Denim Jeans Stitching Unit New

Pre-Feasibility Study
DENIM JEANS STITCHING UNIT
Small and Medium Enterprises Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
th
6 Floor LDA Plaza Egerton Road, Lahore
Tel (042)111 111 456,
Fax: (042) 36304926-7
helpdesk@smeda.org.pk
REGIONAL OFFICE
PUNJAB
th
8 Floor LDA Plaza,

Egerton Road,
Lahore.
Tel: (042) 111 111 456,
Fax: (042) 36370474
helpdesk.punjab@smeda.org.pk
REGIONAL OFFICE
SINDH
REGIONAL OFFICE
KHYBER PAKTUNKHWA
REGIONAL OFFICE
BALOCHISTAN
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
June, 2010
Garments Stitching Unit (Denim Jeans)

................. ............ ............ ............ ............ ............
1.
EXECUTIVE SUMMARY
2.
INTRODUCTION TO SMEDA.....................................................................
3.
PURPOSE OF THE DOCUMENT................................................................
4.
CRUCIAL FACTORS AND STEPS IN DECISION MAKING
................. 6
4.1.
STRENGTHS..................................................................................................
4.2.
WEAKNESSES...............................................................................................
4.3.
OPPORTUNITIES ...........................................................................................
4.4.
THREATS......................................................................................................
PROJECT PROFILE......................................................................................
5.1.
OPPORTUNITY RATIONALE ..........................................................................
5.2.
PROJECT BRIEF ............................................................................................
5.3.
PROPOSED CAPACITY...................................................................................
5.4.
TOTAL PROJECT COST .................................................................................
5.5.
PROPOSED BUSINESS LEGAL STATUS ..........................................................
5.6.
PROPOSED LOCATION ..................................................................................
5.7.
KEY SUCCESS FACTORS...............................................................................
CURRENT INDUSTRY ANALYSIS ............................................................
EXPORT MARKET.........................................................................................
MARKET ANALYSIS..................................................................................
11
7.1.
DOMESTIC MARKET...................................................................................
11
7.2.
TARGET CUSTOMERS .................................................................................
11
PRODUCTION PROCESS FLOW .............................................................
11
RAW MATERIAL.........................................................................................
12
Packing Cost..........................................................................................
12
HUMAN RESOURCE REQUIREMENTS ................................................
13
5.
6.
6.1.
7.
8.
8.1.
8.1.1.
9.
10.
MACHINERY AND EQUIPMENT DETAILS..........................................
14
10.1.
MACHINERY LIST ......................................................................................
14
10.2.
FURNITURE AND EQUIPMENT LIST .............................................................
14
LAND & BUILDING ....................................................................................
15
11.
1
PREF-01/June, 2010/Rev 3

................. ............ ............ ............ ...........
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.
17
13.2. PROJECTED BALANCE SHEET .....................................................................
18
13.3.
PROJECTED CASH FLOW STATEMENT ........................................................
19
KEY ASSUMPTIONS ..................................................................................
20
14.
PROJECTED INCOME STATEMENT...............................................................
ANNEXURE 1: RAW MATERIAL & MACHINERY SUPPLIERS ................
22
ANNEXURE 2: INCOME TAX DEDUCTION SLABS......................................
24
2
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
Prepared by
SMEDA-Punjab
Issue Date
July, 2001
Revised in
June, 2010
Issued by
Library Officer
3
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 units 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.
4
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 allencompassing 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 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.
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.
5
4. CRUCIAL FACTORS AND STEPS IN DECISION MAKING

4.1.
4.2.
4.3.
Strengths
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
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.
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.
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.
6
NE 7/1 to NE 14/1 . 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%

Payback period based on cash inflows
5.5.
Rs. 165,680,748
3.71 years
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.
yarn count
7
5.6.
Proposed Location
The proposed locations for a garment manufacturing unit will be
5.8.
Lahore
Karachi
Faisalabad
Hyderabad
Sialkot
Gujranwala
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
Pakistans export of denim jeans is increasing over the years. Pakistans 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:
8
Table 6-1:
Pakistans Exports in the year 2008 and 2009

2008
2009
Export Partners
World
Turkey
Bangladesh
Syria
UAE
Belgium
Iran
Italy
Sri Lanka
Lebanon
Mexico
Export Value (USD)

25,776,377
17,298,943
2,470,708
2,261,119
586,008
400,932
386,009
314,115
269,393
235,019
196,199
Export Partners
World
Turkey
Bangladesh
Italy
Syria
Egypt
Colombia
UAE
Sri Lanka
Peru
Greece
Export Value (USD)

55,748,551
32,421,589
8,007,672
3,120,928
2,112,099
1,848,727
881,696
738,513
711,244
662,473
597,849
A comparative picture of the worlds 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%
8%
10%
http://comtrade.un.org
9
Others
Table 6-2:
Trade Value for Top Importers

Country
Trade Value (USD)

179,156,828
117,011,111
115,373,606
102,077,109
87,067,153
449,304,425
1,049,990,232
Turkey
China
Colombia
Mexico
Others
Total Import
Figure 6-1
Top Exporters
World's Top Importers
20%
China
4%
47%
6%
Turkey
Pakistan
Italy
9%
Others
14%
Table 6-3:
Trade Value for Top Exporters

Country
Trade Value (USD)

683,592,128
211,100,320
126,434,925
81,524,928
64,217,277
290,755,006
1,457,624,584
China
Turkey
Pakistan
Italy
Others
Total Export
10
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.

Artistic Milliners Ltd
Siddiqsons Denim Mills Ltd
Pak Denim Ltd
RAJBY Industries
Ali Murtaza Associates Pvt. Ltd.
Azgard Nine Ltd.
Talon Sports Pvt. Ltd.
Al Karam Textile Mills Pvt. Ltd.
Mr. Denim Pvt. Ltd.
Abdullah Apparels Pvt. Ltd.
Digital Apparel Pvt. Ltd.
Joes Fashion Export Pvt. Ltd.
Lahore
Karachi
Karachi
Karachi
Karachi
Karachi
Lahore
Sialkot
Karachi
Lahore
Karachi
Karachi
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
11
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
Raw Material
Inspection
Cutting
Threading
Buttoning/ Riveting
Pressing
Stitching
Stone Washing (To

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
Fabric (Metre)
Pocket Lining (Metre)
Stitching thread (Metre)
Imported buttons
4.5 YG Zip
Main label
Care and size label
Rewet per unit
Packing cost
8.1.1.
Consumption/ Piece
1.30
0.2
350
1
1
1
1
6
1
Rate (Rs.)
200 / m
100 / m
10 / piece
3 / unit
15 / unit
5 / unit
2 / unit
9 / unit
15 / piece
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.
12
9. HUMAN RESOURCE REQUIREMENTS

For a garment-stitching unit of 32 stitching machines, following manpower is
required:
Table 9-1:
Manpower Required
Production Staff
Production Manager
Production Planning Officer
Pattern Master
Cutting Master
Cutting Helper
Final Table inspector
Finishing Supervisor
Rowing Inspector
Machine Operator
Helper (machine operator)
Clippers
Iron Presser
Packing Staff
Store keeper
Total
Number
1
1
1
1
2
2
1
1
40
2
2
1
2
1
58
Salary/Month
50,000
25,000
25,000
15,000
8,500
12,000
15,000
12,000
9,000
7,500
7,500
10,000
7,500
10,000
Annual Salary
600,000
300,000
300,000
180,000
204,000
288,000
180,000
144,000
4,320,000
180,000
180,000
120,000
180,000
120,000
7,296,000
Administration Staff
Chief executive
Finance & Admin. Manager
Accounts officer
Marketing Manager
Merchandiser
Export Officer
Purchase Officer
Technician/Electrician
Security Guards
Total
Number
1
1
2
1
1
1
1
1
2
11
Salary/Month
75,000
50,000
15,000
40,000
25,000
25,000
20,000
15,000
8,500
Annual Salary
900,000
600,000
360,000
480,000
300,000
300,000
240,000
180,000
204,000
3,564,000
13
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
Cutting Machine
Lock Stitch (Single Needle)
Lock Stitch (Double Needle)
Safety Stitching Over lock
Safety Stitching Over lock
Feed Off Arm
Bar Tracking
Waist Belt Machine
Eyelet Machine
Button Stitching Machine
Loop Making Machine
Snap Fastener
Total machinery cost
Other Equipment
Steam Boiler
Other tools
Machine Installation and wiring
Total other equipment cost
Total Cost
Quantity
2
15
3
1
1
2
3
1
1
1
1
1
32
Unit cost (Rs.)

108,500
28,500
133,000
46,500
50,000
40,500
318,000
136,000
1,055,000
320,000
156,500
50,000
Total cost (Rs.)

217,000
427,500
399,000
46,500
50,000
81,000
954,000
136,000
1,055,000
320,000
156,500
50,000
3,892,500
1
Lumpsum
32
138,320
25,000
4,000
138,320
25,000
128,000
291,320
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
Table
Chairs
Shelves
Stools
Quantity
9
18
6
13
Cost/Unit (Rs.)
10,000
3,000
10,000
800
14
Total Cost (Rs.)

90,000
54,000
60,000
10,400
Machine Table
40
5,000
200,000
Lay Table
Total
Equipment
Computers
Printer
UPS
Networking
Air conditioner
Tele/Fax
Total
Total Cost
12
98
10,000
120,000
534,400
9
1
9
1
4
1
24
25,000
15,000
7,500
25,000
40,000
15,000
225,000
15,000
67,500
25,000
160,000
15,000
507,500
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

Cutting Room
Stitching Room
Inspection Room
Packing Room
Finished Garment Store
Total factory area
Management Building
Total Area Required (sq. ft.)
1,000
400
1,250
850
750
850
5,100
650
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.
15
Table 11-2:
Building Rent
Rent cost
Estimated Building rent
Monthly rent (Rs.)

150,000
Annual rent (Rs.)

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

Equipment spare part inventory
Upfront for building rental
Upfront insurance payment
Cash
Total Working Capital
Total Investment in the Project
3,951,360
2,092
1,800,000
261,286
2,154,373
8,169,111
14,150,331
Table 12-2: Financing Plan

Equity
50%
7,075,165
Debt
Total
50%
7,075,165
14,150,330
16
13.
FINANCIAL ANALYSIS
13.1. Projected Income Statement

PROJECTED INCOME STATEMENT
Sales
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
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
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
7,296,000
209,191
889,056
8,025,600
219,651
995,743
8,828,160
230,633
1,110,875
9,710,976
242,165
1,293,843
10,682,074
254,273
1,423,228
11,750,281
266,987
1,565,550
12,925,309
280,336
1,722,105
14,217,840
294,353
1,894,316
15,639,624
309,070
2,083,747
17,203,586
324,524
Raw Material
Payroll (Production Staff)

Machine Maintenance
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
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
Office Expense (Stationary,Entertainment,etc)
261,286
712,800
235,157
784,080
209,029
862,488
182,900
948,737
156,772
1,043,610
130,643
1,147,972
104,514
1,262,769
78,386
1,389,046
52,257
1,527,950
26,129
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
151,100
522,572
66,000
151,100
522,572
72,600
151,100
522,572
79,860
151,100
522,572
87,846
151,100
522,572
96,631
106,294
116,923
128,615
141,477
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
Direct Electricity
Operating Expenses
Amortization (Pre-operational Expenses)

Depreciation
Non-operating Expenses
Financial Charges on Long-term Loan
1,132,026
967,419
776,475
554,979
298,044
Financial Charges on Short-Term Loan

Building Rentel
0
1,800,000
1,013,997
1,980,000
678,673
2,178,000
0
2,395,800
0
2,635,380
0
2,898,918
0
3,188,810
0
3,507,691
0
3,858,460
0
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

Tax
2,027,274
506,819
7,135,335
1,783,834
16,627,687
4,156,922
27,812,890
6,953,222
34,703,790
8,675,948
39,176,301
9,794,075
43,607,111
10,901,778
48,483,766
12,120,941
53,847,823
13,461,956
59,744,146
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
17
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
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
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
3,408
Receivable
Equipment and spare part inventory
225,474,392
2,092
2,197
2,306
2,422
2,543
2,670
2,803
2,944
3,091
3,245
261,286
235,157
209,029
182,900
156,772
130,643
104,514
78,386
52,257
26,129
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
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
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
Pre-operational Expenses
755,500
604,400
453,300
302,200
151,100
Total
755,500
604,400
453,300
302,200
151,100
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
7,242,833
4,847,668
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
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 Loan
7,075,165
6,046,370
4,852,967
3,468,620
1,862,777
Total
7,075,165
6,046,370
4,852,967
3,468,620
1,862,777
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
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
Pre-paid insurnace payment
Less: Accumulated depreciation

Net Fixed Assets
Intangible Assets
Total Assets
Current Liabilities
Running Finance
Accounts payable
Total
Long-term liabilities
Equity
Paid-up Capital
Retained Earnings
Total
Total Liabilities And Equity
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
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
18
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
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
26,129
26,129
26,129
26,129
26,129
26,129
26,129
26,129
26,129
26,129
Up-front insurance payment

Equipment and spare part inventory
(261,286)
(2,092)
Accounts receivable
Stocks-RM
(3,951,360)
Accounts payable
Cash provided by operations
(4,214,738)
44,808,110
(105)
(110)
(115)
(121)
(127)
(133)
(140)
(147)
(155)
(162)
(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)
(947,158)
10,418,737
(493,920)
(533,434)
(575,664)
(914,839)
(646,922)
(711,614)
(782,775)
(861,053)
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
(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
(1,028,795)
(1,193,403)
(1,384,347)
(1,605,843)
(1,862,777)
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
(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)
Financing acivities
Long term debt principal repayment
Add: buliding rent expense
Building rent payment
(1,800,000)
Adition to debt
7,075,165
Issuance of share
7,075,165
Running Finance Repayment

Cash provided by/ (used for) financin
Total
(7,242,833)
(4,847,668)
12,350,331
(1,208,795)
(8,634,236)
(6,449,815)
(1,845,423)
(2,126,315)
8,135,593
(7,242,833)
(4,847,668)
3,885,637
16,260,701
21,600,767
27,265,018
(289,892)
0
(318,881)
0
(350,769)
(385,846)
(424,431)
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

Net 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
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
19
14.
KEY ASSUMPTIONS
Table 14-1
Machinery Assumptions
Number of Machines Installed

Installed capacity
Initial year capacity utilization
Maximum capacity utilization
Capacity utilization growth rate
Defective garment rate (of total finished garments)
Total Production per day
Table 14-2
Operating Assumptions
Shifts operational per day

Hours operational per shift
Days operational per year
Table 14-3
1
8
300
Economy-Related Assumptions
Electricity growth rate

Wage growth rate
USD Conversion rate
Table 14-4
10%
10%
Rs. 85
Cash Flow Assumptions
Accounts Receivable cycle (in days)

Accounts payable cycle (in days)
Raw material inventory (in days)
Equipment spare part inventory (in days)
Table 14-5
45
30
15
30
Raw Material Assumptions
Raw material cost growth rate (Year 1-4)

Raw material cost growth rate (Year 5-10)
Washing cost
Washing cost growth rate
Table 14-6
32
100%
70%
90%
5%
2%
1000
5%
10%
Rs. 30
5%
Revenue Assumptions
Sales Price per unit

Defected garment sales price
Sales Price growth rate
USD 6.2
Rs. 150
10%
20
Table 14-7
Expense Assumptions
Administrative overhead (% of Sales)

Office expenses (stationery, entertainment etc)
Freight expense
Machine maintenance (per month)
Machine maintenance growth rate
Pre-paid building Rent (months)
Pre-paid insurance (months)
Admin and Factory overhead
Insurance rate (% of net fixed assets)
Spare part inventory
Rent growth rate
1%
20% of admin expense
1% of raw material
5% of machinery cost
5%
12
12
0.75% of revenue
5%
0.05% of machine cost
10%
Tax rate
Table 14-5
25%
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)
Tax rate is fixed through out the project since the income falls in 25% tax deduction slab
21
10
50%
50%
16%
14%
5
1
20%
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
22
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
23
ANNEXURE 2: INCOME TAX DEDUCTION SLABS

Income Slabs
Tax Rate
0.00%
0.50%
1.00%
2.00%
3.00%
4.00%
5.00%
7.50%
10.00%
12.50%
15.00%
17.50%
21.00%
25.00%
100,000 110,000
110,000 125,000
125,000 150,000
150,000 175,000
175,000 200,000
200,000 300,000
300,000 400,000
400,000 500,000
500,000 600,000
600,000 800,000
800,000 1,000,000
1,000,000 1,300,000
1,300,000 and above
24
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Denim Jeans Stitching Unit New

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Pre-Feasibility Study

DENIM JEANS STITCHING UNIT

Small and Medium Enterprises Development Authority

8 Floor LDA Plaza,

5TH Floor, Bahria Complex II,

Bungalow No. 15-A Chamn

Garments Stitching Unit (Denim Jeans)

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

CRUCIAL FACTORS AND STEPS IN DECISION MAKING

OPPORTUNITY RATIONALE ..........................................................................

PROJECT BRIEF ............................................................................................

TOTAL PROJECT COST .................................................................................

PROPOSED BUSINESS LEGAL STATUS ..........................................................

PROPOSED LOCATION ..................................................................................

KEY SUCCESS FACTORS...............................................................................

CURRENT INDUSTRY ANALYSIS ............................................................

TARGET CUSTOMERS .................................................................................

PRODUCTION PROCESS FLOW .............................................................

HUMAN RESOURCE REQUIREMENTS ................................................

MACHINERY AND EQUIPMENT DETAILS..........................................

MACHINERY LIST ......................................................................................

FURNITURE AND EQUIPMENT LIST .............................................................

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

Garments Stitching Unit (Denim Jeans)

11.2. RECOMMENDED MODE ..............................................................................

SUITABLE LOCATIONS ...............................................................................

UTILITIES REQUIREMENTS .........................................................................

PROJECT ECONOMICS ............................................................................

FINANCIAL ANALYSIS .............................................................................

13.2. PROJECTED BALANCE SHEET .....................................................................

PROJECTED CASH FLOW STATEMENT ........................................................

KEY ASSUMPTIONS ..................................................................................

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

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

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

Garments Stitching Unit (Denim Jeans)

Garments Stitching Unit (Denim Jeans)

Garments Stitching Unit (Denim Jeans)

3. PURPOSE OF THE DOCUMENT

Garments Stitching Unit (Denim Jeans)

4. CRUCIAL FACTORS AND STEPS IN DECISION MAKING

There is a ready made market for this product.

Garments Stitching Unit (Denim Jeans)

The proposed project presents an investment opportunity in manufacturing of denim

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

Total Project Cost

Internal rate of return (project)

Net Present Value @ 20%

Proposed Business Legal Status

Garments Stitching Unit (Denim Jeans)

The proposed locations for a garment manufacturing unit will be

Surety of high consistent quality

6. CURRENT INDUSTRY ANALYSIS

Garments Stitching Unit (Denim Jeans)

Pakistans Exports in the year 2008 and 2009

Export Value (USD)

Export Value (USD)

World's Top Importers

China, Hong Kong SAR

Garments Stitching Unit (Denim Jeans)

Trade Value for Top Importers

Trade Value (USD)

Trade Value for Top Exporters