Feasibility Study of Garment Industry - PDF

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					                                   Pre-Feasibility Study


               GARMENTS STITCHING UNIT
                                                    (Polo T-shirt)




           Small and Medium Enterprise Development Authority
                                                Government of Pakistan
                                                      www.smeda.org.pk
                                               HEAD OFFICE
                                  st
     Waheed Trade Complex, 1 Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore
                             Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756
                                            helpdesk@smeda.org.pk

     REGIONAL OFFICE                     REGIONAL OFFICE               REGIONAL OFFICE             REGIONAL OFFICE
         PUNJAB                               SINDH                         NWFP                    BALOCHISTAN
     Waheed Trade Complex,
 1st Floor, 36-Commercial Zone,             5TH Floor, Bahria                Ground Floor            Bungalow No. 15-A
       Phase III, Sector XX,           Complex II, M.T. Khan Road,        State Life Building     Chaman Housing Scheme
Khayaban-e-Iqbal, DHA Lahore.                    Karachi.                The Mall, Peshawar.           Airport Road, Quetta.
       Tel: (042) 111-111-456            Tel: (021) 111-111-456         Tel: (091) 9213046-47     Tel: (081) 831623, 831702
 Fax: (042) 5896619, 5899756               Fax: (021) 5610572             Fax: (091) 286908           Fax: (081) 831922
      helpdesk@smeda.org.pk            helpdesk-khi@smeda.org.pk     helpdesk-pew@smeda.org.pk   helpdesk-qta@smeda.org.pk


                                                         March, 2001
Pre-Feasibility Study                             Garments Stitching Unit (Polo T-shirt)




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




DOCUMENT CONTROL
 Document No.           PREF-03
 Revision               1
 Prepared by            SMEDA-Punjab
 Approved by            GM Punjab
 Issue Date             March 28, 2001
 Issued by              Library Officer




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PREF-03/March, 2001/1
Pre-Feasibility Study                                    Garments Stitching Unit (Polo T-shirt)



1 INTRODUCTION

1.1      Project Brief
The subject pre-feasibility study provides details about the investment opportunity in
a stitching unit for knitted garments. Most of the production of this unit will be for
export purpose, and hence will contribute in the earning of foreign exchange for the
country. There is a vast range of knitted products like knitted T-shirts, blouses,
trousers and shorts etc. However, this unit is designed on basic Polo T-shirt. Initially,
for some time period, this unit will operate on CMT1 (commercial basis), but
ultimately, this would be an export-oriented unit. Therefore, all the calculations and
financial workings have been done while treating this as an export based project.
This project will also have the potential for horizontal as well as vertical integration.

1.2      Opportunity Rationale

Exports of knitted garments from Pakistan have been on a rise during the last few
years. The availability of suitable raw material, development of certain skill levels
and introduction of international brands with local garment manufacturers are some
of the favoring factors for further expansion of knit garments industry in the country.
The quotas phase out factor in the year 2005 is also opening new doors of
opportunities in the global trade of garment exports in the coming years. It has been
forecasted, that in the coming days of post quota scenario, specialized and small or
medium size garments stitching units will be able to perform in a better way. The
reason for this is a lower cost structure and more developed and concentrated skills
to produce the best possible products as per the requirement of international
customers.

1.3      Proposed Capacity:
2,000 Garments/Day (52 Stitching Machines)

1.4      Total Project Cost:
Rs. 7.5 Million

1.5      Process flow Chart
    Finished Fabric        Inspection          Cutting            Stitching          Trimming
        Receipt




                       Washing             Final               Pressing              Packing
                      (Optional)        Inspection



1
    CMT: Cutting, Manufacturing and Trimming
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Pre-Feasibility Study                              Garments Stitching Unit (Polo T-shirt)



2 CURRENT INDUSTRY STRUCTURE
The garments and apparel industry of Pakistan, especially the knitwear segment, is
characterized by heavy presence of vertically integrated units. Garments industry
comprises of approximately 700 vertically integrated units in the knitwear sector.
There are approximately 4,000 garment units with a diverse range of stitching
capability including leather, knit and woven garments, with 160,000 industrial and
450,000 domestic sewing machines.
There are about 1,000 stitching units manufacturing T-shirts for export. Out of these,
400 units have 30-50 machines and 600 units have 50-300 stitching machines.
The industry is characterized by majority of the manufacturing units located in few
major cities. Major concentration of the industry is in Lahore and Karachi. Other
hubs are Faisalabad, Gujranwala, and Sialkot.

3 MARKETING
In view of the fact that main raw material and skilled manpower is available in
Pakistan, scope for garment exports from Pakistan is unlimited. Effective marketing
plays a very crucial role for making this business a success.
Export orders can be generated either through local or foreign buying houses that
have their presence in the country and source export orders for foreign customers
from local industry. The other way to get export orders is through direct marketing in
the international markets while initiating contacts with potential customers directly
and/or through participation in international trade fairs, exhibitions etc. In the
absence of export orders, other factories that have excess export orders can also
provide sub-contract work on CMT (cut, manufacture & trim) basis.

3.1    Guidelines for Garments Export Business
In order to enter into the export business of garments, following basic guidelines can
provide help to any new comer in this business:
a)     Ensure best quality at all costs. This is a basic key for a successful exporter in
the garment exports.
b)      Commitments with buyers regarding quality, price and shipment are basic
essentials to enter and grow in the export business. Pakistan has lost much business
and goodwill due to this factor alone. Therefore, for any newcomer, commitments
with the buyers should be met very seriously.
c)     Initially, it is recommended that a new exporter should avoid to deal in
expensive quota items or to enter in quota markets. Concentration should be on non-
quota or low priced quota garments and on those categories of garments where
newcomers can get share of the cheap quotas at the time of auction. Buying
expensive quotas is the main hurdle due to which new exporters become non-
competitive in the international markets. Concentration on non-quota markets like


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Japan, Hong Kong, South Africa etc. can provide a competitive edge to new
exporters2.
d)     Sourcing of export orders, through several apparel buying houses based in
Pakistan, can be a good startup point of marketing efforts. The prices offered by
these buying houses might be lower than those of direct orders, but at least they can
be good entry point and learning experience for new exporters3.
e)      Many garment factories are considering it worthwhile setting up their
overseas offices and warehouses in the potential markets. Overseas office cannot
only assist in sales, but also keep the garment factory continuously informed about
the latest design changes, buyers' requirements and market trends. Warehouses of
supplier(s) in the customer's country 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.
f)      The professional marketing staff and owner(s) should regularly visit
international clothing fairs, shows and exhibitions. Such events provide very
promising opportunities to penetrate in the international markets, meeting new
customers and negotiating orders4.
g)      In order to be successful in the market, it is very important to be active and
quick in response to the customers. Being flexible with buyers regarding their
requests and requirements can help to develop mutual understandings with them.
Many buyers themselves guide the manufacturer in correct designing, fabric and
accessories selection and procurement, improvements in production and quality
control etc.
h)     Regular subscriptions with local and foreign textile trade and fashion
magazines will ensure the flow of latest marketing and trade information to the
exporter.

3.2    Total Market Size and Growth
Total global trade value of T-shirts and other related knitted garments is more than
$33 billion. USA is the largest importing country with a share of 29% and a total
value of $7.4 billion. USA is a rapidly growing market with annual growth rates of
10% in value terms and 7% in quantity term.
Germany is the second largest importer in this category with imports of $4.5 billion.
However, German market has been stagnant during last many years and has grown
by only 1%.
Japan is the third largest importer with total imports of $3.8 billion. Other major
importers are given in the following table:


2
  A list of quota and non-quota products/markets can be obtained separately.
3
  A list of apparel buying houses can be obtained separately.
4
  The calendar of such events can be obtained from EPB.
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Pre-Feasibility Study                           Garments Stitching Unit (Polo T-shirt)


        Table: 3-1      International Market Statistics
                 Country               Value ($ Million )         Share in World Trade
          Hong Kong                                   3,218                       9.50%
          France                                      2,222                       6.56%
          United Kingdom                              2,327                       6.87%
          Netherlands                                 1,192                       3.52%
          Belgium                                       858                       2.53%
          Switzerland                                   660                       1.95%
          Italy                                         870                       2.57%
          Others                                      4,439                      13.10%

Kenya, Tunisia, Zimbabwe, Algeria and other African countries are growing markets
for T-shirts.

4 RAW MATERIAL
The main raw materials used in the manufacturing of Polo T-shirts are listed below:
♦ Printed or dyed knitted fabric (may be 100% Cotton or Polyester/Cotton in
  different ratios)
♦ Buttons
♦ Threads
♦ Labels
♦ Zippers
♦ Packing material




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5 HUMAN RESOURCE REQUIREMENTS
For a garment-stitching unit of 52 stitching machines, following manpower is
required:

         Table: 5-1        Human Resources Requirements
                    Positions                    Required          Salary/ Month Salary/Annum
         Chief Executive                              1                       50,000             600,000
         Production Manager                           1                       13,000             156,000
         Production Planning officer                  1                        8,000              96,000
         Cutting Master                               1                       12,000             144,000
         R & I Supervisor                             1                        4,000              48,000
         Cutting Helper                               2                        3,000              72,000
         Sampling Stitcher                            2                        5,000             120,000
         Stitching Supervisor                         1                        8,000              96,000
         Rowing Inspector                             2                        4,500             108,000
         Machine Operator5                           52                        7,000           4,368,000
         Helper (Machine Operator)                    4                        2,000              96,000
         Final table inspector                        7                        2,200             184,800
         Finishing Supervisor                         1                        5,000              60,000
         Clippers                                     6                        2,500             180,000
         Stain Remover                                1                        3,000              36,000
         Spot Washer                                  1                        2,500              30,000
         Iron Presser                                 3                        6,000             216,000
         Rafo                                         1                        2,500              30,000
         Packing Staff                                3                        2,500              90,000
         Commercial Manager                           1                       10,000             120,000
         Accounts Officer                             1                        5,000              60,000
         Technician/Electrician                       1                        3,500              42,000
         Security Guards                              2                        3,000              72,000
                      Total                          96                                        7,024,800




5
  Stitching Staff is hired on piece rate basis. Here an average figure of per month earning has been
taken.
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6 MACHINERY DETAILS

6.1    Machinery List
Following combination of stitching machines is required for manufacturing 2,000
knitted Polo T-shirts per day. Approx. prices for Japanese origin machinery as given
below:

         Table: 6-1         Stitching Machinery Required
                                                                                Cost /
                                                             Machines                           Total Cost
         Stitching Machinery6                                Required
                                                                               Machine
                                                                                                  (Rs.)
                                                                                (Rs.)
         Cutting Machine 10"                                      1              95,000             95,000
         Lock Stitch (Single Needle)                             27              50,000          1,350,000
         Safety Stitching Overlock (3 Thread)                    12              96,000          1,152,000
         Safety Stitching Overlock (4 Thread)                     4             105,000            420,000
         Flat Lock                                                7             228,000          1,596,000
         Button Hole Machine                                      1             264,000            264,000
         Button Stitching Machine                                 1             124,000            124,000
         Total                                                   53                              5,001,000

         Table: 6-2        Other Equipment
         Other Equipment                                                      Total
         Steam Boiler with 3 irons                                               161,000
         Factory fixture (wooden tables, stools, boxes etc)                      166,000
         Machine Installation & Electric wiring cost                              53,000
         Total                                                                   380,000

         Table: 6-3        Total Cost of Machinery & Other Equipment
          Main Machinery Cost                                                                    5,001,000
          Other Equipment                                                                          380,000
          Total                                                                                  5,381,000

6.2    Other Options Available for Machinery
Garments stitching machinery is available in quite a diversified range of suppliers
origins i.e. Japanese, Italian, Chinese, Korean, Taiwanese and Hong Kong origin.

6
 Cost includes all duties & taxes (Custom duty 15%, Sales tax 15%, Income tax 6%).
However, for an export-oriented unit, there is a facility of importing the machines duty free
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However, there is a substantial difference between their prices. European and
Japanese machinery is 2 to 3 times more expensive as compared to Chinese or Far
Eastern machinery. Second hand machinery of different origins is also available
from the local market.

7 LAND & BUILDING

7.1    Total Land Requirement
For garments stitching unit with production of about 2,000 garments per day, approx.
13,640 square feet covered area is required. The details are listed below:

7.2    Covered Area Requirement
The split of different sections and accordingly covered area requirements are as
follows:

        Table: 7-1      Covered Area requirement
        Description                                Required area (sq. ft)
        Fabric & Accessories inventory Store                      3,540
        Cutting Room                                                600
        Sampling Room                                               400
        Stitching Room                                            1,300
        Inspection Room                                           1,400
        Packing Room                                              1,400
        Finished Garment Store                                    3,000
        Total factory area                                       11,640
        Management Building                                       2,000
        Total area required (sq. ft.)                            13,640

        Table: 7-2      Construction Cost
Land & Building Construction
                             Cost per unit (Rs./sq. ft.)                Cost
Cost
Land cost (Rs.)              @ Rs. 600,000/4,500 sq. ft                     1,818,667

Factory area                                             350                4,074,000
Management building                                      600                1,200,000
Total construction cost                                                     5,274,000

Total Cost (Land & Building )                                          Rs. 7,092,667




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7.3    Recommended Mode
It is recommended that this project should be started in a rented building. This will
reduce the initial capital cost of the project. An appropriate shed is normally
available in many commercial/industrial areas of under mentioned clusters.

        Table: 7-3      Rent Cost
                                                  Monthly rent Annual rent
Rent cost
                                                     (Rs.)        (Rs.)
Building rent cost (@ Rs.10,000 per 4,500 sq. ft)       30,000     360,000

7.4    Suitable Locations
The clusters of garments stitching industry exist predominantly in Lahore, Karachi
and Faisalabad. Most of the garment manufactures are based in these major cities, so
it is recommended that such unit should be started in these areas. However, the basic
criterion for the selection of location within these clusters should be the accessibility
of skilled manpower.

7.5    Utilities Requirements

♦ Electricity
♦ Telephone
♦ Fax




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8 PROJECT COSTS

8.1      Project Costs

Table: 8-1          Project Cost/Capital Requirements
Project Costs
Machinery & Equipment7                                                         5,381,000
Furniture & Fixtures                                                             205,000
Office Vehicles                                                                  682,000
Office Equipment                                                                 180,000
Pre-operating Costs8                                                             361,000
Total Capital Costs                                                            6,809,000

Equipment spare part inventory                                                    15,900
Pre-paid building rent                                                           360,000
Pre-paid insurance payment                                                       322,400
Total Working Capital                                                            698,300

Total Investment in the Project                                                7,507,300


Financing Plan
Equity                                    50%            3,753,650
Debt                                      50%            3,753,650

Debt Breakup
Long-term loan                                           3,055,350
Running finance                                            698,300

8.2      Estimated Time Frame for Project Completion
♦ 2 months for completion of initial formalities, i.e. formation, registration of the
  company etc.
♦ 3-4 months for purchase, import and shipment of machinery, installation and trial
  run.
♦ 2-3 months for furnishing and staff/labor appointments and trial production.
♦ In case of self financed project, rented building, and local procurement of
  machinery, this set-up can be started even within a few weeks time period.
  Getting finance from the bank may take 3-4 months.

7
    Machinery cost does not include the installation charges.
8
    Includes admin expenses, civil works and interest accrued.
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Pre-Feasibility Study                             Garments Stitching Unit (Polo T-shirt)


♦ The project can take-off within 6-8 months as some of the activities will be in
  progress simultaneously.

9 KEY SUCCESS FACTORS
The total commercial viability of this proposed stitching unit depends on the regular
supply of export orders, i.e. at least 300 days per year production. This requires very
aggressive marketing efforts at the entrepreneur's end and the concerned
management team.
Following are other key points that can be taken as the key success factors for any
export based stitching unit:
♦ Assurance of high consistent quality
♦ Surety of on time delivery
♦ Competitive rates
♦ Cost efficiency
♦ Better services to the customer i.e. claim settlement etc.
♦ Better communication with the customers
♦ To run a garment manufacturing set-up is a full-time job, and requires continuous
    hard work and attention. Anyone who is not prepared to put best possible efforts,
    concentration and hard work, should not attempt to enter in this business.

10 THREATS FOR THE BUSINESS

Quota factor (price and availability) plays a major role in defining the trends of
exports of knitted products from Pakistan, and directly affects the exports of knitted
garments.
The labor force at the lowest level i.e. skilled/semi skilled manpower, machine
operators are quite unorganized. Their job behavior and seriousness about the
completion of any assigned job is sometimes quite unpredictable.
Stitching expertise is not available at the very best possible level. This restricts the
industry only to the production of basic garments and it cannot enter in the
production of high quality or fashion garments.
In case of CMT based unit, the requirement of credit and/or delay of payments from
customer side might cause disturbance in the cash cycle.
Asia pacific markets are emerging as new players in the world knitwear trade.
Competition from China, Hong Kong, Vietnam, Korea is likely to increase in the
coming years. NAFTA is also one of the threats.

11 REGULATIONS
Being the export-based unit, tax exemptions are available on earnings and profits.
Also, government offers re-finance facilities, incentives in terms of rebates, and duty
free machinery imports.

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Pre-Feasibility Study                                                                                                                                  Garments Stitching Unit (Polo T-shirt)




12 FINANCIAL ANALYSIS

12.1 Income Statement
                        PR O JE C T E D IN C O M E S T A T E M E N T
                                                                                      Y ea r 1                Y e ar 2           Y ea r 3            Y ea r 4             Y ea r 5

                        S a le s                                                15 ,6 3 3 ,5 0 9        8 9 ,7 33 ,5 0 9   9 8 ,55 3 ,5 0 9   1 0 8,2 5 5 ,5 09   1 18 ,9 2 7 ,7 0 9

                        C o st o f g o od s so ld
                        R a w M ate rial                                                   -            5 8 ,6 56 ,0 0 0   6 1 ,58 8 ,8 0 0    6 4 ,6 6 8 ,2 40    67 ,9 0 1 ,6 5 2
                        P ayro ll (P rod u ction S taff)                         5 ,7 2 8 ,8 0 0          6 ,3 01 ,6 8 0     6 ,93 1 ,8 4 8      7,6 2 5 ,03 3      8 ,3 8 7 ,5 3 6
                        M ach ine M a in ten an ce                                    1 4 ,4 0 0               15 ,4 0 8         1 6 ,4 8 7           1 7 ,64 1          1 8 ,8 7 5
                        D irect E lectric ity                                       5 5 8,8 3 1              6 14 ,7 1 4        67 6 ,1 8 5         7 4 3 ,8 04        8 1 8 ,1 8 4
                        T ex tile q uo ta                                                                 5 ,8 80 ,0 0 0     5 ,88 0 ,0 0 0      5,8 8 0 ,00 0      5 ,8 8 0 ,0 0 0
                        Lan d F reigh t c ost fo r e x p o rt                                             1 ,1 76 ,0 0 0     1 ,17 6 ,0 0 0      1,1 7 6 ,00 0      1 ,1 7 6 ,0 0 0
                        Fo rw ardin g/clearin g c ost                                                        5 88 ,0 0 0        58 8 ,0 0 0         5 8 8 ,0 00        5 8 8 ,0 0 0
                        T o ta l                                                 6 ,3 0 2 ,0 3 1        7 3 ,2 31 ,8 0 2   7 6 ,85 7 ,3 2 0    8 0 ,6 9 8 ,7 17    84 ,7 7 0 ,2 4 8

                        G r oss P ro fit                                         9 ,3 3 1 ,4 7 8        1 6 ,5 01 ,7 0 7   2 1 ,69 6 ,1 8 9    2 7 ,5 5 6 ,7 92    34 ,1 5 7 ,4 6 1

                        O p e ra tin g E x p en ses
                        P ayro ll (A d m in )                                    1 ,2 9 6 ,0 0 0         1 ,4 25 ,6 0 0     1 ,56 8 ,1 6 0       1,7 2 4 ,97 6       1 ,8 9 7 ,4 7 4
                        P ayro ll (M arke tin g an d S ales)                               -                      -                  -                    -                    -
                        Fix e d e lec tricity                                       6 6 1,6 0 6             7 27 ,7 6 6        80 0 ,5 4 3         8 8 0 ,5 97          9 6 8 ,6 5 7
                        In su ran ce E x pe nse                                     3 2 2,4 0 0             2 90 ,1 6 0        25 7 ,9 2 0         2 2 5 ,6 80          1 9 3 ,4 4 0
                        A d m in istrativ e O v erhe ad s                           1 5 6,3 3 5             8 97 ,3 3 5        98 5 ,5 3 5       1,0 8 2 ,55 5       1 ,1 8 9 ,2 7 7
                        A m o rtiz atio n (P re -o p eratio n al E x pe nses)         3 6 ,1 0 0              36 ,1 0 0         3 6 ,1 0 0           3 6 ,10 0            3 6 ,1 0 0
                        D e prec ia tio n                                           6 4 4,8 0 0             6 44 ,8 0 0        64 4 ,8 0 0         6 4 4 ,8 00          6 4 4 ,8 0 0
                        O ffic e ex p en ses                                          1 2 ,9 6 0              14 ,2 5 6         1 5 ,6 8 2           1 7 ,25 0            1 8 ,9 7 5
                        T o ta l                                                 3 ,1 3 0 ,2 0 1         4 ,0 36 ,0 1 8     4 ,30 8 ,7 4 0       4,6 1 1 ,95 8       4 ,9 4 8 ,7 2 3

                        O p e ra tin g P ro fit                                  6 ,2 0 1 ,2 7 7        1 2 ,4 65 ,6 8 9   1 7 ,38 7 ,4 4 9    2 2 ,9 4 4 ,8 33    29 ,2 0 8 ,7 3 8

                        N o n -o p e ra tin g E x p en ses
                        Fin an cial C h a rge s o n Lo n g-term Lo an               4 8 8,8 5 6             4 17 ,7 7 2        33 5 ,3 1 4         2 3 9 ,6 63          1 2 8 ,7 0 8
                        Fin an cial C h a rge s o n R u n n in g F ina nc e           8 3 ,7 9 6            7 10 ,9 9 7     1 ,32 6 ,5 5 7       1,4 6 5 ,58 4       1 ,6 1 9 ,7 0 5
                        Lan d L ease                                                       -                      -                  -                    -                    -
                        B u ild ing R e ntel                                        3 6 0,0 0 0             3 78 ,0 0 0        39 6 ,9 0 0         4 1 6 ,7 45          4 3 7 ,5 8 2
                        T o ta l                                                    9 3 2,6 5 2          1 ,5 06 ,7 6 9     2 ,05 8 ,7 7 1       2,1 2 1 ,99 2       2 ,1 8 5 ,9 9 5

                        Pr ofit B efo re T a x                                   5 ,2 6 8 ,6 2 5        1 0 ,9 58 ,9 2 1   1 5 ,32 8 ,6 7 8    2 0 ,8 2 2 ,8 41    27 ,0 2 2 ,7 4 3
                        T ax                                                     1 ,7 1 9 ,0 1 9          3 ,7 10 ,6 2 2     5 ,24 0 ,0 3 7      7,1 6 2 ,99 4      9 ,3 3 2 ,9 6 0

                        Pr ofit A fter T a x                                     3 ,5 4 9 ,6 0 6         7 ,2 48 ,2 9 8    1 0 ,08 8 ,6 4 1    1 3 ,6 5 9 ,8 47    17 ,6 8 9 ,7 8 3

                        R e ta in ed E a rn in gs b egin nin g o f ye ar                   -              3 ,5 49 ,6 0 6   1 0 ,79 7 ,9 0 5    2 0 ,8 8 6 ,5 45    34 ,5 4 6 ,3 9 2
                        R e ta in ed E a rn in gs en d of year                   3 ,5 4 9 ,6 0 6        1 0 ,7 97 ,9 0 5   2 0 ,88 6 ,5 4 5    3 4 ,5 4 6 ,3 92    52 ,2 3 6 ,1 7 5




                                                                                                   12


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Pre-Feasibility Study                                                                               Garments Stitching Unit (Polo T-shirt)




12.2 Cashflow Statement
PROJECTED CASH FLOW STATEMENT
                                                        Year 0       Year 1         Year 2        Year 3           Year 4            Year 5

Operating activities
Net profit                                                         3,549,606      7,248,298    10,088,641       13,659,847        17,689,783
Amortization (Pre-operational Expenses)                               36,100         36,100        36,100           36,100            36,100
Depreciation                                                         644,800        644,800       644,800          644,800           644,800
Accounts receivable                                               (2,345,026)   (11,115,000)   (1,323,000)      (1,455,300)       (1,600,830)
Equipment Spare Parts Inventory                       (15,900)        (1,590)        (1,749)       (1,924)          (2,116)           (2,328)
Up-Front Insurnace payment                           (322,400)        32,240         32,240        32,240           32,240            32,240
Stocks-RM                                                   0     (2,932,800)      (146,640)     (153,972)        (161,671)         (169,754)
Accounts payable                                                      38,500      6,120,380       307,944          323,341           339,508
Cash provided by operations                          (338,300)      (978,170)     2,818,429     9,630,829       13,077,241        16,969,519

Financing acivities
Long term debt principal repayment                                 (444,277)      (515,361)      (597,819)        (693,470)         (804,425)
Add: buliding rent expense                                          360,000        378,000        396,900          416,745           437,582
Building rent payment                                (360,000)     (378,000)      (396,900)      (416,745)        (437,582)         (459,461)
Addition to long term debt                          3,055,350
Addition to running finance                           698,300     5,226,676      5,129,669      1,158,557        1,284,343         1,423,043
Issuance of share                                   3,753,650
Cash provided by/ (used for) financing activities   7,147,300     4,764,400      4,595,408       540,893          570,036           596,739

Total                                               6,809,000     3,786,230      7,413,838     10,171,722       13,647,277        17,566,258

Investing activities
Capital expenditure                                 (6,809,000)
Cash (used provided by invetsing activities         (6,809,000)
Net Cash                                                     0    3,786,230      7,413,838     10,171,722       13,647,277        17,566,258
Cash balance brought forward                                 0            0      3,786,230      7,413,838       10,171,722        13,647,277
Cash carried forward                                          0   3,786,230     11,200,067     17,585,560       23,818,999        31,213,536




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12.3 Balance Sheet
PROJECTED BALANCE SHEET
                                     Year 0      Year 1       Year 2       Year 3           Year 4            Year 5

Current Assets
Cash                                     0     3,786,230   11,200,067   21,371,789       35,019,067       52,585,325
Equipment Spare Parts Inventory     15,900        17,490       19,239       21,163           23,279           25,607
Up-Front Insurnace payment         322,400       290,160      257,920      225,680          193,440          161,200
Stocks and Inventory                     0     2,932,800    3,079,440    3,233,412        3,395,083        3,564,837
Receivable                               0     2,345,026   13,460,026   14,783,026       16,238,326       17,839,156
Pre-paid building rent             360,000       378,000      396,900      416,745          437,582          459,461
Total                              698,300     9,749,706   28,413,593   40,051,815       55,306,777       74,635,586

Gross Fixed Assets                6,448,000    6,448,000    6,448,000    6,448,000        6,448,000        6,448,000
 Less: Accumulated depreciation           0      644,800    1,289,600    1,934,400        2,579,200        3,224,000
Net Fixed Assets                  6,448,000    5,803,200    5,158,400    4,513,600        3,868,800        3,224,000

Intangible Assets
Pre-operational Expenses           361,000      324,900      288,800      252,700          216,600           180,500
Total                              361,000      324,900      288,800      252,700          216,600           180,500

Total Assets                      7,507,300   15,877,806   33,860,793   44,818,115       59,392,177       78,040,086

Current Liabilities
Running Finance                    698,300     5,924,976   11,054,645   12,213,202       13,497,545       14,920,588
Accounts payable                                  38,500    6,158,880    6,466,824        6,790,165        7,129,673
Total                              698,300     5,963,476   17,213,525   18,680,026       20,287,710       22,050,261

Long-term liabilities
Long-term Loan                    3,055,350    2,611,073    2,095,713    1,497,894         804,425                (0)
Total                             3,055,350    2,611,073    2,095,713    1,497,894         804,425                (0)

Equity
Paid-up Capital                   3,753,650    3,753,650    3,753,650    3,753,650        3,753,650        3,753,650
Retained Earnings                         0    3,549,606   10,797,905   20,886,545       34,546,392       52,236,175
Total                             3,753,650    7,303,256   14,551,555   24,640,195       38,300,042       55,989,825

Total Liabilities And Equity      7,507,300   15,877,806   33,860,793   44,818,115       59,392,177       78,040,086




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Pre-Feasibility Study                                     Garments Stitching Unit (Polo T-shirt)




12.4 Assumptions

Table 12—1 Production Assumptions
Number of Machines (cutting, stitching, buttoning)                  53
Capacity Utilization                                             100%
Waste production (kg)                                             14%
Average weight/garment (grams)                                     185
Total Production per day (garments)                              2,000
Defective garment (% of total finished garments)                   2%
Annual Production Capacity (garments)                          588,000
Production of defective garments                                12,000

Table 12—2 Operating Assumptions
Hours operational per day                                            10
Days operational per month                                           25
Days operational per year                                           300
Maximum capacity utilization                                      100%

Table 12—3 Economy-Related Assumptions
Electricity growth rate                                            10%
Wage growth rate                                                   10%
Office equipment price growth rate                                  5%
Office vehicles price growth rate                                  10%
Exchange rate                                                Rs 60/US$

Table 12—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)                               7

Table 12—5 Revenue Assumptions
Production of the unit (double shift basis)                     588,000
Sale price per garment in year 1 ($)                                2.5
Export Sales Share                                                100%
Sale price of defective garments (Rs/garment)                        50
Sale price of cutting waste (Rs/kg)                                  60
CMT rate (for 1st year of operation only) (Rs/gmt)                   25
Sale price growth rate                                             10%




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Pre-Feasibility Study                                        Garments Stitching Unit (Polo T-shirt)




Table 12—6 Expense Assumptions
Factory overhead (% of Sales)                                         2.0%
Office expenses (stationery, entertainment etc)         1% of admin expense
Machine maintenance (per month)                         Rs 1200 per machine
Machine maintenance growth rate (annual)                                7%
Pre-paid building Rent (months)                                          12
Pre-paid insurance (months)                                              12
Insurance rate (% of net fixed assets)                                  5%
Spare part inventory growth rate                                       10%
Raw material price growth rate                                          5%
Rent growth rate                                                        5%
Textile quota (Rs per garment)                                           10
Land/Truck freight cost (Rs per garment)                                  2
Forwarding/clearing cost (Rs per garment)                                 1

Table 12—7 Financial Assumptions
Project life (years)                                                     10
Debt                                                                   50%
Equity                                                                 50%
Interest rate on long-term debt                                        16%
Interest rate on short term debt                                       12%
Debt tenure                                                               5
Debt payments per year                                                    1
Discount rate (weighted avg. cost of capital for                       17%
NPV)




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DOCUMENT INFO
Description: Feasibility Study of Garment Industry document sample