Feasibility Report of

Embroidery Business
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  Investment Decision making

Scope:
Embroidery is one of the oldest and most popular forms of surface ornamentation of
fabrics and garments, and Pakistan is among the top suppliers of embroidered fabrics
and garments worldwide. The sector is now getting more organized, with large players
entering it.

Demand for garments embellished with embroideries with sequins and crystals are
quite strong in the international market, as also in Pakistan. However, while
embroidery is used in a whole lot of products internationally, the market is still an
unexplored one in Pakistan.

Pakistan is still a virgin market for embroideries. Traditionally, embroidery is used for
ornamentation of apparel, products such as furnishings, lingerie, have not used much of
embroidery. This form of embellishment is only now getting popular in menswear. This
makes clear the huge potential of embroidery in the country, which is still to be tapped.

The size of the Pakistan embroidery market is slated to be around Rs 250-300 crore per
annum. Realizing the huge potential of embroidery, some large players have entered
the sector, Pakistan’s textile industries being the largest in Asia, for embroidered fabrics
and crochet laces. Embroidery, till a decade ago, was largely in the unorganized sector,
with very small units, typically with 2 and 4 embroidery machines. Today, 60 per cent
of the market is accounted for by organized players. The domestic embroidery
manufacturing is almost totally unorganized, with very small units situated in various
parts of the country. This is more a cottage industry. Most of the exporters in this
segment do not have their own manufacturing facilities, but get the orders job worked
from such small units.

Although we have competitors in the international market but still the Pakistan's
strength lies in designing and is an important source of embroideries for the world.
We believe that quality begins in-house when we decide to make a positive impact in
the lives of all the different groups of people that will come in contact with our
business. Along with this ideology, our focus is on continuous innovation in products
and procedures have made sure that we are always able to stay abreast of the
competition.

Our Vision & Mission:

Vision Statement: To be the leading in embroidery industry, providing our customers
quality and service value in our embroidery items for fulfilling their needs.

Mission Statement: Star embroidery is a team of committed professionals, providing

innovative and valued embroidery products by striving on the quality of our
workmanship, the turnaround of our product and the quality of our customer service
which in turn means we have a large customer base of highly satisfied clients. We
ensure that our customers can purchase star embroidery products with confidence in
us.

SWOT Analysis:
Strengths: As clothes are the necessity of life and its demand can never be eliminate
from the markets. The strength of Star Embroidery is that we are providing high quality
embroidery clothes which are very much demanding. Our focus is on continuous
innovation in our product and procedures have made sure that we are always able to
stay abreast of the competition. Orders of garments with embroidery are more than that
with prints in ladies and girls apparels. Embroidery is preferred over prints because of
eco-friendly characteristics. Garments with sequins and crochet laces (of Pakistani
looks) are well received by foreign customers and now. Sequins are in vogue since last
decade will be in for more.

Weaknesses: We are starting our business of embroidery with the strengths we

mentioned above but it has also some weaknesses. We have limited numbers of orders
this is because we are new in this business and have limited no of relations with our
customers which is one of the way of getting orders of your product in this type of
businesses. We have also limited amount of resources with which we are going to start
our business and invested a smaller amount. Energy crises has also greater influence on
our business as due to load shedding we can’t run the machines throughout and there
are several stoppage during the work. So machines can’t be run at full capacity and
working at a level which is inefficiently.

Opportunities: Pakistan is still a virgin market for embroideries and this industry is yet
not explored completely so we have an opportunity to expand our business nationwide
in the near future. Embroidery fabrics are liked in other countries as well as in Pakistan.
So we can expand our business internationally by presenting our products in
international markets.

Threats: Whatever the kind of your business is, there are always threats to it. There are
several big fish in the similar business and they can’t want small new born fish to let
them grow as those big fish have greater market shares and also can influence the
market. We are working in an environment where there is tough competition due to
which we have to charge the market prevailing price for our product. Energy crisis is
another main threat to our business as the availability of electricity and fuel is
uncertain. Another threat is the overall decline of the Pakistan’s Industry which can be
harmful.

Target market:
“Target market is a group of consumer that the business has decided to aims its
marketing efforts and ultimately its merchandise”

Target market is a first element to a marketing strategy it helps to determine the success
of a product in the market place. So, our target market will be the stitching units
(factories) who make the selected kind of suits in which baba suits for new born babies,
jeans pants, shorts, fancy shirts and t-shirts are include. Without embroidery these
selected item will not exist in the market because of the extreme demand of the
consumers. Our place of this embroidery setup will be SANDA (lhr) the reason of
choosing this area is that, the main stitching units (factories) are there. In our personal
visit there are more than 100 stitching units around this area and these units are close to
the our set up. This will be the plus point because our demand of order will be full fill
and the order would be enough to run the embroidery machine for 22 hours in a day.

Duties of Each Partner:

Daniyal Haider as a F.M:

He will organize and manage the financial portfolio of the business. He will provide his
skill to manage the cash and dealing all the business matter which will relate to cash
and will make the financial report.

Mobeen Khan as a dealer:

Dealing with the parties is the most important duty so mobeen khan of our business
partner will provide his skill to deal with the parties with our selected term and
conditions and also deal with the all kind of raw material which would be used for the
embroidery.

Syed Zain ul abdin as an order taker:

He would be responsible for the collecting of orders and give his level best to do make
any diligent attempt to find new customers or will to persuade existing customers to
increase the size or frequency of their orders.

Usman Tariq as an advisor:

He will perform the advisory functions in our business according to their experience
and will provide the guide line to run the business in a smooth way. And he will
update to our business for the fluctuation of the market conditions.

Adnan Khalid as a supervisor:

He will provide his skills to monitors and regulate the employees in their performance
of assigning task. He will be authorized to effect or recommended hiring, promoting,
punishing, rewarding and other associated activities regarding to employees in their
work.
  Costing
Star Embroidery

Particulars Amount Rs
2units of Machinery (BSR BARU DAN) 12 head used 1200,000

Installation charges 10000

Rent for place 10,000

Advance for place 100,000

Generator 5KV 60,000

Personal computer 10,000

Worker 2 helper, 2 operator and 1 super visor H,6000 O, 8,000 S,10,000

2 U.S.B 1000

DESIGNER 6000

AIR CONDITIONER 38,100

Industrial meter 3 phase 70,000

Office setup 10,000

Needles for 1 month 1,000

Fusing for 1 month 7,000

Thread for 1 month 40,000

Table frame 1,000

Monthly bill 15,000

 Policy for the 5 years
 Sale will Increase by 20% every year

 Rent of the building will increase by 10% every year

 Electricity charges will increase by 5% every year

 Cost of Goods sold will increase by 15% every year

 Salaries will increase by 10 % every year

 Fuel cost is forecasted to increase by 5% every year

 Depreciation on the assets will be charged on MACRS method

 Working capital is supposed to increase by 10% every year

 Cost of Capital is required of 20%

 Taxes are to be charged by 20%

Initial Investment:
Particulars Amount Rs.
Machinery 1210000
Computer 10000
Generator 60000
USB 1000
Table Frames 2000
A/C 38000
Meter 3-Phase 70000
Office Setup 10000
Advance Rent 100000
Total 1501000

Particulars Year-1 Year-2 Year-3 Year-4 Year-5

Sales 2,400,000 2880000 3456000 4150000 5000000
Less:
CGS 576000 633600 696960 766656 843322
Rent 120000 132000 145200 159720 175692
Electricity 180000 189000 198450 208373 218791
Salaries 528000 581000 639000 702900 773190
Fuel 48000 50400 52920 55566 58344
Depreciation 265600 424960 252320 159360 159360
EBIT 1210400 869040 1471150 2097425 2771301
Add:
Depreciation 265600 424960 252320 159360 159360
Less:
TAX 20% 242080 173808 294230 419485 554260
OCS 1233920 1120192 1429240 1837300 2376400
Less:
∆ Working Capital (25000) (2500) (2750) (3025) 33275
Net Capital
66400
Spending - - - -
Total Cash flows
1208920 1117692 1426490 1834275 2476075
from project
“Capital budgeting is the planning process used to determine whether an organization's
long term investment such as new machinery, replacement machinery, new plants, new
products, and research development projects are worth pursuing. It is budget for
major capital, or investment, expenditures.”

Many formal methods are used in capital budgeting, including the techniques such as:
 Net Present Value
 Payback Period
 Internal Rate Of Return

Net Present Value:

“The difference between the present value of cash inflows and the present value of
cash outflows”. NPV is used in capital budgeting to analyze the profitability of an
investment or project. NPV analysis is sensitive to the reliability of future cash
inflows that an investment or project will yield. NPV compares the value of money
today to the value of that same money in the future, taking inflation and returns into
account. If the NPV of a prospective project is positive, it should be accepted.
However, if NPV is negative, the project should probably be rejected because cash
flows will also be negative.

Net present value is calculated @20%

1208920
1117692
1426490
1834275
2476075
NPV=∑PV - Initial Investment:
NPV=4488786 - 1501000 = 2987786

If the net present value becomes positive it means that the project is accepted. Here net

present value of our project is 2987786 which is positive so we will accept the project.

Payback Period:
“Payback period shows the recovering time period of your initial investment”

Payback period is calculated as:

Payback Period= Initial Investment/ Annual Cash Flows

Payback period= 1501000/ 1208920 = 1 year 3 months & 1 week

Internal Rate of Return:

The internal rate of return (IRR) is a rate of return used in capital budgeting to measure
and compare the profitability of investments. It is also called the discounted cash
flow rate of return or the rate of return

The internal rate of return on an investment or project is the "annualized effective

compounded return rate" or "rate of return" that makes the net present value of all cash
flows (both positive and negative) from a particular investment equal to zero. In more
specific terms, the IRR of an investment is the discount rate at which the net present
value of costs (negative cash flows) of the investment equals the net present value of the
benefits (positive cash flows) of the investment. Internal rates of return are commonly
used to evaluate the desirability of investments or projects.

To calculate IRR we have taken a lower rate of return and a higher rate of return,
whereas the required rate of return is 20%.
 1208920
1117692
1426490
1834275
2476075

1208920
1117692
1426490
1834275
2476075

Calculating IRR:-
IRR=LR+NPV@LR/ NPV@LR-NPV@HR (HR-LR)

IRR=15 + / - (25-15)

IRR=15 + / - 10)

IRR=15 + / 1138610(10)

IRR=15 + 3.173(10)

IRR=47%

IRR=47 > 20 (cost of capital) hence project is acceptable