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					Pre-Feasibility Study

COTTON TOWELS MANUFACTURING UNIT

Small and Medium Enterprise Development Authority
Government of Pakistan
www.smeda.org.pk

HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore Tel 111 111 456, Fax: 6304926-7 Website www.smeda.org.pk Helpdesk@smeda.org.pk
REGIONAL OFFICE PUNJAB REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 Helpdesk-khi@smeda.org.pk REGIONAL OFFICE NWFP Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 831623, 831702 Fax: (081) 831922 helpdesk-qta@smeda.org.pk

8th Floor LDA Plaza Egerton Road, Lahore Tel 111 111 456, Fax: 6304926-7 Website www.smeda.org.pk
helpdesk@smeda.org.pk

January 2007

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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. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/her own due diligence and gather any information he/she considers necessary for making an informed decision. The content of the information memorandum does not bind SMEDA in any legal or other form.

DOCUMENT CONTROL
Document No. Revision Prepared by Issue Date Revision Date Issued by PREF-63 2 SMEDA-Punjab 2003 January , 2007 Library Officer

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1 2 3
3. 1 3. 2 3. 3 3. 4

INTRODUCTION TO SMEDA PURPOSE OF THE DOCUMENT PROJECT BRIEF
Opportunity Rationale Proposed Capacity Total Project Cost Production Process Flow

4 4 4
5 5 5 6

4 5
5. 1 5. 2 5. 3 5. 4

CURRENT INDUSTRY STRUCTURE MARKETING
Guidelines for Towels Export Business- Key Success Factors Total Market Size and Growth Major Exporters Major Importers

7 8
8 9 9 10

6 7 8 9
9. 1 9. 2 9. 3 9. 4 9. 5

RAW MATERIALS MACHINERY DETAILS HUMAN RESOURCE REQUIREMENT LAND & BUILDING
Total Land Requirement Covered Area Requirement Recommended Mode Suitable Locations Utilities Requirement

10 11 12 13
13 13 14 14 14

10

PROJECT COST
Initial Project Cost Estimated Time for Project Completion

15
15 16

10. 1 10.2

11 12 13 14 15

KEY SUCCESS FACTORS THREATS FOR THE BUSINESS REGULATIONS KEY ASSUMPTIONS FINANCIAL STATEMENTS
Projected Income Statement Projected Cash flow Statement Projected Balance Sheet

16 17 17 17 18
18 19 20

15. 1 15. 2 15. 3

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1

INTRODUCTION TO SMEDA

The Small and Medium Enterprise 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 adopted a sectoral SME development approach where key 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 overhauling of 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 key sectors including, Fruits & Vegetables, Marble & Granite, Gems & Jewelry, Marine Fisheries, Leather & 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 being 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 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 capitalize on viable business opportunities. 2

PURPOSE OF THE DOCUMENT

Pre-feasibility studies are developed primarily to facilitate potential entrepreneurs in project identification for investment. Pre-feasibility Studies may form the basis on which an important investment decision maybe made. The document covers various aspects of the business venture from project concept development to, financing and business management 3

PROJECT BRIEF

Towel is an important product used in every day life. Towels and its allied products constitute an important sector of textile industry. In made ups, towels sub-sector is the second largest after bedwear in terms of production and exports. Towels are manufactured in various sizes, shapes and qualities depending upon customers’ requirements. The proposed project is for setting up a Towels Manufacturing Unit. This will be a vertically integrated unit including the facility of weaving, dyeing, finishing and stitching. Most of its production will be for export purpose as this is an export-oriented order based industry, hence contributing towards the earnings of foreign exchange for the country. There is a vast range of towel products like towels, terry towels, warp pile 4

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fabric, dish cloth, wash cloth, floor cloth, bar mops, bathrobes, bath mats, dusters, kitchen towels etc. All the calculations and financial workings have been done while treating this as an export based project. The yarn used in the production of towels is 10/s, 16/s and 20/s cotton, polyester/cotton yarn is also used to increase the strength of the product. Pakistan Towel Industry produces a complete range of towels which include hand towels, bath towels, face towels, kitchen towels, wash cloths, etc., available in rich assortment of patterns and designs in eye-catching colors. The towel manufacturers in Pakistan also produce a large range of allied products of towels including, terry bar mops, terry bathrobes, terry face towels, terry wash cloths, shop towels, terry gloves, terry pillow covers, terry coverlets and all other terry made-ups as desired by the buyers. 3. 1 Opportunity Rationale

Exports of towel products from Pakistan constitute a major share of the world market. Pakistan has approximately 8% share in the world market of towel products1. The annual average growth rate in the value of exports from Pakistan in the recent five years has been 8% for towels2. The international demand for towels is increasing at a fast rate due to the reasons that European Union has recently withdrawn duties from Pakistan and also due to the population trends resulting into increase in consumption of related products. Pakistan’s largest market is USA, about two third of Pakistani exporters provide towels to USA3. More than 50% of world exports of towels come from Asia. The market share of Asia in world exports is increasing due to lower labor costs. Pakistan has a good share in exports from Asia. The availability of suitable raw material and development of certain skill levels are the favoring factors for further establishment of Towel industry in the country. Towels of Pakistan have won the appreciation of customers all over the world. Jacquard towels, woven with double yarn in floral patterns and rich colors, speak volumes for their excellent craftsmanship. Beautiful, absorbent, smooth, white and dyed Pakistani towels are exported to Europe, United States, Canada and to all other countries earning substantial foreign exchange for the country. 3. 2 Proposed Capacity

The proposed capacity of this unit is 20 looms producing 150 tons of towels per annum based on daily two shifts of 8 hours for 300 days. This unit has the capability for horizontal as well as vertical integration. 3. 3 Total Project Cost

The total project cost of this Cotton Towel Manufacturing unit is Rs. 38.9 million.

1 2

Textile Vision 2005 TMAP Special Report No. 14 – The News 3 Textile Vision 2005

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3. 4

Production Process Flow

Purchase of Yarn

Quality Inspection

Warping of Yarn

Sizing of Yarn

Production of Grey Fabric on Looms

Heating of Fabric in Kier

Dyeing of Fabric in Winch

Fabric Drying

Alignment of Fabric in Stenter

Tumbling and Finishing in Tumble

Cutting of Fabric

Stitching and Labeling of Towels

Packing of Towels

Most of the towel industry is classified as constituted of small and medium sized units having smaller productions, and mostly manufacturers do not have complete processing facilities. The woven towel is sent to independent processing units. This reduces the capital cost of the manufacturers, but at the same time, increases the quality cost. Quality control becomes very difficult when processing is sub-contracted. The decision to establish an in-house processing facility is supported by the fact that orders that a manufacturer gets from buyers are in line with the manufacturing capabilities, so there is a need to invest in modern processing facilities. Since this is an export-oriented industry, so quality is the most important tool that a manufacturer can use to achieve good price and market share of its product through the modern processing facilities. For a new entrant, it may be difficult to fetch orders without any proper production facility. Another important processing step is drying. Since the weight per unit area is higher for a towel as compared to other woven fabrics, so drying time is relatively higher. Majority of the manufacturers uses atmospheric drying in the sunlight. Large manufacturers have their own hydroextractors that improve the quality of their final product. Due to the quality issues, a hydroextractor has been recommended for this project. Final operation is cutting and stitching. This is fairly a simple operation and does not require much expertise. There are no major technology issues in this operation of towel manufacturing. A complete towels unit with looms and dyeing section has been recommended instead of outsourcing some of the processing functions. According to industry sources, it is difficult to get the production processed on regular basis from other units because the unit, which is giving good quality, usually remains busy. Outsourcing results into increased costs of production hence reducing profits. Most of the export-oriented units in the country have their own processing facilities.

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4

CURRENT INDUSTRY STRUCTURE

The Towel Industry of Pakistan comprises of approximately 300 manufacturers and exporters with a diverse range of towel products. The towel industry relies largely on locally manufactured machines to produce products that have a good demand in the international market. Pakistani exporters have been able to sell towel products on competitive prices and have made considerable progress in terms of value addition and quality issues over the last 10 years. The exports of towel and allied products have increased substantially despite the stagnation in country’s exports. Following is the geographical split of manufacturers and exporters in Pakistan: Table 4-1: Geographical Split of Towels Manufacturers and Exporters in Pakistan4 Northern Region Lahore Kasur Faisalabad Gujranwala Multan Others Total for Northern Region Southern Region Karachi Total for Southern Region Number of units 14 3 4 17 1 6 45 Number of units 255 255

Table 4-2: Towels Manufacturers in Northern Region – Exporters and Local Sellers5 Northern Region Local Sellers Local Sellers and Exporters Medium Exporters Large exporters Total Number of units 29 7 6 3 45

Table 4-3: Towels Manufacturers in Southern Region – Exporters and Local Sellers Southern Region Local Sellers Local Sellers and Exporters Medium Exporters Large exporters
4 5

Number of units 27 22 200 6

Source: Towels Manufacturers Association of Pakistan - TMAP Source: Towels Manufacturers Association of Pakistan - TMAP

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Southern Region Total

Number of units 255

It is obvious from the above table that major concentration of this industry is in the southern region of the country. This is due to the initial development of industry in Karachi and the fact that manufacturers can avoid transportation costs from manufacturing units to ports. In addition, many imported chemicals used in dyeing process are available at lower prices in Karachi. This industry is characterized by majority of the manufacturers and exporters located in few major cities. The above manufacturers and exporters of towels products have diverse production facilities ranging from complete vertically integrated units, to stitching units, from weaving units to dyeing units, etc. A few are also working as commercial exporters without any production facility. According to the estimates given by industry sources, approximately 90% of the revenues generated by this industry are from exports while 5% of the rejected exports are sold in the local market, and remaining 5% comes from local requirements. 5

MARKETING

In view of the fact that main raw material and skilled manpower is available in Pakistan, the scope for towel exports from Pakistan is unlimited. However, marketing is a very vital aspect of this industry as this is an export oriented order based industry. Export orders can be obtained through direct marketing in the international markets either by initiating contacts with potential customers through formal communications or visiting those countries especially USA, Europe and Gulf countries. The Towel Manufacturers Association of Pakistan (TMAP) is well organized and has an impeccable record in its conduct and administration of textile quota and trade fairs. It participates in “Heim Textile” Fair regularly and organizes space for its members. However, in the absence of export orders, other factories that have excess export orders can also provide subcontract work on CMT (cut, make and trim) basis. TMAP is also involved in getting latest trade inquiries raised from various countries; the members can also obtain this information to focus their marketing efforts on target countries. 5. 1 Guidelines for Towels Export Business- Key Success Factors

To enter in the export business of towels, following basic guidelines can provide help to any new entrant in this business: 1. Ensure good quality at all costs. This is a basic key for a successful exporter. Therefore, quality issues should be the primary focus. In this respect, a quality certification can be very helpful in marketing the quality issues related to towels products. Although, the stress on quality in this industry is not as important as in any other textile based industry, like, polo shirts, bed sheets, curtains etc. However, a

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2. 3.

4.

5.

certification like ISO 9000 can be helpful in obtaining orders and building an impression in the eyes of buyers. Commitments with buyers regarding quality, price and shipment are the basic essentials to enter and grow in the export business. Many towel-manufacturing companies are considering it worthwhile setting up their overseas offices and warehouses. Overseas office can not only assist in sales, but also keep the exporter continuously informed about the latest buyer's requirements and market demands. Warehouses of supplier(s) in the customer's countries make it convenient for the customer to make the purchase decisions effectively, as in this case customer gets the required products on LDP (Landed Duty Paid) basis and without any hassle of being involved in shipment and import procedures. It is very important in successful marketing to be active and quickly responsive to the customer demands. Being flexible with buyers regarding their requests and requirements can help to develop mutual understandings with them. Participation in trade fairs is very helpful in knowing customers’ requirements and obtaining orders. International Trade Fairs provide an excellent opportunity to introduce a new entrant in the international markets. Total Market Size and Growth

5. 2

Total global trade value of Towel products is more than US$ 4.0 billion. Cotton Towels have a substantial share in the total exports of Towel and related products.6 Table 5-1: Trade of Towel Products in World7 Towels Products Towels Woven Cotton Pile Cleaning Clothes Terry Towel Total 5. 3 Major Exporters Percentage Share 56% 30% 11% 3% 100%

China is the major exporter of towel products and Pakistan holds second position in the global exports of towels, with 8 % market share. Total exports in 1997 were $305 million. In Europe, Portugal, Germany and Belgium are the major exporters. Following are the percentage shares of these countries: Table 5-2: Percentage Share in World Exports8 Countries China Pakistan
6 7

Percentage Share 28% 8%

Source: Textile Vision 2005 Source: Textile Vision 2005 8 Source: Textile Vision 2005

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Countries Portugal Germany Belgium Others Total 5. 4 Major Importers

Percentage Share 7% 7% 6% 44% 100%

Regional distribution of towel imports is quite balanced. Of the six major importers, three countries belong to Europe, two to Asia and one to American Continent. USA is the top importer and also has the highest average import growth rate. It is interesting to note that the average growth rates of all the major importers of towel products have been positive. Following are the percentage shares of the major countries importing towel products: Table 5-3: Percentage Share in World Imports9 Countries USA Hong Kong Japan Germany UK France Others Total Percentage Share 19% 11% 10% 8% 8% 7% 36% 100%

6

RAW MATERIALS

Following is the list of raw materials, which are used in the manufacturing of towels: 1. Towels fabric is made from 10/s, 14/s, 16/s and 20/s yarn or a mix of cotton-polyester depending upon requirements of customers. 2. Dyeing chemicals (reactive colors, caustic soda, soda ash, hydrogen per oxide, common salt, detergent and wetting). 3. Stitching threads. 4. Poly Bags (packing material).

9

Source: Textile Vision 2005

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7

MACHINERY DETAILS

Following combination of machines is required for manufacturing of approximately 150,000 Kgs of towel per annum based on daily two shifts of 8 hours for 300 days in a year Table 7-1 Machinery Details Machines Looms Hanks to Cone and Cone to Hanks Winder Weft Pirn Winder Kier Winch Hydro-extractor Sizing 9 drum with double dip system Warping Tumble Stenter Inspection Rolling Machine Boiler Stitching machines Cutter Other Equipments-Furnace Oil Tank, Frames, Trollies and Water Pump Sales tax Installation costs for machines Including Transformer, Cable and Control Panel Total Cost of installed machinery unit 20 1 1 1 2 1 1 1 1 1 2 1 5 1 Cost per machine (Rs) 226,000 57,000 42,000 650,000 350,000 250,000 4,950,000 370,000 375,000 375,000 375,000 3,500,000 40,000 100,000 Total Cost (Rs) 4,520,000 57,000 42,000 650,000 700,000 250,000 4,950,000 370,000 375,000 375,000 750,000 3,500,000 200,000 100,000 499,125 2,600,719 1,000,000 20,938,844

39

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8

HUMAN RESOURCE REQUIREMENT

For a unit of 20 looms, following manpower is required: Table 8-1: Permanent Employees Salary per Employee No of Employee per month OPERATING FIXED COSTS Chief Executive 1 62,000 Export & Marketing 1 45,000 Manager Accountant 1 17,000 Accounts Clerk 1 8,000 Store Clerk 1 8,000 Technician/Electrician 1 6,000 Security Guard 4 4,500 Peons 2 4,000 TOTAL 12 92,500 PRODUCTION FIXED COSTS Production Supervisor 1 22,000 Weaving Manager 1 35,000 Dying Master 1 20,000 Boiler Engineer 1 25,000 Asstt. Dying Master 1 18,000 Asstt. Weaving Manager 1 18,000 Total Production Fixed 138,000 Costs 6 TOTAL FIXED PAYROLL 18 230,500

Salary per month

Salary per annum

62,000 45,000 17,000 8,000 8,000 6,000 18,000 8,000 110,000

744,000 540,000 204,000 96,000 96,000 72,000 216,000 96,000 2,064,000

22,000 35,000 20,000 25,000 18,000 18,000 138,000 248,000

264,000 420,000 240,000 300,000 216,000 216,000 1,656,000 3,720,000

Table 8-2 Contractual employees 10 Employee Warping labor Sizing labor Weavers Fabric handlers- Dying Department
10

No of 3 3 4 20

Salary per month 4,000 4,000 5,500 4,000

Salary per month 12,000 12,000 22,000 80,000

Salary per annum 144,000 144,000 264,000 960,000

The costs of contractual employees are calculated on 100% capacity of the unit

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Cutting Master Cutting Helper Stitching machine operators Packing staff Total

1 3 5 5 44

8,500 4,000 6,000 4,000 40,000

8,500 12,000 30,000 20,000 196,500

102,000 144,000 360,000 240,000 2,358,000

9 9. 1

L AND & B UI L DI NG
Total Land Requirement

For above mentioned recommended size of towels manufacturing unit, approximately one-acre (8-kanal) area of land is required. 9. 2 Covered Area Requirement

Following is the covered area requirement split into various departments and sections: Table 9-1: Covered Area Requirement Sections/Departments Yarn & Dyeing Materials Store Sizing Section Warping Section Weaving Section11 Dyeing & Finishing Hall12 Cutting, Stitching & Packing section: Cutting Room Stitching Section Packing Section Towels Store Total Factory Area Office Building Total Area Table 9-2: Construction Cost Cost Land Factory Building
11 12

Area (sq. ft.) per section

125 per machine

Total Area (sq. ft.) 800 1,000 1,000 5,000 6,000

150 per table 100 per machine 150 per employee

750 1,000 750 700 17,000 1,500 18,500

Required Area(Sq.ft) 18,500 17,000

Cost per Sq. Ft.(Rs) 180 550

This area can accommodate 40 looms as part of the expansion plan in future years. This includes the space for boiler hall, inspection hall and control room.

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9. 3

Recommended Mode

It is recommended that this project should be started in an owned building because this set-up will involve installation of heavy machinery, underground cabling and other fixtures with considerable cash outlay. 9. 4 Suitable Locations

The clusters of towels industry exist predominantly in Karachi, Gujranwala, Faisalabad and Lahore. As most of the manufactures are based in these major cities, it is recommended that such unit should be located in any of these areas. However, the basic criteria for the selection of location within these clusters should be the accessibility of raw material and skilled manpower. Also, basic utilities like electricity, gas, waters and public transport is must for the establishment of such sort of unit. 9. 5       Utilities Requirement Electricity Gas Furnace Oil Telephone Fax Internet

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10 PROJECT COST 10.1 Initial Project Cost Following are the initial project cost: Table 10-1: Project Cost Fixed Assets Land and Building Plant & Machinery Civil Works Furniture Fixture Vehicles Current Assets Pre operating expenses Raw Material Inventory Cash and Banks balances Total Table 10-2: Project Financing Financing Equity financing – 61% Debt financing – 39% Total Table 10-3: Project Economics Project’s Economies Net Present Value (in Rs) Internal Rate of return Payback Period (in Years) Equity 31,442,293 33.98% 7.08 Project 31,077,815 30.88% 5.57 23,742,630 15,179,714 38,922,344 Cost 13,430,000 20,938,844 100,000 421,500 1,200,000 36,090,344 1,000,000 1,332,000 500,000 2,832,000 38,922,344

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10.2 Estimated Time for Project Completion 
 

   

1 months for completion of initial formalities i.e. formation, registration of the company etc. 10 months for purchase of land and construction of building. 3 months for sanction of loan (In case, if financing has to be arranged through bank). 4 month for purchase of machinery, its installation and trial run. 1 month for furnishing and staff / labor appointments. The projects can take-off within one year, as some of the activities will be in progress simultaneously. In case if the project is self financed, if the building is rented and if machinery is also locally procured then this set-up will not take more then 6 months.

11 KEY SUCCESS FACTORS The total commercial viability of this proposed towels unit depends on the regular supply of export orders. This requires aggressive marketing efforts at the entrepreneur's end and the concerned management team. A detailed discussion on the marketing aspect has already been done in the marketing section of this study. Comparing Pakistan’s major importers with the world’s major importers, Pakistan is completely out of sync with the world market mix. The countries of Middle East are not included in list of major importers. USA is the largest importer but only 1-2 % of Pakistan’s total exports is going to USA. Pakistan does not have any major exports to markets like Japan, Hong Kong, Germany and France. There is an opportunity for the Pakistani towels products’ manufacturers and exporters that they should target these markets and get Pakistan its due share. Following are other key points that can be taken as key success factors for any export based towels unit.  Outlets in Gulf countries  Assurance of consistent good quality  Surety of on time delivery  Competitive rates  Cost efficiency  Better services to the customer i.e. claim settlement etc.  Better communication development with customers

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12 THREATS FOR THE BUSINESS   Close competition among local exporters causes reduction in prices of the orders in process. The labor force at the lowest level i.e. skilled / semi-skilled manpower, machine operators are quite unorganized. Their job behaviors and seriousness about the completion of any assigned job are always unpredictable; however, a motivated Production Supervisor can overcome this. Non-availability of technical personnel especially for dyeing, processing and finishing. In case of CMT based unit, the requirement of credit and/or delay of payments from customers might cause disturbance in the cash cycles.

 

13 REGULATIONS  As such no special regulation is applicable on this industry except the normal industrial rules and regulations. It does not require any prior sanction/approval from the government to establish a Towels industry as a whole except for installation of boiler. Being the export-based unit, government offers incentives in terms of treating exports as zero-rated for sales tax, tax rebates at the rate of 3% and re-finance facilities. Towels Manufacturers Association of Pakistan (TMAP) is the administrative body in Pakistan with the primary objective to safeguard the interests of exporters and manufacturers in Pakistan. Moreover, every export shipment is verified by TMAP in order to enable the exporter to claim tax rebate from the Government. The advantages of being registered with TMAP are: 1. The first hand knowledge of international trade inquiries, 2. Prompt awareness of any changes in Government policies, and 3. A platform for manufacturers and exporters to share knowledge and experience. 4. A platform for manufacturers and exporters to discuss any unwanted change in the Government policies and to solve individual problem of any manufacturers. 14 KEY ASSUMPTIONS Percentage Increase in Raw material cost Percentage Increase in Labor cost Electricity price growth rate Gas price growth rate Percentage Increase in Other Costs Selling Price Per Unit in US $ Conversion Rate US $/Pak Rupees 1% 5% 10% 10% 5% 5.00 60.00

 

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Cotton Towels Manufacturing Unit

15 FINANCIAL STATEMENTS 15.1 Projected Income Statement
Sale Value Costs Total Material Labour Gas & Furnace oil Electricty Total Variable Cost of Production Fixed Overheads - Production Payroll Depreciation Maintenance Total Production Cost Contribution Margin Gross Profit Operating Overheads Payroll Depreciation Other operating costs Legal and professional charges Amortization of pre-operating expenses Total Operating Profit Financial Charges Long Term Loan Profit Before Tax Losses Carried Forward Tax @20% Profit after tax Retained earnings at the beginning Avaiable for distribution Retained earnings at the end Year 1 27,000,000 13,320,000 1,414,800 180,000 1,440,000 16,354,800 1,656,000 3,038,884 75,000 4,769,884 21,124,684 10,645,200 5,875,316 2,064,000 237,150 100,000 50,000 100,000 2,551,150 3,324,166 2,125,160 1,199,006 239,801 959,205 959,205 959,205 Year 2 31,833,296 15,550,461 1,717,125 228,867 1,830,935 19,327,388 1,738,800 3,038,884 78,750 4,856,434 24,183,822 12,505,908 7,649,474 2,167,200 237,150 105,000 52,500 100,000 2,661,850 4,987,624 2,125,160 2,862,464 572,493 2,289,971 959,205 3,249,175 3,249,175 Year 3 37,531,805 18,154,417 1,984,813 264,546 2,328,001 22,731,777 1,825,740 3,038,884 82,688 4,947,312 27,679,089 14,800,027 9,852,715 2,275,560 237,150 110,250 55,125 100,000 2,778,085 7,074,630 1,700,128 5,374,502 1,074,900 4,299,602 3,249,175 7,548,777 7,548,777 Year 4 44,250,409 21,194,411 2,655,860 407,002 2,960,013 27,217,286 1,917,027 3,038,884 86,822 5,042,733 32,260,019 17,033,123 11,990,390 2,389,338 237,150 115,763 57,881 100,000 2,900,132 9,090,258 1,275,096 7,815,162 1,563,032 6,252,130 7,548,777 13,800,907 13,800,907 Year 5 52,171,717 24,743,458 3,069,891 470,450 3,421,458 31,705,257 2,012,878 3,038,884 91,163 5,142,926 36,848,183 20,466,459 15,323,534 2,508,805 237,150 121,551 60,775 100,000 3,028,281 12,295,253 850,064 11,445,189 2,289,038 9,156,151 13,800,907 22,957,058 22,957,058 Year 6 61,511,026 28,886,800 2,495,917 598,170 4,785,356 36,766,243 3,767,583 4,075,662 95,721 7,938,967 44,705,210 24,744,783 16,805,816 2,634,245 237,150 127,628 63,814 100,000 3,162,837 13,642,979 425,032 13,217,947 2,643,589 10,574,357 22,957,058 33,531,415 33,531,415 Year 7 72,522,173 33,723,954 3,029,264 760,562 6,084,496 43,598,275 3,955,962 4,075,662 100,507 8,132,132 51,730,407 28,923,898 20,791,766 2,765,957 237,150 134,010 67,005 100,000 3,304,122 17,487,644 17,487,644 3,497,529 13,990,115 33,531,415 47,521,530 47,521,530 Year 8 85,504,437 39,371,098 3,676,580 967,041 7,736,330 51,751,049 4,153,760 4,075,662 105,533 8,334,955 60,086,005 33,753,388 25,418,432 2,904,255 237,150 140,710 70,355 100,000 3,452,470 21,965,962 21,965,962 4,393,192 17,572,769 47,521,530 65,094,300 65,094,300 Year 9 100,810,668 45,963,868 4,462,221 1,229,576 9,836,607 61,492,271 4,361,448 4,075,662 110,809 8,547,920 70,040,192 39,318,396 30,770,476 3,049,468 237,150 147,746 73,873 100,000 3,608,236 27,162,240 27,162,240 5,432,448 21,729,792 65,094,300 86,824,092 86,824,092 Year 10 118,856,882 53,660,611 5,415,742 1,563,384 12,507,073 73,146,810 4,579,521 4,075,662 116,350 8,771,533 81,918,343 45,710,072 36,938,539 3,201,941 237,150 155,133 77,566 100,000 3,771,791 33,166,748 33,166,748 6,633,350 26,533,398 86,824,092 113,357,490 113,357,490

Pre-Feasibility Study

Cotton Towels Manufacturing Unit

15.2 Projected Cash flow Statement
Year 0 Profit after tax Adjustment of non-cash changes and other items: Depreciation Amortization of preoperating expenses Working Capital Changes (Increase)/decrease in trade debtors (Increase)/decrease in stocks Increase/(Decrease) in payables Net Cash Flow from operating activities Pre-operating expenses Fixed Capital expenditure Net Cash Flow from investing activities (1,332,000) (1,332,000) (1,332,000) (1,000,000) (36,090,344) (37,090,344) Year 1 959,205 3,276,034 100,000 (2,700,000) (223,046) 2,197,800 (725,246) 3,609,993 Year 2 2,289,971 3,276,034 100,000 (483,330) (260,396) 407,085 (336,640) 5,329,365 Year 3 4,299,602 3,276,034 100,000 (569,851) (303,999) 436,193 (437,657) 7,237,979 Year 4 6,252,130 3,276,034 100,000 (671,860) (354,905) 509,235 (517,530) 9,110,634 Year 5 9,156,151 3,276,034 100,000 (792,131) (414,334) 594,507 (611,958) 11,920,228 Year 6 10,574,357 4,312,812 100,000 (933,931) (483,715) 694,059 (723,588) 14,263,582 (7,037,781) (7,037,781) Year 7 13,990,115 4,312,812 100,000 (1,101,115) (564,714) 810,280 (855,549) 17,547,379 Year 8 17,572,769 4,312,812 100,000 (1,298,226) (659,277) 945,963 (1,011,540) 20,974,042 Year 9 21,729,792 4,312,812 100,000 (1,530,623) (769,674) 1,104,367 (1,195,931) 24,946,674 Year 10 26,533,398 4,312,812 100,000 (1,804,621) 5,366,061 349,602 3,911,042 34,857,253 -

Capital issued Receipt of long term Loan Repayment of long term loan Net Cash Flow from financing activities Cash generated (injected) during the year Opening balance of cash and cash equivalent Closing balance of cash and cash equivalent

23,742,630 15,179,714 38,922,344 500,000 500,000

(3,035,943) (3,035,943) 574,050 500,000 1,074,050

(3,035,943) (3,035,943) 2,293,423 1,074,050 3,367,473

(3,035,943) (3,035,943) 4,202,036 3,367,473 7,569,509

(3,035,943) (3,035,943) 6,074,691 7,569,509 13,644,200

(3,035,943) (3,035,943) 8,884,285 13,644,200 22,528,485

7,225,801 22,528,485 29,754,286

17,547,379 29,754,286 47,301,664

20,974,042 47,301,664 68,275,706

24,946,674 68,275,706 93,222,380

34,857,253 93,222,380 128,079,632

PREF-63/January2007/ Rev 2

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Pre-Feasibility Study

Cotton Towels Manufacturing Unit

15.3 Projected Balance Sheet
Year 0 CAPITAL AND RESERVES Issued, subscribed and paid up capital Retained Earnings LONG TERM LOAN Long Term Loan @16% CURRENT LIABILITIES Creditors accrued and other liabilities FIXED CAPITAL EXPENDITURE Operating fixed assets - at cost Accumulated derpreciation 36,090,344 36,090,344 1,000,000 36,090,344 (3,276,034) 32,814,309 900,000 36,090,344 (6,552,069) 29,538,275 800,000 36,090,344 (9,828,103) 26,262,241 700,000 36,090,344 (13,104,138) 22,986,206 600,000 36,090,344 (16,380,172) 19,710,172 500,000 43,128,125 (20,692,984) 22,435,141 400,000 43,128,125 43,128,125 (25,005,797) (29,318,609) 18,122,328 13,809,516 300,000 200,000 43,128,125 (33,631,422) 9,496,703 100,000 43,128,125 (37,944,234) 5,183,891 23,742,630 23,742,630 15,179,714 Year 1 23,742,630 959,205 24,701,834 12,143,771 Year 2 23,742,630 3,249,175 26,991,805 9,107,828 Year 3 23,742,630 7,548,777 31,291,407 6,071,886 Year 4 23,742,630 13,800,907 37,543,536 3,035,943 Year 5 23,742,630 22,957,058 46,699,687 Year 6 23,742,630 33,531,415 57,274,045 Year 7 23,742,630 47,521,530 71,264,160 Year 8 23,742,630 65,094,300 88,836,929 Year 9 23,742,630 86,824,092 110,566,721 Year 10 23,742,630 113,357,490 137,100,120 -

38,922,344

2,197,800 39,043,405

2,604,885 38,704,519

3,041,079 40,404,371

3,550,314 44,129,793

4,144,821 50,844,508

4,838,879 62,112,924

5,649,159 76,913,319

6,595,123 95,432,052

7,699,489 118,266,211

8,049,092 145,149,211

Preoperating expenses CURRENT ASSETS Raw Material Inventory Trade debts Cash and Banks balances

1,332,000 500,000 1,832,000 38,922,344

1,555,046 2,700,000 1,074,050 5,329,096 39,043,405

1,815,442 3,183,330 3,367,473 8,366,244 38,704,519

2,119,441 3,753,180 7,569,509 13,442,131 40,404,371

2,474,346 4,425,041 13,644,200 20,543,587 44,129,793

2,888,680 5,217,172 22,528,485 30,634,336 50,844,508

3,372,395 6,151,103 29,754,286 39,277,784 62,112,924

3,937,110 7,252,217 47,301,664 58,490,991 76,913,319

4,596,387 8,550,444 68,275,706 81,422,536 95,432,052

5,366,061 10,081,067 93,222,380 108,669,507 118,266,211

11,885,688 128,079,632 139,965,321 145,149,211

PREF-63/January2007/ Rev 2

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