BUILDING

11.1. Land/Building Requirement

Approximately, 4,900 square feet of total covered area is required to establish the
proposed stitching unit with a management building. The allocation of the space
requirement is as follows:

Table 11-1: Space Requirements

Space Requirement Required area (sq. ft)
Fabric & Accessories inventory Store 1,000
Cutting Room 400
Stitching Room 1,250
Inspection Room 850
Packing Room 750
Finished Garment Store 850
Total factory area 5,100
Management Building 650
Total Area Required (sq. ft.) 5,750

11.2. Recommended Mode

It is recommended that this project should be started in a rented building. As the
initial capital cost of the project will be less. An appropriate premise is normally
available in many commercial/industrial areas of under mentioned clusters.

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Table 11-2: Building Rent

Rent cost Monthly rent (Rs.) Annual rent (Rs.)
Estimated Building rent 150,000 1,800,000

11.3. Suitable Locations

The clusters of stitching industry exist predominantly in Lahore, Karachi, Faisalabad
and Sialkot. Most of the garment manufactures are based in these major cities, so it
is recommended that such unit should be started in these cities. Basic raw material
i.e. denim cloth, is also conveniently available in these cities.

11.4. Utilities Requirements

It is assumed that the following utilities will already be available at the proposed
building to be rented out:
• Electricity
• Water
• Gas
• Telephone
• Fax
12. PROJECT ECONOMICS

Table 12-1: Project Costs

Project Costs Total (Rs.)
Machinery & equipment 4,183,820
Furniture & fixtures/Equipment 1,041,900
Pre-operating costs 755,500
Total Capital Costs 5,981,220

Stocks- Raw Material 3,951,360

Equipment spare part inventory 2,092
Upfront for building rental 1,800,000
Upfront insurance payment 261,286
Cash 2,154,373
Total Working Capital 8,169,111
Total Investment in the Project 14,150,331

Table 12-2: Financing Plan

Equity 50% 7,075,165
Debt 50% 7,075,165
Total 14,150,330

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13. FINANCIAL ANALYSIS

13.1. Projected Income Statement

PROJECTED INCOME STATEMENT
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Sales 107,054,171 125,510,319 148,040,625 173,022,480 201,520,300 221,672,330 243,839,563 268,223,519 295,045,871 324,550,459
Cost of goods sold
Raw Material 79,027,200 88,905,600 99,574,272 111,087,547 129,384,320 142,322,752 156,555,027 172,210,529 189,431,582 208,374,741
Washing Cost (OUTSOURCED) 6,174,000 6,945,750 7,779,240 8,678,715 9,648,689 10,131,123 10,637,679 11,169,563 11,728,041 12,314,443
Freight Charges 790,272 889,056 995,743 1,110,875 1,293,843 1,423,228 1,565,550 1,722,105 1,894,316 2,083,747
Payroll (Production Staff) 7,296,000 8,025,600 8,828,160 9,710,976 10,682,074 11,750,281 12,925,309 14,217,840 15,639,624 17,203,586
Machine Maintenance 209,191 219,651 230,633 242,165 254,273 266,987 280,336 294,353 309,070 324,524
Direct Electricity 1,641,543 1,805,697 1,986,267 2,184,893 2,403,383 2,643,721 2,908,093 3,198,902 3,518,793 3,870,672
Total 95,138,206 106,791,354 119,394,315 133,015,171 153,666,581 168,538,091 184,871,994 202,813,293 222,521,427 244,171,714
Gross Profit 11,915,965 18,718,965 28,646,310 40,007,308 47,853,719 53,134,239 58,967,569 65,410,226 72,524,445 80,378,745
Operating Expenses
Payroll (Admin) 3,564,000 3,920,400 4,312,440 4,743,684 5,218,052 5,739,858 6,313,843 6,945,228 7,639,751 8,403,726
Fixed electricity 882,000 970,200 1,067,220 1,173,942 1,291,336 1,420,470 1,562,517 1,718,768 1,890,645 2,079,710
Insurance expense 261,286 235,157 209,029 182,900 156,772 130,643 104,514 78,386 52,257 26,129
Office Expense (Stationary,Entertainment,etc) 712,800 784,080 862,488 948,737 1,043,610 1,147,972 1,262,769 1,389,046 1,527,950 1,680,745
Administrative & Factory Overheads 802,906 972,705 1,188,026 1,440,845 1,745,216 2,000,875 2,299,139 2,647,847 3,056,372 3,535,935
Other expenses 60,000 66,000 72,600 79,860 87,846 96,631 106,294 116,923 128,615 141,477
Amortization (Pre-operational Expenses) 151,100 151,100 151,100 151,100 151,100
Depreciation 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572
Total 6,956,664 7,622,214 8,385,475 9,243,640 10,216,505 11,059,020 12,171,648 13,418,770 14,818,162 16,390,293
Operating Profit 4,959,301 11,096,751 20,260,835 30,763,669 37,637,214 42,075,219 46,795,920 51,991,457 57,706,282 63,988,452
Non-operating Expenses
Financial Charges on Long-term Loan 1,132,026 967,419 776,475 554,979 298,044 0 0 0 0 0
Financial Charges on Short-Term Loan 0 1,013,997 678,673 0 0 0 0 0 0 0
Building Rentel 1,800,000 1,980,000 2,178,000 2,395,800 2,635,380 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306
Total 2,932,026 3,961,416 3,633,148 2,950,779 2,933,424 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306
Profit Before Tax 2,027,274 7,135,335 16,627,687 27,812,890 34,703,790 39,176,301 43,607,111 48,483,766 53,847,823 59,744,146
Tax 506,819 1,783,834 4,156,922 6,953,222 8,675,948 9,794,075 10,901,778 12,120,941 13,461,956 14,936,037
Profit After Tax 1,520,456 5,351,501 12,470,765 20,859,667 26,027,843 29,382,226 32,705,333 36,362,824 40,385,867 44,808,110

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13.2. Projected Balance Sheet

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 2,154,373 2,154,373 2,154,373 6,040,009 22,300,710 43,901,477 71,166,496 101,488,037 135,173,827 172,560,094 225,474,392
Stocks and Inventory 3,951,360 4,445,280 4,978,714 5,554,377 6,469,216 7,116,138 7,827,751 8,610,526 9,471,579 10,418,737 0
Receivable 0 16,058,126 18,826,548 22,206,094 25,953,372 30,228,045 33,250,850 36,575,934 40,233,528 44,256,881 48,682,569
Equipment and spare part inventory 2,092 2,197 2,306 2,422 2,543 2,670 2,803 2,944 3,091 3,245 3,408
Pre-paid insurnace payment 261,286 235,157 209,029 182,900 156,772 130,643 104,514 78,386 52,257 26,129 0
Pre-paid building rent 1,800,000 1,980,000 2,178,000 2,395,800 2,635,380 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306 4,668,736
Total 8,169,111 24,875,132 28,348,969 36,381,602 57,517,993 84,277,891 115,541,224 150,263,518 188,792,742 231,509,392 278,829,105
Gross Fixed Assets 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720
Less: Accumulated depreciation 0 522,572 1,045,144 1,567,716 2,090,288 2,612,860 3,135,432 3,658,004 4,180,576 4,703,148 5,225,720
Net Fixed Assets 5,225,720 4,703,148 4,180,576 3,658,004 3,135,432 2,612,860 2,090,288 1,567,716 1,045,144 522,572 0
Intangible Assets
Pre-operational Expenses 755,500 604,400 453,300 302,200 151,100 0
Total 755,500 604,400 453,300 302,200 151,100 0 0 0 0 0 0
Total Assets 14,150,331 30,182,680 32,982,845 40,341,806 60,804,525 86,890,751 117,631,512 151,831,234 189,837,886 232,031,964 278,829,105
Current Liabilities
Running Finance 0 7,242,833 4,847,668 0 0 0 0 0 0 0 0
Accounts payable 8,297,856 9,335,088 10,455,299 11,664,192 13,585,354 14,943,889 16,438,278 18,082,106 19,890,316 21,879,348
Total 0 15,540,689 14,182,756 10,455,299 11,664,192 13,585,354 14,943,889 16,438,278 18,082,106 19,890,316 21,879,348
Long-term liabilities
Long-term Loan 7,075,165 6,046,370 4,852,967 3,468,620 1,862,777 0 0 0 0 0 0
Total 7,075,165 6,046,370 4,852,967 3,468,620 1,862,777 0 0 0 0 0 0
Equity
Paid-up Capital 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165
Retained Earnings 0 1,520,456 6,871,957 19,342,722 40,202,389 66,230,232 95,612,458 128,317,791 164,680,615 205,066,482 249,874,592
Total 7,075,165 8,595,621 13,947,122 26,417,887 47,277,555 73,305,397 102,687,623 135,392,956 171,755,780 212,141,647 256,949,757
Total Liabilities And Equity 14,150,331 30,182,680 32,982,845 40,341,806 60,804,525 86,890,751 117,631,512 151,831,234 189,837,886 232,031,964 278,829,105

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13.3. Projected Cash Flow Statement

PROJECTED CASH FLOW STATEMENT
Rs `000'
Const. Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating activities
Net profit 1,520,456 5,351,501 12,470,765 20,859,667 26,027,843 29,382,226 32,705,333 36,362,824 40,385,867 44,808,110
Amortization (Pre-operational Expenses) 151,100 151,100 151,100 151,100 151,100 0 0 0 0 0
Depreciation 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572
Up-front insurance payment (261,286) 26,129 26,129 26,129 26,129 26,129 26,129 26,129 26,129 26,129 26,129
Equipment and spare part inventory (2,092) (105) (110) (115) (121) (127) (133) (140) (147) (155) (162)
Accounts receivable (16,058,126) (2,768,422) (3,379,546) (3,747,278) (4,274,673) (3,022,805) (3,325,085) (3,657,593) (4,023,353) (4,425,688)
Stocks-RM (3,951,360) (493,920) (533,434) (575,664) (914,839) (646,922) (711,614) (782,775) (861,053) (947,158) 10,418,737
Accounts payable 8,297,856 1,037,232 1,120,211 1,208,894 1,921,161 1,358,535 1,494,389 1,643,828 1,808,211 1,989,032
Cash provided by operations (4,214,738) (6,034,038) 3,786,568 10,335,451 18,106,124 23,727,082 27,554,910 30,640,422 34,036,560 37,772,113 53,338,729
Financing acivities
Long term debt principal repayment (1,028,795) (1,193,403) (1,384,347) (1,605,843) (1,862,777) 0 0 0 0 0
Add: buliding rent expense 1,800,000 1,980,000 2,178,000 2,395,800 2,635,380 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306
Building rent payment (1,800,000) (1,980,000) (2,178,000) (2,395,800) (2,635,380) (2,898,918) (3,188,810) (3,507,691) (3,858,460) (4,244,306) (4,668,736)
Adition to debt 7,075,165
Issuance of share 7,075,165
Running Finance Repayment (7,242,833) (4,847,668) 0 0 0 0 0 0 0
Cash provided by/ (used for) financin 12,350,331 (1,208,795) (8,634,236) (6,449,815) (1,845,423) (2,126,315) (289,892) (318,881) (350,769) (385,846) (424,431)
Total 8,135,593 (7,242,833) (4,847,668) 3,885,637 16,260,701 21,600,767 27,265,018 30,321,541 33,685,791 37,386,267 52,914,298
Investing activities
Capital expenditure (5,981,220)
Cash (used for)/ provided by invetsin (5,981,220)
Cash balance brought forward 0 2,154,373 2,154,373 2,154,373 6,040,009 22,300,710 43,901,477 71,166,496 101,488,037 135,173,827 172,560,094
Net Cash 2,154,373 (5,088,461) (2,693,295) 6,040,009 22,300,710 43,901,477 71,166,496 101,488,037 135,173,827 172,560,094 225,474,392

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14. KEY ASSUMPTIONS

Table 14-1 Machinery Assumptions

Number of Machines Installed 32
Installed capacity 100%
Initial year capacity utilization 70%
Maximum capacity utilization 90%
Capacity utilization growth rate 5%
Defective garment rate (of total finished garments) 2%
Total Production per day 1000

Table 14-2 Operating Assumptions

Shifts operational per day 1
Hours operational per shift 8
Days operational per year 300

Table 14-3 Economy-Related Assumptions

Electricity growth rate 10%
Wage growth rate 10%
USD Conversion rate Rs. 85

Table 14-4 Cash Flow Assumptions

Accounts Receivable cycle (in days) 45
Accounts payable cycle (in days) 30
Raw material inventory (in days) 15
Equipment spare part inventory (in days) 30

Table 14-5 Raw Material Assumptions

Raw material cost growth rate (Year 1-4) 5%
Raw material cost growth rate (Year 5-10) 10%
Washing cost Rs. 30
Washing cost growth rate 5%

Table 14-6 Revenue Assumptions

Sales Price per unit USD 6.2
Defected garment sales price Rs. 150
Sales Price growth rate 10%

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Table 14-7 Expense Assumptions

Administrative overhead (% of Sales) 1%
Office expenses (stationery, entertainment etc) 20% of admin expense
Freight expense 1% of raw material
Machine maintenance (per month) 5% of machinery cost
Machine maintenance growth rate 5%
Pre-paid building Rent (months) 12
Pre-paid insurance (months) 12
Admin and Factory overhead 0.75% of revenue
Insurance rate (% of net fixed assets) 5%
Spare part inventory 0.05% of machine cost
Rent growth rate 10%
Tax rate3 25%

Table 14-5 Financial Assumptions

Project life (years) 10
Debt 50%
Equity 50%
Interest rate on long-term debt 16%
Interest rate on short term debt 14%
Debt tenure (years) 5
Debt payments per year 1
Discount rate (weighted avg. cost of capital for NPV) 20%

3
Tax rate is fixed through out the project since the income falls in 25% tax deduction slab
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ANNEXURE 1: RAW MATERIAL & MACHINERY SUPPLIERS

1. Denim Fabric Suppliers
i) US Apparel Pvt. Ltd.
Address: 26 M Gulberg III, Lahore
Contact No.: 042-5340034 042-5832528
ii) Azguard Nine Ltd.
Address: Ismail Aiwan-e-Sci Ferozpur, Lahore
Contact No.: 111-786-645
iii) Naveena Denim
Address: B21 Block 7/8 Banglore TW PECHS, Karachi
Contact No.: 021-4310630, 021-4310632
iv) Siddiqsons Denim Mills Limited
Address: D-53, Textile Ave, S.I.T.E, Karachi
Contact No.: 021-2577480, 021-2569591
2. Pocket Fabric Suppliers
i) Crescent Textile Mills
Address: 40-A Off Zafar Ali Road,
Gulberg V, Lahore
Tel: +92-42-111-245-245
Fax: +92-42-111-222-245
Email: mailho@crescentbahuman.com
ii) Master Textile
Address: 82-C-1, Gulberg III, Lahore.
Tel: (92-42) 5392344-48
Fax: (92-42) 5392343
3. Label Suppliers
i) Kohinoor Labels
Address: Street No. 2 Islam Nagar, Jail Road, Faisalabad
Phone: 041-32627544, 32631114
ii) Leather Connection
Address: Alam-Porvair City,Rohi Nala Bhoptian Chowk
9 KM Raiwind Rd Lahore
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Phone: 042-35321406, 35321401

Fax: 042-35321407
Email: buckleup@leatherconnections.com.pk
4. Zip & Button Suppliers
i) YKK Pakistan Pvt. Ltd.
Contact no.: 042-5792020-2, 021-35085677
5. Thread Suppliers
i) Shah Alam market – Lahore
ii) J. & P. Coats Pakisan (Pvt.) Ltd.
Address: 4 - Nizam Block, Main Wahdat Road, Lahore.
UAN: 111-115-115
6. Machinery Suppliers
i) Almurtaza Garments Machinery Co.
Address: 433- F, Johar Town,
Lahore.
Ph: 042- 5316171- 73.
Fax: 042- 5316174.
Cell: 0334- 4244202.
E. Mail: amcl-l@almurtaza.com
ii) Rex Machinery Pvt. Ltd.
Address: Rex Market, 6, Allama Iqbal Road
Lahore
Ph: 042-36375524-36369309
Email: rex@nexlinx.net.pk

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ANNEXURE 2: INCOME TAX DEDUCTION SLABS

Income Slabs Tax Rate

0.00%
100,000 – 110,000 0.50%
110,000 – 125,000 1.00%
125,000 – 150,000 2.00%
150,000 – 175,000 3.00%
175,000 – 200,000 4.00%
200,000 – 300,000 5.00%
300,000 – 400,000 7.50%
400,000 – 500,000 10.00%
500,000 – 600,000 12.50%
600,000 – 800,000 15.00%
800,000 – 1,000,000 17.50%
1,000,000 – 1,300,000 21.00%
1,300,000 and above 25.00%

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