smeda polo t-shirts stitching unit (1)

8/3/2019 SMEDA Polo T-Shirts Stitching Unit (1)

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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

Waheed Trade Complex, 1st Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA LahoreTel: (042) 111-111-456, Fax: (042) 5896619, 5899756

[email protected]

REGIONAL OFFICE

PUNJAB

REGIONAL OFFICE

SINDH

REGIONAL OFFICE

NWFP

REGIONAL OFFICE

BALOCHISTAN

Waheed Trade Complex,1st Floor, 36-Commercial Zone,

Phase III, Sector XX,Khayaban-e-Iqbal, DHA Lahore.

Tel: (042) 111-111-456Fax: (042) 5896619, 5899756

[email protected]

5TH Floor, BahriaComplex II, M.T. Khan Road,

Karachi.Tel: (021) 111-111-456

Fax: (021) [email protected]

Ground FloorState Life Building

The Mall, Peshawar.Tel: (091) 9213046-47


Bungalow No. 15-AChaman Housing Scheme

Airport Road, Quetta.Tel: (081) 831623, 831702


March, 2001


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

PREF-03/March, 2001/1

1

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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11 IINNTTRROODDUUCCTTIIOONN11..11 PPrroojjeecctt BBrriieeffThe 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 forexport purpose, and hence will contribute in the earning of foreign exchange for thecountry. 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 CMT

1(commercial basis), but

ultimately, this would be an export-oriented unit. Therefore, all the calculations andfinancial 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.

11..22 OOppppoorrttuunniittyy RRaattiioonnaalleeExports 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 levelsand introduction of international brands with local garment manufacturers are someof 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 ofopportunities in the global trade of garment exports in the coming years. It has beenforecasted, that in the coming days of post quota scenario, specialized and small ormedium size garments stitching units will be able to perform in a better way. Thereason for this is a lower cost structure and more developed and concentrated skillsto produce the best possible products as per the requirement of internationalcustomers.

11..33 PPrrooppoosseedd CCaappaacciittyy::2,000 Garments/Day (52 Stitching Machines)

11..44 TToottaall PPrroojjeecctt CCoosstt::Rs. 7.5 Million

11..55 PPrroocceessss ffllooww CChhaarrttFinished Fabric

ReceiptInspection Cutting Stitching Trimming

Washing(Optional)

FinalInspection

Pressing Packing

1 CMT: Cutting, Manufacturing and Trimming


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22 CCUURRRREENNTT IINNDDUUSSTTRRYY SSTTRRUUCCTTUURREEThe garments and apparel industry of Pakistan, especially the knitwear segment, ischaracterized by heavy presence of vertically integrated units. Garments industrycomprises of approximately 700 vertically integrated units in the knitwear sector.

There are approximately 4,000 garment units with a diverse range of stitchingcapability including leather, knit and woven garments, with 160,000 industrial and450,000 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 fewmajor cities. Major concentration of the industry is in Lahore and Karachi. Otherhubs are Faisalabad, Gujranwala, and Sialkot.

33 MMAARRKKEETTIINNGGIn view of the fact that main raw material and skilled manpower is available inPakistan, scope for garment exports from Pakistan is unlimited. Effective marketingplays a very crucial role for making this business a success.

Export orders can be generated either through local or foreign buying houses thathave their presence in the country and source export orders for foreign customersfrom local industry. The other way to get export orders is through direct marketing inthe international markets while initiating contacts with potential customers directlyand/or through participation in international trade fairs, exhibitions etc. In theabsence of export orders, other factories that have excess export orders can alsoprovide sub-contract work on CMT (cut, manufacture & trim) basis.

33..11 GGuuiiddeelliinneess ffoorr GGaarrmmeennttss EExxppoorrtt BBuussiinneessssIn order to enter into the export business of garments, following basic guidelines canprovide help to any new comer in this business:

a) Ensure best quality at all costs. This is a basic key for a successful exporter inthe garment exports.

b) Commitments with buyers regarding quality, price and shipment are basicessentials to enter and grow in the export business. Pakistan has lost much businessand goodwill due to this factor alone. Therefore, for any newcomer, commitmentswith the buyers should be met very seriously.

c) Initially, it is recommended that a new exporter should avoid to deal inexpensive 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 wherenewcomers can get share of the cheap quotas at the time of auction. Buyingexpensive 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 newexporters2.

d) Sourcing of export orders, through several apparel buying houses based inPakistan, can be a good startup point of marketing efforts. The prices offered bythese 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 theiroverseas offices and warehouses in the potential markets. Overseas office cannotonly assist in sales, but also keep the garment factory continuously informed aboutthe latest design changes, buyers' requirements and market trends. Warehouses ofsupplier(s) in the customer's country make it convenient for the customer to makethe purchase decisions effectively as in this case customer gets the required productson LDP (Landed Duty Paid) basis and without any hassle of being involved inshipment and import procedures.

f) The professional marketing staff and owner(s) should regularly visitinternational clothing fairs, shows and exhibitions. Such events provide verypromising opportunities to penetrate in the international markets, meeting newcustomers and negotiating orders

4.

g) In order to be successful in the market, it is very important to be active andquick in response to the customers. Being flexible with buyers regarding theirrequests and requirements can help to develop mutual understandings with them.Many buyers themselves guide the manufacturer in correct designing, fabric andaccessories selection and procurement, improvements in production and qualitycontrol etc.

h) Regular subscriptions with local and foreign textile trade and fashionmagazines will ensure the flow of latest marketing and trade information to theexporter.

33..22 TToottaall MMaarrkkeett SSiizzee aanndd GGrroowwtthhTotal 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 totalvalue of $7.4 billion. USA is a rapidly growing market with annual growth rates of10% 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 grownby only 1%.

Japan is the third largest importer with total imports of $3.8 billion. Other majorimporters 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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TTaabbllee:: 33--11 IInntteerrnnaattiioonnaall MMaarrkkeett SSttaattiissttiiccss

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 marketsfor T-shirts.

44 RRAAWW MMAATTEERRIIAALLThe 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 indifferent ratios)

Buttons Threads Labels Zippers

Packing material


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55 HHUUMMAANN RREESSOOUURRCCEE RREEQQUUIIRREEMMEENNTTSSFor a garment-stitching unit of 52 stitching machines, following manpower isrequired:

TTaabbllee:: 55--11 HHuummaann RReessoouurrcceess RReeqquuiirreemmeennttss

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 96,000Rowing 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 6,000 216,000Rafo 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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66 MMAACCHHIINNEERRYY DDEETTAAIILLSS66..11 MMaacchhiinneerryy LLiissttFollowing combination of stitching machines is required for manufacturing 2,000knitted Polo T-shirts per day. Approx. prices for Japanese origin machinery as givenbelow:

TTaabbllee:: 66--11 SSttiittcchhiinngg MMaacchhiinneerryy RReeqquuiirreedd

Stitching Machinery6MachinesRequired

Cost /Machine

(Rs.)

Total Cost(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) 4 105,000 420,000Flat 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

TTaabbllee:: 66--22 OOtthheerr EEqquuiippmmeenntt

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

TTaabbllee:: 66--33 TToottaall CCoosstt ooffMMaacchhiinneerryy && OOtthheerr EEqquuiippmmeenntt

Main Machinery Cost 5,001,000

Other Equipment 380,000

Total 5,381,000

66..22 OOtthheerr OOppttiioonnss AAvvaaiillaabbllee ffoorr MMaacchhiinneerryyGarments stitching machinery is available in quite a diversified range of suppliersorigins 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 andJapanese machinery is 2 to 3 times more expensive as compared to Chinese or FarEastern machinery. Second hand machinery of different origins is also availablefrom the local market.

77

LLAANNDD && BBUUIILLDDIINNGG

77..11 TToottaall LLaanndd RReeqquuiirreemmeennttFor 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:

77..22 CCoovveerreedd AArreeaa RReeqquuiirreemmeennttThe split of different sections and accordingly covered area requirements are asfollows:

TT

aa

bb

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77

--11

CC

oo

vv

eerreedd

AA

rreeaa

rreeqq

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iirreemm

eenn

tt

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

TTaabbllee:: 77--22 CCoonnssttrruuccttiioonn CCoosstt

Land & Building ConstructionCost

Cost per unit (Rs./sq. ft.) 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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77..33 RReeccoommmmeennddeedd MMooddeeIt is recommended that this project should be started in a rented building. This willreduce the initial capital cost of the project. An appropriate shed is normallyavailable in many commercial/industrial areas of under mentioned clusters.

TTaabbllee:: 77--33 RReenntt CCoosstt

Rent costMonthly rent

(Rs.)Annual rent

(Rs.)

Building rent cost (@ Rs.10,000 per 4,500 sq. ft) 30,000 360,000

77..44 SSuuiittaabbllee LLooccaattiioonnssThe clusters of garments stitching industry exist predominantly in Lahore, Karachiand Faisalabad. Most of the garment manufactures are based in these major cities, soit is recommended that such unit should be started in these areas. However, the basiccriterion for the selection of location within these clusters should be the accessibility

of skilled manpower.

77..55 UUttiilliittiieess RReeqquuiirreemmeennttss Electricity Telephone Fax


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88 PPRROOJJEECCTT CCOOSSTTSS88..11 PPrroojjeecctt CCoossttssTTaabbllee:: 88--11 PPrroojjeecctt CCoosstt//CCaappiittaall RReeqquuiirreemmeennttss

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 15,900Pre-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 PlanEquity 50% 3,753,650

Debt 50% 3,753,650

Debt BreakupLong-term loan 3,055,350

Running finance 698,300

88..22 EEssttiimmaatteedd TTiimmee FFrraammee ffoorr PPrroojjeecctt CCoommpplleettiioonn 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 trialrun.

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

99 KKEEYY SSUUCCCCEESSSS FFAACCTTOORRSSThe total commercial viability of this proposed stitching unit depends on the regularsupply of export orders, i.e. at least 300 days per year production. This requires veryaggressive marketing efforts at the entrepreneur's end and the concernedmanagement team.

Following are other key points that can be taken as the key success factors for anyexport 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.

1100 TTHHRREEAATTSS FFOORR TTHHEE BBUUSSIINNEESSSSQuota factor (price and availability) plays a major role in defining the trends ofexports of knitted products from Pakistan, and directly affects the exports of knittedgarments.

The labor force at the lowest level i.e. skilled/semi skilled manpower, machineoperators are quite unorganized. Their job behavior and seriousness about thecompletion of any assigned job is sometimes quite unpredictable.

Stitching expertise is not available at the very best possible level. This restricts theindustry only to the production of basic garments and it cannot enter in theproduction of high quality or fashion garments.

In case of CMT based unit, the requirement of credit and/or delay of payments fromcustomer 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.

1111 RREEGGUULLAATTIIOONNSSBeing the export-based unit, tax exemptions are available on earnings and profits.Also, government offers re-finance facilities, incentives in terms of rebates, and dutyfree machinery imports.


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Pre-Feasibility Study Garme


13

1122..22 CCaasshhffllooww SSttaatteemmeennttPROJECTED CASH FLOW STATEMENT

Year 0 Year 1 Year 2 Year 3

Operating activities

Net profit 3,549,606 7,248,298 10,088,641

Amortization (Pre-operational Expenses) 36,100 36,100 36,100

Depreciation 644,800 644,800 644,800

Accounts receivable (2,345,026) (11,115,000) (1,323,000)

Equipment Spare Parts Inventory (15,900) (1,590) (1,749) (1,924)

Up-Front Insurnace payment (322,400) 32,240 32,240 32,240

Stocks-RM 0 (2,932,800) (146,640) (153,972)

Accounts payable 38,500 6,120,380 307,944

Cash provided by operations (338,300) (978,170) 2,818,429 9,630,829

Financing acivities

Long term debt principal repayment (444,277) (515,361) (597,819)

Add: buliding rent expense 360,000 378,000 396,900

Building rent payment (360,000) (378,000) (396,900) (416,745)

Addition to long term debt 3,055,350

Addition to running finance 698,300 5,226,676 5,129,669 1,158,557

Issuance of share 3,753,650

Cash provided by/ (used for) financing activities 7,147,300 4,764,400 4,595,408 540,893

Total 6,809,000 3,786,230 7,413,838 10,171,722

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 10,171,722Cash balance brought forward 0 0 3,786,230 7,413,838

Cash carried forward 0 3,786,230 11,200,067 17,585,560


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Pre-Feasibility Study Garme


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1122..33 BBaallaannccee SShheeeettPROJECTED BALANCE SHEET

Year 0 Year 1 Year 2 Year 3

Current Assets

Cash 0 3,786,230 11,200,067 21,371,789

Equipment Spare Parts Inventory 15,900 17,490 19,239 21,163

Up-Front Insurnace payment 322,400 290,160 257,920 225,680

Stocks and Inventory 0 2,932,800 3,079,440 3,233,412

Receivable 0 2,345,026 13,460,026 14,783,026

Pre-paid building rent 360,000 378,000 396,900 416,745

Total 698,300 9,749,706 28,413,593 40,051,815

Gross Fixed Assets 6,448,000 6,448,000 6,448,000 6,448,000

Less: Accumulated depreciation 0 644,800 1,289,600 1,934,400

Net Fixed Assets 6,448,000 5,803,200 5,158,400 4,513,600

Intangible Assets

Pre-operational Expenses 361,000 324,900 288,800 252,700Total 361,000 324,900 288,800 252,700

Total Assets 7,507,300 15,877,806 33,860,793 44,818,115

Current Liabilities

Running Finance 698,300 5,924,976 11,054,645 12,213,202

Accounts payable 38,500 6,158,880 6,466,824

Total 698,300 5,963,476 17,213,525 18,680,026

Long-term liabilities

Long-term Loan 3,055,350 2,611,073 2,095,713 1,497,894

Total 3,055,350 2,611,073 2,095,713 1,497,894

Equity

Paid-up Capital 3,753,650 3,753,650 3,753,650 3,753,650Retained Earnings 0 3,549,606 10,797,905 20,886,545

Total 3,753,650 7,303,256 14,551,555 24,640,195

Total Liabilities And Equity 7,507,300 15,877,806 33,860,793 44,818,115


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PREF-03/March, 2001/

15

1122..44 AAssssuummppttiioonnssTTaabbllee 112211 PPrroodduuccttiioonn AAssssuummppttiioonnss

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

TTaabbllee 112222 OOppeerraattiinngg AAssssuummppttiioonnss

Hours operational per day 10

Days operational per month 25

Days operational per year 300Maximum capacity utilization 100%

TTaabbllee 112233 EEccoonnoommyy--RReellaatteedd AAssssuummppttiioonnss

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$

TTaabbllee 112244 CCaasshh FFllooww AAssssuummppttiioonnss

Accounts Receivable cycle (in days) 45Accounts payable cycle (in days) 30

Raw material inventory (in days) 15

Equipment spare part inventory (in days) 7

TTaabbllee 112255 RReevveennuuee AAssssuummppttiioonnss

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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PREF-03/March, 2001/

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TTaabbllee 112266 EExxppeennssee AAssssuummppttiioonnss

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

TTaabbllee 112277 FFiinnaanncciiaall AAssssuummppttiioonnss

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 forNPV)

17%

smeda polo t-shirts stitching unit (1)

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