Pre-Feasibility Study

GARMENTS STITICHING UNIT

(Mens Dress Trousers)

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: 6370474-7 Website www.smeda.org.pk
helpdesk@smeda.org.pk

November,2007

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

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 Approved by Revision Date Issued by PREF-58 2 SMEDA-Punjab GM Punjab November, 2007 Library Officer

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

1 INTRODUCTION
1.1 Project brief This pre-feasibility study provides information and guideline about the investment opportunity in a stitching unit for woven dress trousers for men. The production of this unit will be for export purpose, and therefore will earn foreign exchange for the country. There is a vast variety in dress pants in relation to quality of the fabric used, style, stitching techniques, etc. This project will start its operation on CMT1 basis (commercial basis), but ultimately, this would be an export-oriented unit. Problems like lower margin and longer cash cycles are not prevalent in the export business because it is operated on LCs (letter of credit) basis. This unit will also be capable of producing other similar garments like twill and denim trousers with little modification of process. 1.2 Opportunity Rationale The main competitive advantage of this industry is the availability of fine quality organic fiber of Pakistan, mainly, the cotton and wool, besides the synthetic. The apparel segment is the highest value added link in the entire textile value chain. The trade in the sector accounts for 53% of the total value of global textiles trade and has been consistently growing since the last two decades. According to WTO estimates, with the elimination of quotas in the year 2005, the total trade of textiles and clothing will exceed the US $500 billion mark, and this growth will be driven primarily by the clothing sector, which will constitute almost 70% of the total trade. Readymade garments industry of Pakistan enjoys active demand in the foreign as well as domestic markets. Besides being a potential source of foreign exchange earnings, it provides an important means of diversification within textile industry, by allowing conversion of domestically made cloth into a higher value added production in the form of garments. This industry also provides an employment opportunity for skilled and semi-skilled labor, which is easily available in the areas where the clusters of this industry exist. Needless to say that import of one industrial sewing machine valued at about US $500 creates 3 jobs and earns US $27,000 per year in the shape of foreign exchange. The development of this industry not only offers attractive return on capital but is also advantageous to the economy as its exports maximize value addition to raw cotton.

Cut, Manufacture and Trim 3

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

According to statistics, the global textile market possesses a worth of more than $400 billions presently. In a more globalize environment, the industry has faced high competition as well as opportunities. It is predicted that Global textile production will grow by 25 percent between 2002 and 2010 and Asian region will largely contribute in this regard. The world trade organization (WTO) has taken so many steps for uplifting this sector. In the year 1995, WTO had renewed its MFA and adopted Agreement on Textiles and Clothing (ATC), which states that all quotas on textile and clothing will be removed among WTO member countries. However the level of exports in textiles from developing countries is increasing even if in the presence of high tariffs and quantitative restrictions by economically developed countries. Moreover the role of multifunctional textiles, eco-textiles, e-textiles and customized textiles are considered as the future of textile industry. Because this project is 100% export oriented, the Government of Pakistan has exempted on the import of machinery by an exporter from custom duty, sales tax and income tax. The export of trousers are zero rated (sales tax rate zero percent) and the whole input sales tax is refundable. This unit can be established with low investment and industrial technological complications and provides better returns on investments, which are the main deriving force of medium type industries. 1.3 Proposed Capacity The proposed unit is able to stitch approximately 800 pieces per day with 40 stitching machines. During the first two years, the unit will provide CMT services with 40 stitching machines. This will help to establish harmonized system flow and synergies, which will lead to better productivity and efficiency. In the third and forth year, it will start its own manufacturing and export by utilizing 50% of its capacity, remaining 50% will continued to be used for CMT. In the fifth year, the unit will utilize 100% of its capacity for own manufacture and export. 1.4 Project Cost The total project cost of this Dress Trouser Manufacturing unit is Rs. 3.68 million. This includes a fixed cost of Rs 2.314 million and a working capital of Rs 1.369 million.

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

1.5 Production process flow chart

Procurement of Finished Fabric Inspection

Cutting

Stitching

Washing
(Outsourced)

Trimming

Final Inspection

Pressing

Packing

Dispatch/shipment

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

2 CURRENT INDUSTRY STRUCTURE

The readymade garments industry generally operates on small and medium scale, and mostly, in an unorganized way. According to an estimate, about 70 percent of its units are in the unorganized sector and are established in shops, commercial plazas and houses. These units normally do not have modern machines like over-locking, creasing, buttoning, and cutting. These units are mostly equipped with 4 to 10 machines, which are usually locally, assembled. The locally assembled machines operate at slow speed up to 250 stitches per minutes. The industrial sewing machines are mainly imported from Japan, Italy, Korea and China and are capable of working at high speed up to 4,500 stitches per minutes. These are especially suitable for assembly line operations. In spite of the fact that industry has shown rapid growth, no figures of production data of formal wear dress pants are available. However, the export data of mens trousers is available which includes formal wear trousers and casual wear trousers. Determination of production in this industry is difficult to make. Firstly, due to predominance of unorganized cottage scale units where the major portion of work is performed manually. Secondly, the capacity of the same machines varies significantly. Thirdly, it is easy to switch over from one product to another. According to Pakistan Readymade Garments Manufacturer and Exporters Association (PRGMEA), the number of existing manufacturers/exporters of trousers (includes all type of trousers) in Punjab north zone (Lahore) is 73 till mid august 2007 follows: Table 2-1: Manufacturing Units of Trousers in No of Companies Exporting Against Specific HS Code in Lahore2 HS Code 6013.42 6103.41 6103.42 6103.43 6103.49 6104.61 6104.62 6104.63 6104.69 6203.41 6203.411 6203.42 6203.43
2

No Of companies dealing in specific HS Code 1 4 20 3 6 1 11 1 5 18 1 60 5

Source PRGMEA (Pakistan Readymade Garments Manufacturer and Exporters Association) 6

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

6203.49 6204.61 6204.62 6204.63 6204.69

10 1 26 5 16

Table 2-2 Pakistans Export (Means, boys suits, jackets, trousers etc knit or crochet-2003-2006) (HS code 6103) Reporting Countries USA United Kingdom Spain Italy Germany Trade Value in $Millions 27.794484 4.204848 2.241756 2.373816 1.947852

Pakistan's Export
Trade Value
30 20 10 0
USA United Kindom Spain Germany Italy

Series1

Reporting Countries

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

3 MARKETING
For formulating strategies for marketing in the foreign markets, the following should be considered: A market opportunity analysis to determine suitable sales market(s) and suitable sales channels.

1. Selection of target markets to identify suitable markets for selling trousers. The evaluation is based on the following five criteria: a. Market potential b. Product standard c. Trade situation d. Export conditions e. Exporting experience ( exporting country) 2. Sales channel assessment to estimate the requirements of potential sales channels in respect to product standards, logistics and marketing. The sales channel within the international market must be assessed and identified on each particular market, which best suits the product and the unit. 3. Company assessments of the units performance in respect to product standards, logistics and marketing. 4. Supply and demand comparison to compare the requirement of the sales channels with the units performance, so as to identified the most suitable sales channel(s) a. b. c. d. e. f. g. h. Building up trade relations consists of the following: Reviewing the product mix, packaging, seasonal influences Identifying a suitable trade partner Participation in trade fairs Organizing sales campaign by internet, e-mail, Fax and telephone Drawing up an offer Free sampling and personal visits Handling up contract Sales promotion

While the USA and the European Union remain to be the largest markets for garments and other apparel products with a combined share of 73% in total global clothing trade, the apparel production centers are shifting to the countries with lower production cost and/or strategic geographic location. Asian countries have the advantage, especially in the first case with low wage rates and indigenous production of the major raw materials. In 1997, over 59% of textile exports and 70% of clothing export originated from Asia. However, this competitive advantage of Asia is vulnerable to two basic developments; one is the emerging regional trade blocks that allow for preferential trade treatments and the other is the threat from countries that are located on the borders of major markets. Apparel is a rapidly changing business with very short product life cycles, consumer preference depends not only on seasons but also on numerous other factors. Responding quickly to these changing demands is vital for the success of garment exports. Countries like Mexico and
8

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

Turkey have the advantage of minimal lead times and are expected to give tough competition to the exporters from Asia. At present, the major thrust of garment exports from Pakistan is on the USA market. The European Union is the second largest market for garment manufacturers from Pakistan. Major markets that Pakistani manufactures have so far not been able to explore include the Japanese market, the Far East and some markets in the European Union. These markets demand high product standards and in return offer higher unit price realizations. Marketing research and development is one of the fundamental aspects that our industry lacks. Garment industry in Pakistan comprises of numerous small players with little resources available for marketing purposes. Pakistan has an opportunity to survive and compete in the quota free environment i.e. post January 1, 2005 scene. The three important factors that the exporter must adhere to are 3 Cs i.e. compatibility, competitiveness and credibility on an individual level and on a collective level. 3.1 World Trade Analysis Table 3-1 (Means, boys suits, jackets, trousers etc knit or crochet-2003-2006) (HS code 6103) Exporter Countries China Honkong, SAR Thailand Cambodia Mexico Trade Value in $Millions 11,338 663 597 595 551

Top Exporters
Trade Value in Millions $

12,000 10,000 8,000 6,000 4,000 2,000 0

a in Ch H ng ko n o A ,S R n la ai h T d m Ca a di bo M o ic ex

Series1

Reporters Title

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

It is evident from the chart above that China is the biggest exporter of trousers, and occupies a large share of the world market. Whereas Pakistan is on 19th position in the global trade. Table 3-2 (Means, boys suits, jackets, trousers etc knit or crochet-2003-2006 (HS code 6103) Importer Countries USA United Kingdom Japan China, Honkong, SAR Italy Trade Value in $Millions 3,336 1,007 726 631 576

T o p Im po r te r s
Trade Value in Millions
4 ,0 0 0 3 ,5 0 0 3 ,0 0 0 2 ,5 0 0 2 ,0 0 0 1 ,5 0 0 1 ,0 0 0 500 0
U SA ted ni K in om gd Ja pa n on k g, on SA R It al y

Se r ie s1

Ch

in

,H

Table 3-1: Top twenty exporters of world (US $ million)3 Statistics shows that US is the main importer of dress trousers followed by United Kingdom, and the quantity difference is significantly high from other importing countries Table 3-3 Pakistans Export of Trousers in 20064 Reporter Countries USA Germany United Kingdom Belgium Italy
3 4

R e po r te r T i tl e

Trade Quantity 72,260,076 25,114,920 21,680,820 10,826,928 9,960,120

Source: Trade Analysis System/ITC

UN comtrade (comtrade.un.org)
10

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

France Spain Netherlands Canada Sweden Ireland 3.2 Raw material

10,310,388 9,581,520 6,212,256 3,351,444 1,954,224 1,625,700

The basic raw material for the manufacturing of dress trousers is dyed woven fabric with different sorts of finishes on it. The woven fabric that is used in the manufacturing of dress trousers is made of cotton, or polyester/cotton (P/C), wool and other blends of man-made fibers. The weight of these fabrics normally varies from 200-240 grams/sq. m (for the light qualities of P/C 65:35 fabrics) and from 240-300 gram/sq. m (for heavy qualities of P/C 65:35 fabrics). In case of 100% cotton, light quality fabric weight should be at least 180 grams/ sq. m. For the fabric of blended 50/50 polyester/cotton, the weight varies from 100 grams/ sq. m (plain) to 215 gram sq. m (twill). The weight of the finish is not included in these figures. Prices of these fabrics range from Rs. 60 to Rs. 3000 per meter. During the last few years, the Dyeing and Finishing Industry has performed remarkably. Traditionally, the griege fabric was being exported and the dyed fabric was then imported at a higher price. But due to the installation of new dyeing plants, production of high quality dyed finished fabric has increased. This has helped in the reduction of the cost of finished fabric. The industry uses both locally produced and imported raw materials, but it mainly uses locally produced raw material. Some exporters however, prefer to purchase yarn, and process it by paying service charges according to their own requirement and buyers specification. This strategy also further reduces the cost of fabric. Besides fabric, other raw materials used in manufacturing of mens formal wear are listed below: Sewing thread Buckles Hooks Buttons Zipper Labels Fusing (called Buckram in the local language) Packing Material

PREF-58/November, 2007/Rev 2

11

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

4 MANPOWER REQUIREMENT
Table 5-1: Manpower Requirement at Start Positions Chief Executive Commercial Manager Final Table Inspector Production In charge Finishing supervisor Stitching Supervisor Cutting Master Cutting Helpers Rowing Inspector Helper (machine operator) Clippers Iron Presser Packing Staff Store Keeper Stain remover Store keeper Accounts officer Security Guards Driver Total 4.1 Labor In order to achieve high degree of value addition, as in the apparel and textile madeups sector, the engine of export growth, the skilled labor has a pivotal role in labor intensive processes like stitching. This sector normally follows piecework system under trolley system (division of labor) in which one garment is prepared by different persons during different stages of process. Normally there are 25-30 different processes involved in dress trouser manufacturing. Each process has its separate predetermined piece rate. The garment industry of Pakistan, especially export based, is dependent on job orders and thus, there is an aversion to employ workers on long term basis. So the exporters prefer to employ labor under contract system. This means that the designated contractor is the primary employer and the units in which the workers produce goods are the secondary employers. The result is that there has been more productivity and efficiency through contract workers. The exporters usually demand that the contractors must have trained and skilled workers on their rolls, so that the
12

Number 1 1 2 1 1 1 1 2 2 4 3 2 2 1 1 1 1 2 1 30

Salary/month (Rs.) Annual Salary 45,000 540,000 18,000 216,000 4,600 110,400 15,000 180,000 10,000 10,000 10,000 120,000 15,000 180,000 4,600 110,400 6,500 156,000 4,600 220,800 5,000 180,000 4,600 110,400 4,600 110,400 5,000 60,000 4,600 55,200 4,600 55,200 15,000 180,000 5,000 120,000 5500 66,000 2,780,800

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

production is accelerated and there is better quality and minimum hassle in training or orienting the workers to produce as per requirements. However, the units, which have regular export orders, prefer to employ permanent labor on piece rate system.

5 MACHINERY DETAILS
The industrial sewing machines are mainly imported from Japan and are capable of working at high speed up to 4,500 stitches per minute. These are especially suitable for assembly line operation and are mostly used by the organized sector. Besides industrial sewing machines, household sewing machines along with parts and electric irons etc. are also being imported. Imports of sewing machines and their parts are given in Table. The other important machine used by the ready-made garment industry is the over locking, which is used to trim the edges of cut cloth. In addition, specialized machines are used for cutting, making button holes and stitching of buttons. According to an estimate, one specialized machine is required for very five sewing machines. Table 6-1: Machinery List Description Cutting Machine (ZJ- 10") 5 thread safety over lock machines (ZJ732-38) 1 Needle Lock Stich Machine (ZJ 8800A)) Button Holding Machine (ZJ -781) Button stitching Machine(ZJ-373) Belt loops making machine(TK-KING) Waist Band Making machine(TK-KING) Feed Off Arm Machine with puller (ZJ 926) Computer Controlled Bartaking Machine(ZJ-1900) 2 Needle Lock stitch machine(ZJ 842) Electric Steam Boiler Electric Steam Iron Total Qty Price(Rs.) 1 3 29 1 1 1 1 1 1 2 1 3 45 15,500 36,000 15,500 90,000 45,000 70,000 65,000 125,000 150,000 48,000 120,000 7,000 Total Machinery Cost 15,500 108,000 449,500 90,000 45,000 70,000 65,000 125,000 150,000 96,000 120,000 21,000 1,360,915

PREF-58/November, 2007/Rev 2

13

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

The investment layout in different years is given in the financial calculation. Table 6-2: Other Equipment Furniture and Fixture Wooden stool for Labor Trolleys for Stitching Department Cutting Table Finishing Table Others Total Table 6-3: Office Equipment Description Fax, Telephone etc Air conditioner Computer Tube lights Office furniture Total Cost QTY 1 2 1 -1 Price (Rs) 15,000 35,000 27,000 30,000 50,000 Total Cost in Rs. 15,000 70,000 27,000 30,000 50,000 192,000 Qty 69 5 1 2 1 Per unit Cost 175 7,500 8,000 4,000 10,000 Total Cost in Rs. 12,075 37,500 8,000 8,000 10,000 75,575

PREF-58/November, 2007/Rev 2

14

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

L AND AND B UI L DI NG

Project should be located where skilled manpower is within reach, and where electricity gas water and public transport are easily available. Easy access to the normal public transport is must for a success of any garment factory; otherwise the workers will have to be provided transport in company arranged buses. Potential industrial locations in Pakistan for setting up the unit include Karachi, Hyderabad, Sukkur, Rawalpindi, Lahore, Faislabad, Multan, Chounia, Lasbella, Hattar, Gadoon Amazai, Islamabad, etc. Karachi, Lahore and Faisalabad are comparatively better and recommended locations because necessary technical and skilled manpower is easily available. Secondly good quality and sufficient quantity of raw material at competitive prices is easily available. Since this industry is export oriented, so Karachi has the advantage of being near to seaport. However, final selection of site will depend upon investors own choice and convenience. For manufacturing unit with installation of the above said machines, approximately 5,300 sq. ft. area is required which includes space for admin office, stitching unit and stores. It is recommended that the machinery unit may be established in a rented building, which can be easily found in the industrial zones. The rent has been taken as Rs. 65,000 per month. Table 7-1: Total Area Requirement Description Fabric & Accessories inventory room Stitching room Packing & Inspection Room Finishing Hall Finished Garment Store Management Building Total Area 938 2,050 600 600 500 300 5,300

PREF-58/November, 2007/Rev 2

15

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

7 PROJECT ECONOMICS
Table 8-1 Project Economics Account Head Plant and Machinery Furniture/ Fixture & Equipment Preliminary Expenses5 Vehicles Total Capital Cost Working Capital6 Total Project Cost Table 8-2 Project Returns IRR NPV (Rs) Payback Period (Years) Table 8-3 Financing Plan Financing Equity Debt Ratio 50% 50% Rs 1,842,055 1,842,055 Project 36.53% 34,539,877 7.394 Total Cost (Rs) 1,360,915 267,575 311,200 375,000 2,314,690 1,369,419 3,684,109

Includes registration cost, and 1 month salaries chief executive, Production manager, Commercial manager and Accounts Officer 6 Includes 12 months Prepaid Rent 16

PREF-58/November, 2007/Rev 2

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

8 KEY SUCCESS FACTORS & THREATS

8.1 Key Success Factors The changing global trade patterns offer more opportunities than it poses threats. The apparel export product mix from Pakistan is heavily tilted towards men's wear and knitted garments. As the global market demand characteristics are changing, woven segment of the garments is a much larger market than the knit garments and offers higher price realizations. The following are the main key success factors: Strong marketing skills/knowledge is required from entrepreneur Assurance of high consistent quality Assurance of on time delivery Competitive rates Cost efficiency Better services to the customer i.e. claim settlement etc. Better communication development with customers

8.2 Threats and Weakness of the Business One major threat that garments manufacturers and exporters from developing countries like Pakistan will have to face is the introduction of non-tariff trade barriers. While the free trade regime is increasingly gaining foothold in the international export arena, developed countries are becoming increasingly selective in their import preferences. Issues like compliance to environmental standards and self-defined working environment can severely restrict exports from the developing countries. The main threats and weakness of the business are as follows: Continuous increase in utility rates Non friendly attitudes of Government agencies Less productive labor due to lack of education and training Lack of market research especially in prospective markets Growing demand for International Standards Certifications Lack of financial and human resources to attain immediate certification.

PREF-58/November, 2007/Rev 2

17

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

9 REGULATIONS
For an exporter, registration is compulsory with Income Tax Department, Chamber of Commerce and Industry, Sales Tax Department and Export Promotion Bureau. Income tax on export is deducted at source on export proceeds at the rate of 0.75%, which is full and final discharge of income tax liability. Sales tax on export is charged at zero percent called zero-rated and whole input sales tax consumed in exports is refundable. If the project is 100% export oriented there is an exemption of custom duty, sales tax, income tax, on the import of machinery by an exporter. Government provides an export rebate of 2.62% of the F.O.B value on Trousers export.

PREF-58/November, 2007/Rev 2

18

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

10 FINANCIAL ANALYSIS
10. 1 Projected Income Statement
Year 1 Sales Cost of goods sold Raw Material Washing Cost (OUTSOURCED) Payroll (Production Staff) Machine Maintenance Direct Electricity Total Gross Profit Operating Expenses Payroll (Admin) Fixed electricity Insurance expense Office expenses Administrative Overheads Amortization (Pre-operational Expenses) Depreciation Total Operating Profit Non-operating Expenses Financial Charges on Long-term Loan Financial Charges on Short-Term Loan Building Rentel Total Profit Before Tax Tax Profit After Tax Retained Earnings beginning of year Retained Earnings end of year 257,888 0 780,000 1,037,888 (2,681,306) 0 (2,681,306) 0 (2,681,306) 218,873 456,886 858,000 1,533,759 (2,897,144) 0 (2,897,144) (2,681,306) (5,578,450) 174,397 1,054,992 943,800 2,173,189 (1,394,150) 0 (1,394,150) (5,578,450) (6,972,600) 123,695 1,549,216 1,038,180 2,711,091 (274,852) 0 (274,852) (6,972,600) (7,247,452) 65,893 1,933,450 1,141,998 3,141,342 8,714,035 2,924,912 5,789,123 (7,247,452) (1,458,329) 0 1,713,292 1,256,198 2,969,489 16,048,362 0 16,048,362 (1,458,329) 14,590,033 0 0 1,381,818 1,381,818 24,258,104 0 24,258,104 14,590,033 38,848,137 0 0 1,519,999 1,519,999 32,530,695 0 32,530,695 38,848,137 71,378,832 0 0 1,671,999 1,671,999 40,526,104 0 40,526,104 71,378,832 111,904,936 0 0 1,839,199 1,839,199 49,540,926 0 49,540,926 111,904,936 161,445,862 5,136,768 2,935,296 0 1,658,800 108,000 428,033 5,130,129 6,639 1,122,000 133,825 100,175 11,220 51,368 31,120 200,349 1,650,057 (1,643,418) Year 2 6,215,489 3,390,267 0 1,824,680 115,560 470,837 5,801,343 414,146 1,234,200 147,208 90,157 12,342 62,155 31,120 200,349 1,777,531 (1,363,385) Year 3 33,983,010 26,338,332 2,032,358 2,007,148 123,649 517,920 31,019,407 2,963,603 1,357,620 161,929 80,140 13,576 339,830 31,120 200,349 2,184,564 779,039 Year 4 41,119,442 31,093,794 2,280,306 2,207,863 132,305 569,712 36,283,980 4,835,462 1,493,382 178,122 70,122 14,934 411,194 31,120 200,349 2,399,223 2,436,239 Year 5 88,497,932 65,297,015 5,117,007 2,428,649 141,566 626,683 73,610,920 14,887,011 1,642,720 195,934 60,105 16,427 884,979 31,120 200,349 3,031,634 11,855,377 Year 6 107,082,497 75,418,052 5,741,282 2,671,514 151,476 689,352 84,671,675 22,410,822 1,806,992 215,527 50,087 18,070 1,070,825 31,120 200,349 3,392,971 19,017,851 Year 7 119,460,018 80,311,181 5,939,097 2,938,665 162,079 758,287 90,109,309 29,350,709 1,987,691 237,080 40,070 19,877 1,194,600 31,120 200,349 3,710,787 25,639,922 Year 8 131,406,020 84,326,740 6,057,879 3,232,532 173,424 834,116 94,624,691 36,781,329 2,186,461 260,788 30,052 21,865 0 31,120 200,349 2,730,635 34,050,694 Year 9 144,546,622 88,543,077 6,179,037 3,555,785 185,564 917,527 99,380,990 45,165,632 2,405,107 286,867 20,035 24,051 0 31,120 200,349 2,967,528 42,198,103 Year 10 159,001,284 92,970,230 6,302,618 3,911,364 198,554 1,009,280 104,392,045 54,609,239 2,645,617 315,553 10,017 26,456 0 31,120 200,349 3,229,113 51,380,125

PREF-58/November, 2007/ Rev 2

19

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

10.2 Projected Cash Flow Statement

Const. Year Operating activities Net profit Amortization (Pre-operational Expenses) Depreciation Up-front insurance payment Equipment and spare part inventory Accounts receivable Stocks-RM Accounts payable Cash provided by operations Financing acivities Long term debt principal repayment Add: buliding rent expense Building rent payment Adition to debt Issuance of share Running Finance Repayment Cash provided by/ (used for) financing activities Total Investing activities Capital expenditure Cash (used for)/ provided by invetsing activities Cash balance brought forward Net Cash Running Finance Cash carried forward (2,314,690) (2,314,690) 0 347,444 347,444 (2,916,026) 3,263,470 347,444 347,444 (7,188,213) 7,535,657 347,444 347,444 (10,718,387) 11,065,832 347,444 347,444 (13,462,915) 13,810,359 347,444 347,444 (11,890,353) 12,237,797 347,444 347,444 2,378,084 0 2,378,084 2,378,084 25,254,285 0 25,254,285 2,904,109 2,662,134 (356,673) (3,263,470) (780,000) 1,842,055 1,842,055 (3,263,470) (3,666,957) (7,535,657) (7,535,657) (7,992,200) (11,065,832) (11,065,832) (11,582,515) (13,810,359) (13,810,359) (14,395,226) (12,237,797) (12,237,797) (12,363,417) 2,030,640 0 (138,182) 22,876,201 (278,673) 780,000 (858,000) (317,687) 858,000 (943,800) (362,163) 943,800 (1,038,180) (412,866) 1,038,180 (1,141,998) (470,667) 1,141,998 (1,256,198) 0 1,256,198 (1,381,818) 0 1,381,818 (1,519,999) (241,975) (141,120) (100,175) (680) (2,681,306) 31,120 200,349 10,017 (34) (740,880) (21,874) 295,809 (2,906,797) (2,897,144) 31,120 200,349 10,017 (36) (155,585) (1,103,272) 45,850 (3,868,700) (1,394,150) 31,120 200,349 10,017 (38) (4,004,931) (228,628) 2,312,629 (3,073,632) (274,852) 31,120 200,349 10,017 (39) (1,029,293) (1,644,386) 479,239 (2,227,844) 5,789,123 31,120 200,349 10,017 (41) (6,833,436) (486,588) 3,446,885 2,157,429 16,048,362 31,120 200,349 10,017 (43) (2,680,466) (235,247) 1,019,964 14,394,056 24,258,104 31,120 200,349 10,017 (46) (1,785,219) (193,056) 493,113 23,014,383 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Year

0
347,444

PREF-58/November, 2007/ Rev 2

20

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

10. 3
Current Assets Cash Stocks and Inventory Receivable

Projected Balance Sheet

Const. Year 347,444 141,120 0 680 100,175 780,000 1,369,419 2,003,490 0 2,003,490 311,200 311,200 3,684,109 0 0 1,842,055 1,842,055 1,842,055 0 1,842,055 3,684,109 Year 1 347,444 162,994 740,880 714 90,157 858,000 2,200,189 2,003,490 200,349 1,803,141 280,080 280,080 4,283,410 3,263,470 295,809 3,559,279 1,563,382 1,563,382 1,842,055 (2,681,306) (839,251) 4,283,410 Year 2 347,444 1,266,266 896,465 750 80,140 943,800 3,534,865 2,003,490 400,698 1,602,792 248,960 248,960 5,386,617 7,535,657 341,660 7,877,317 1,245,695 1,245,695 1,842,055 (5,578,450) (3,736,395) 5,386,617 Year 3 347,444 1,494,894 4,901,396 788 70,122 1,038,180 7,852,824 2,003,490 601,047 1,402,443 217,840 217,840 9,473,107 11,065,832 2,654,288 13,720,120 883,533 883,533 1,842,055 Year 4 347,444 3,139,280 5,930,689 827 60,105 1,141,998 10,620,342 2,003,490 801,396 1,202,094 186,720 186,720 12,009,156 13,810,359 3,133,528 16,943,887 470,667 470,667 1,842,055 Year 5 347,444 3,625,868 12,764,125 868 50,087 1,256,198 18,044,590 2,003,490 1,001,745 1,001,745 155,600 155,600 19,201,935 12,237,797 6,580,413 18,818,210 0 0 1,842,055 383,726 19,201,935 Year 6 2,378,084 3,861,114 15,444,591 912 40,070 1,381,818 23,106,588 2,003,490 1,202,094 801,396 124,480 124,480 24,032,464 0 7,600,377 7,600,377 0 0 1,842,055 16,432,088 24,032,464 Year 7 25,254,285 4,054,170 17,229,810 957 30,052 1,519,999 48,089,274 2,003,490 1,402,443 601,047 93,360 93,360 48,783,681 0 8,093,490 8,093,490 0 0 1,842,055 38,848,137 40,690,192 48,783,681 Year 8 56,353,403 4,256,879 18,952,791 1,005 20,035 1,671,999 81,256,113 2,003,490 1,602,792 400,698 62,240 62,240 81,719,051 0 8,498,164 8,498,164 0 0 1,842,055 71,378,832 73,220,887 81,719,051 Year 9 95,270,529 4,469,723 20,848,070 1,056 10,017 1,839,199 122,438,594 2,003,490 1,803,141 200,349 31,120 31,120 122,670,063 0 8,923,073 8,923,073 0 0 1,842,055 111,904,936 113,746,991 122,670,063 Year 10 147,700,038 0 22,932,877 1,108 0 2,023,119 172,657,143 2,003,490 2,003,490 0 0 0 172,657,143 0 9,369,226 9,369,226 0 0 1,842,055 161,445,862 163,287,917 172,657,143

Equipment and spare part inventory Pre-paid insurnace payment Pre-paid building rent Total Gross Fixed Assets Less: Accumulated depreciation Net Fixed Assets Intangible Assets Pre-operational Expenses Total Total Assets Current Liabilities Running Finance Accounts payable Total Long-term liabilities Long-term Loan Total Equity Paid-up Capital Retained Earnings Total Total Liabilities And Equity

(6,972,600) (7,247,452) (5,130,546) (5,405,397) 9,473,107 12,009,156

(1,458,329) 14,590,033

PREF-58/November, 2007/ Rev 2

21

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

11 KEY ASSUMPTIONS
Table 12-1: Machinery Assumptions Capacity of stitching unit Production per day -(pieces) approximately Production Capacity for Year 1 Maximum Production Capacity Defected garment Machine maintenance cost (per month / machine) Machine maintenance growth rate Table 12-2: Operating Assumptions Hours operational per day Days operational per month Days operational per year No of shifts per day Table12-3: Economy Related Assumptions Electricity cost growth rate Wages growth rate Table 12-4: Cash Flow Assumptions Accounts receivable (average) Accounts payable average Table 12-5: Revenue Assumptions Sale Price of Trousers for export sales Dollar rate CMT rate per piece Sales price growth rate per annum (both for export & CMT) Wastage price growth rate Rs.285 or 4.78$ Rs. 60 / dollar Rs 35 3% 3% 45days 30 days 10% 10% 8 hours 26 days 312 days Single 244,608 800 55% 98% 2% 200 7%

PREF-58/November, 2007/ Rev 2

22

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

Table 12-6: Expense Assumptions Consumption of fabric per piece Fabric purchase price (per meter) Raw material price growth rate Insurance rate on machines (on written down value) Tax on CMT service (% of total CMT Revenue) Tax on Export Sales (% of total Export Revenue) Packaging cost per piece Average Freight charges per piece Table 12-7: Financial Assumptions Project life (Years) Debt Equity Interest rate on long-term debt Debt tenure (Years) Debt payments per year 10 50% 50% 14% 5 2 1.5 meters or 250kg Rs.125 2% 1% 5% 0.75% Rs.9 Rs.5

PREF-58/November, 2007/ Rev 2

23

Pre-Feasibility Study

Garments Stitching Unit (Mens Dress Trousers)

24 PREF-58/August, 2002/ Rev 1