Pre-Feasibility Study

Absorbent Cotton

Small and Medium Enterprises Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
th
6 Floor LDA Plaza Egerton Road, Lahore
Tel (042)111 111 456,
Fax: 6304926-7
helpdesk@smeda.org.pk

REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

PUNJAB SINDH KHYBER PAKTUNKHWA BALOCHISTAN

8th Floor LDA Plaza, 5TH Floor, Bahria Complex II, M.T. Ground Floor
Bungalow No. 15-A Chamn Housing
Egerton Road, Khan Road, State Life Building The Mall,
Scheme Airport Road, Quetta.
Lahore. Karachi. Peshawar.
Tel: (081) 2831623, 2831702
Tel: (042) 111 111 456, Tel: (021) 111-111-456 Tel: (091)111 111 456, 9213046-7
Fax: (081) 2831922
Fax: (042) 36370474 Fax: (021) 5610572 Fax: (091) 286908
helpdesk.balochistan@smeda.org.pk
helpdesk.punjab@smeda.org.pk helpdesk.sindh@smeda.org.pk helpdesk.NWFP@smeda.org.pk

September, 2011
Pre-feasibility Study Absorbent Cotton Manufacturing Unit

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. The
prospective user of this memorandum is encouraged to carry out additional diligence and
gather any information he/she feels necessary for making an informed decision.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk

DOCUMENT CONTROL

Document No. PREF-114

Prepared by SMEDA-Punjab

Issue Date September, 2011

Issued by Library Officer

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1 EXECUTIVE SUMMARY
Cotton is a fiber being widely accepted by consumers, not least because many products
consisting of cotton have been made and used by man for a long time. Loose cotton has
been used for a long time by the sanitary and pharmaceutical industry as so-called cotton
wool, cotton wool tips and cotton balls. The raw cotton is processed by series of steps
which render the cotton hydro-phillic in character and free from external impurities
needed to be fit for use in surgical dressings and personal hygiene. With the development
of medical facilities and growing awareness towards personal hygiene, the absorbent
cotton industry registered steady growth rate in past and is picking up pace with the
spread of education and upward economic growth of towns and villages.
Demand for absorbent cotton depends on various factors. The demand of this product is
directly related with the increase in population and expansion of Public Health Services.
The consumption of surgical cotton or cotton wool increases with the increase in
population and number of hospitals, dispensaries, health care centers, nursing homes etc.
Govt. hospitals and big nursing homes are the largest consumers for cotton wool. Cotton
is a highly absorbent fiber and therefore suited very well for absorption of body fluids
such as urine, blood and other fluids. It is used for bandages and wound dressings,
absorbent pads (demake-up), tampons, sponges, swabs. Cotton also offers the positive
property of being a naturally breathing fiber, i.e. it largely prevents the passage of fluids,
but lets gas and water vapor pass. With this property cotton is also predestined for
surgical gowns and drapes.
Government of Pakistan primarily has made majority of investment in health sector by
setting up hospitals, health centers in different areas of Pakistan, but these facilities are
not up to standard and are very less in numbers as compared to population. Generally,
Health care in Pakistan is government sponsored, but over the years private health care
providers have become more common due to the tremendous increase in population.
With the increase in population the demand of surgical cotton is also increasing.
Currently most of the surgical cotton manufacturing units are in Lahore, Karachi and
Okara.
The total estimated cost of the project is Rs.37.525 million. The project shall be financed
through equity contribution of 50% by Equity Contributor-Private Investor and 50% by
Bank Loan. The project will be run by qualified professionals. In the total estimated cost,
a sum of Rs. 5.709 million is required as working capital. Projected IRR, NPV and
Payback of the proposed project are 32%, Rs. 38.722 million and 4.27 years respectively.

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2 INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was established
with the objective to provide fresh impetus to the economy through the launch of an
aggressive SME support program.
Since its inception in October 1998, SMEDA had adopted a sectoral SME development
approach. A few priority sectors were selected on the criterion of SME presence. In depth
research was conducted and comprehensive development plans were formulated after
identification of impediments and retardants. The all-encompassing sectoral development
strategy involved recommending changes in the regulatory environment by taking into
consideration other important aspects including finance, marketing, technology and
human resource development.
SMEDA has so far successfully formulated strategies for industries such as horticulture,
including export of fruits and vegetables, marble and granite, gems and jewellery, marine
fisheries, leather and footwear, textiles, surgical instruments, transport, dairy etc.
Whereas the task of SME development at a broader scale still requires more coverage and
enhanced reach in terms of SMEDA’s areas of operation.
Along with the sectoral focus a broad spectrum of business development services is also
offered to the SMEs by SMEDA. These services include identification of viable business
opportunities for potential SME investors. In order to facilitate these investors, SMEDA
provides business guidance through its help desk services as well as development of
project specific documents. These documents consist of information required to make
well-researched investment decisions. Pre-feasibility studies and business plan
development are some of the services provided to enhance the capacity of individual
SMEs to exploit viable business opportunities in a better way.
This document is in the continuation of this effort to enable potential investors to make
well-informed investment decisions.

3 PURPOSE OF THE DOCUMENT

The objective of this proposed Pre-feasibility is primarily to facilitate potential
entrepreneurs with the investment information and provide an overview about the
"Absorbent Cotton Business". The project pre-feasibility may form the basis of an
important investment decision and in order to serve this objective, the document/study
covers various aspects of project concept development, start-up, and marketing, finance
and business management. The document also provides sectoral information and
international scenario, which have some bearing on the project itself.
The purpose of this document is to facilitate potential investors of the Absorbent Cotton
business by providing them a macro and micro view of the business with the hope that
the information provided herein will aid the potential investors in crucial investment
decisions.
This particular Pre-feasibility is regarding setting up "Absorbent Cotton". Our report is
based on the information obtained by us from industry sources as well as our discussions
with businessmen. For financial model, since the forecast/projections relate to the future

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periods, actual results are likely to differ because of the events and circumstances that
don’t occur as frequently as expected.

4 PROJECT INTRODUCTION
Absorbent Cotton also known as Surgical Cotton or Cotton Wool is mainly used for
medical purposes in hospitals, nursing homes, dispensaries etc. Because of high fluid
absorbency power, it is better known as absorbent cotton.
The absorbent cotton should be chemically inert and soft to give maximum protection
and should not cause irritation. These properties can be achieved by manufacturing the
product as per standard method of manufacture. The raw cotton is processed by series of
steps which render the cotton hydro-phillic in character and free from external impurities
needed to be fit for use in surgical dressings and personal hygiene. Absorbent Cotton is
also used for making conventional type of Sanitary napkins or pads besides medical
purposes. And fairly good quality of cotton wool is consumed in beauty parlours for
removing make up and dirt etc.
With the development of medical facilities and growing awareness towards personal
hygiene, the absorbent cotton industry registered steady growth rate in past and is picking
up pace with the spread of education and upward economic growth of towns and villages.
It is important to note that this unit should initially cater to the local market and finally
export absorbent cotton because the demand in the export market is increasing at a higher
rate.
The proposed project could be set up in Karachi, Lahore, Multan, Okara, and Faisalabad.
The project will have a capacity to produce 1,000 kg per day on 8-hour shift and 330
working days per year.
The surgical cotton rolls would be manufactured in the sizes of 100 grams-1000 grams,
depending on the client’s requirement.
The proposed project will be financed through both debt and equity and the ratio would
be 50:50.

5 MARKET/INDUSTRY ANALYSIS
In roughly two generations, from 1947 till 2010-11, the estimated population of Pakistan
has grown from 32.7 million to roughly 187.34 million, which has made Pakistan the
seventh most populous country in the world. This tremendous growth rate of population
has hampered Pakistan’s attempts to become a prosperous country of South East Asia.
More then 17.2% of the population of Pakistan lives below the poverty line. The
government’s inability to provide basic necessities to the majority of population
specially, those living in the rural areas of the country has not helped the cause.

5.1 Health System in Pakistan

The health of 187 million citizens of Pakistan is among the poorest in the world and its
number is growing at the rate of 1.57 per cent per annum. At this rate the population will
double by the year 2027. Health is not only related to availability of health services to a

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community but also to better hygienic atmosphere, which include clean drinking water,
adequate dietary intake etc.
Government of Pakistan primarily did majority of investment in health sector by setting
up hospitals, health centers in different areas of Pakistan, but these facilities are not up to
standard and are very less in numbers as compared to population. Generally, Health care
in Pakistan is government sponsored, but over the years private health care providers
have become more common due to the tremendous increase in population.
Pakistan has made great strides in reducing mortality rates due to the increasing
investment in health care by the private sector. It is, however, a constant struggle to meet
the health care needs of the rapidly expanding population. The total allocation for health
sector in the federal budget 2010-11 was Rs 17.0 billion
Table 5-1: Distribution of Hospitals Province Wise1 in 2008.
Description Numbers
Punjab 306
Sindh 330
Khyber Pakhtunkhwa 202
Balochistan 98
Federal 12
Total 948

Table 5-2: Details of Dispensaries Province Wise2 in 2008

Description Numbers
Punjab 1,496
Sindh 2,096
Khyber Pakhtunkhwa 562
Balochistan 564
Federal 76
Total 4,794

5.2 Target Market

5.2.1 Local Market

Demand for absorbent cotton depends on various factors. The demand of this product is
directly related with the increase in population and expansion of Public Health Services.
The consumption of surgical cotton or cotton wool increases with the increase in
population and number of hospitals, dispensaries, health care centers, nursing homes etc.
Progressive increase in health amenities offered by government and coming up of new
hospitals and health care centers in private sector even at small towns are contributing to

1
Pakistan Statistical Year Book 2009
2
Pakistan Statistical Year Book 2009

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the growth of absorbent cotton industry. Govt. hospitals and big nursing homes are the
largest consumers for cotton wool. Absorbent Cotton is used for surgical and cosmetic
application.

5.2.2 Export Market

Absorbent cotton has good export market potential. Presently it is being exported to the
countries like Netherlands, Italy and several European countries. The export of surgical
cotton can be done provided it is made according to standards and specifications of
international market.

Table 5-3: Exports from Pakistan

Dressing, Wadding, gauze, bandages and similar articles other articles having an
adhesive layer (Quantity in ‘000 kgs)
Period HS Code Trade Value Net Weight (kg)
2005 3005 $9,268,935 3,548,651
2006 3005 $14,987,655 5,788,295
2007 3005 $36,250,728 10,384,559
2008 3005 $25,881,974 8,401,878
2009 3005 $25,597,851 10,465,491

Table 5-4: Major Export Markets in 2009

Period HS Code Total Export ($) Country Amount in $ %age
Netherlands 7,016,227 27.41 %
Italy 4,319,358 16.87 %
Germany 3,251,016 12.70 %
UK 1,967,829 7.69 %
France 1,941,976 7.59 %
Spain 930,700 3.64 %
2009 3005 25,597,851
Poland 636,841 2.49 %
Sri Lanka 582,361 2.28 %
Ireland 515,498 2.01 %
Thailand 458,118 1.79 %
Tunisia 380,619 1.49 %
Uganda 379,957 1.48 %

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Table 5-5: Major Export Markets in year 2008

Period HS Code Total Export ($) Country Amount in $ %age
Italy 5,598,959 21.63 %
Netherlands 5,233,462 20.22 %
Saudi Arabia 1,835,559 7.09 %
Germany 1,763,292 6.81 %
UK 1,622,369 6.27 %
USA 1,555,999 6.01 %
2008 3005 25,881,974
France 1,343,294 5.19 %
Sri Lanka 898,297 3.47 %
Spain 753,851 2.91 %
Ireland 720,029 2.78 %
Belgium 580,441 2.24 %
South Africa 502,250 1.94 %

5.2.3 Industrial Market

The industrial market comprise of those institutions, which buys surgical cotton in bulk,
like provincial health departments and other government agencies related to health like
population planning etc.
Another substantial industrial market for surgical cotton is hospitals in both public and
private sector. This particular market segment has shown an impressive growth in the last
one decade.

5.2.4 Consumer Market

Consumer market or open market consists of individual users of surgical cotton, and this
segment buys surgical cotton from medical stores, pharmacies, and departmental stores.

5.3 Market Demand

As drugs and medicines have a direct relationship with the demand of surgical cotton, so
with the increase in the population the demand for surgical cotton has also increased by
approximately the same proportion.

6 PRODUCTION & PRODUCT OFFER

6.1 Current Product Mix
Supply such absorbent products as cotton wool and cotton balls, zigzag cotton wool,
cotton buds and cotton pads
6.2 Proposed Product Mix
The proposed product mix of the surgical cotton manufacturing unit will be as follows:

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Table 6-1: Product Mix

Percentage of Total Total Production Capacity
Description
Production in Rolls (per day)
500 grams 60% 1,047
350 grams 20% 499
250 grams 20% 698

6.3 Cotton-Raw Material

Cotton is a highly absorbent fiber and therefore suited very well for absorption of body
fluids such as urine, blood and other fluids. It is used for bandages and wound dressings,
absorbent pads (demake-up), tampons, sponges, swabs.
Cotton also offers the positive property of being a naturally breathing fiber, i.e. it largely
prevents the passage of fluids, but lets gas and water vapor pass. With this property
cotton is also predestined for surgical gowns and drapes.
The quick water absorption by cotton is caused by the structural network of micro fibrils;
this makes cotton particularly interesting for applications where liquids have to be
removed from surfaces (wipes). Moreover, cotton offers an excellent resistance to heat as
well as dimensional stability and strength even at temperatures of up to 175°C. It is also
speaking in favor of cotton that this fiber has renewable resources and is bio-degradable.
In the past, the use of cotton for the medical industry often failed because of the higher
price as compared to viscose, for example. The price of cotton varies depending on
quality and crop yield as it is a natural fiber.
It can however be observed already that, in the long term, the market share of cotton will
rise because of its many advantages.
In summary, cotton is characterized by the following excellent properties
- Good absorbency of liquids
- bio-degradable
- breathable
- drape
- easily sterilized
- heat-resisting
- high wet strength
- insulating properties
- non allergenic
- non-irritant
- renewable resources
- softness
- water retaining capacity
Usually cotton with a staple length of 7-25 mm is used for non woven products,
depending on the web forming process used and the intended application. The titer ranges
from about 1.2 to1.8 denier. Where mainly volume and absorbency of the products are

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required, linters and comber noils are used. In most cases bleached cotton is employed
which provides the fiber with good absorbency, but makes it more difficult to handle on a
card because the fibers can break and naps can form.
6.4 Raw Material
Cotton is regarded as the most important cash crop of Pakistan. The lint is used for the
production of textile and stuffing material. Cotton produces raw material not only to the
ginning factories and rapidly expending textile industry, but also the oil mills, which
provides edible oil and oil cakes for milk animals as feed. Cotton the silver fiber held for
the unique quality of its fiber viz: Strength, durability, ease of dyeing, color retaining
properties and suitability for the manufacture of textile fabrics. The fiber is obtaining
from the thick growth of wooly seed hair. The longer fiber known as lint is used for
making house hold fabrics and the shorter fibers called linters are used for making pad
and sterile absorbent surgical cotton.
Table 6-2: Raw Material Requirement
Mix
Dessi 15%
Comber Noil 50%
Delenter 35%
Chemicals
Caustic Soda
Soda Ash
Detergent
Opticle Brightner
Hydrogen Peroxide
Acitic Acid-Formacide
Packing Paper, labels, gum, PE sheets,
sacks etc

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6.5 Process Flow for the Product

Production Process-Flow Sheet For
Absorbent Cotton Wool - BPC

Raw Cotton

Q.C. LAB for Testing Before Processing

Villow Treatment of Cotton

De – Sizing

Cooking Chemical Treatment of Cotton (90 – 950C)

Hydro - Extraction

Opener

Drying

Lapping

Carding

Rolling & Paper Pasting

Cutting

Weighing & Labeling

Packing

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Raw cotton received in bale or otherwise is opened in opener where it is loosened and
dust and other foreign particles are removed.
Loosen cotton is then loaded into a kier and chemicals, such as caustic soda, soda ash,
detergent etc., are added along with adequate water and steam boiled for about 3-4 hours.
By this process most of the natural waxes and oils are removed while remaining foreign
matter get soften and disintegrate. The treated cotton is transferred to washing tanks
where it is washed thoroughly.
Washed cotton is bleached to remove radish brown colour developed due to chemical
treatment. For this purpose, bleaching agent such as sodium hypo-chloride or hydrogen
peroxide are used. The bleaching process improves whiteness assisting in disintegration
of any remaining foreign matters.
The bleached cotton is thoroughly washed again to remove the chemicals. A little
quantity of dilute hydro-chloride acid or sulphuric acid is also added to neutralize excess
alkali. The water of cotton is removed with the help of hydro-extractor which is then sent
to a wet cotton opening machine. The cotton so obtained is dried by passing through
dryer or alternatively subjected to sun drying where provision for dryer is not made.
Dried cotton is sent to blow room where it is thoroughly opened and made into laps. The
laps are then fed into carding machine wherein cotton is wrapped around rollers in thin
layers. Cotton so obtained is compressed and rolled into rolls along with papers.
The rolls are then weighed and cut according to weight & sizes and labeled properly
before packing in polythene sheets and heat sealed.

6.6 Quality Control and Standard

Surgical cotton or absorbent cotton is covered under Drug Control Act 1976; hence it
should be manufactured to meet its requirements.

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7 TECHNOLOGY
Table 7-1: Machinery Details
Price per Unit Total Cost
Description Capacity Quantity
(in Rs.) (in Rs.)
Raw Cotton
Carding Section
Willow Machinery 1,000 Kgs 2 180,000 360,000
Carding Machine 1,000 Kgs 3 300,000 900,000
Weighting Scale 1-600 kgs 1 300,000 300,000
Cooking Section
Kier 1,000 Kgs 1 1,200,000 1,200,000
Kier Pumps As per required 1 56,000 56,000
Washing Section
Washing Tanks As per required 3 15,000 45,000
Crane System 1-2 tons 1 800,000 800,000
Hydro extractor 300 Liters 3 100,000 300,000
Tube Well As per required 1 65,000 65,000
Drying Section
1,000 Kgs. Per 8
Hot air oven 1 1,200,000 1,200,000
hours
Boiler 1 900,000 900,000
Carding Section
100 Kgs. Per
Blow Machine 1 30,000 30,000
hours/Machine
Weight Balance 0-5 kgs 1 35,000 35,000
Rolling Section
Rolling Machine As per required 1 120,000 120,000
Rolling Rods As per required 1 50,000 50,000
Cutting Section
Cutter (Saw) As per required 1 7,000 7,000
Cutter Round As per required 1 22,000 22,000
Cutting Table As per required 1 35,000 35,000
Transformer (200
1 500,000 500,000
KVA)
Generator (220
1 1,740,000 1,740,000
KVA)
TOTAL 8,665,000

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7.1 Machinery Recommendations

Mostly machinery used for surgical cotton manufacturing unit is available locally, but
some of the machinery can be second hand imported machinery from Europe. It is
recommended that local machinery can be used to manufacture absorbent cotton, as the
quality of the finished product would not be affected by using local machinery. Apart
from this the project cost would not be high.
7.2 Area Required For Proposed Unit
Total area required is 01 Acre (4,000 sq. yards) and the price of the land is approximately
Rs. 2.0 million. Following area is required for a surgical cotton manufacturing unit
having a capacity of 1,000 kgs:
Table 7-2: Area Required
Amount
Description Area (in Sq. ft) Rate (in Rs.)
(in Rs.)
Management building 500 1,200 600,000
Raw Cotton Carding Section 2,000 1,000 2,000,000
Cooking Section 2,500 1,000 2,500,000
Washing Section 2,500 1,000 2,500,000
Drying Section 2,500 1,000 2,500,000
Carding Section 2,000 1,000 2,000,000
Rolling Section 2,000 1,000 2,000,000
Cutting Section 1,000 1,000 1,000,000
Store 1,500 500 750,000
Washrooms 500 850 425,000
Pavement/driveway 1,000 350 350,000
Total 18,000 16,625,000
7.3 Utilities Required For Unit and Costs Involved
• Electricity
• Water
• Gas
7.4 Office Equipment and Furniture
Detail of office equipment and furniture requirement is given below.
Table 7-3: Office Equipment
Per unit Cost in Total Cost
Office Equipment & Furniture Units
Rs. in Rs.
Computers + UPS 5 45,000 225,000
Computer printer (s) 1 20,000 20,000
Telephones 4 1000 4,000
Fax machines 1 25,000 25,000
Total Office Equipment 274,000

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Table 7-4: Furniture & Fixture Details

Per unit Cost in Total Cost
Furniture & Fixture Units
Rs. in Rs.
Eclectic Wiring and Lighting 1 200,000 200,000
Air Conditioners 1.5 ton (Split) 3 45,000 135,000
Furniture Set for Office and
1 400,000 400,000
Factory
Total Furniture & Fixture 735,000

8 HUMAN RESOURCE REQUIREMENT

Table 8-1: Requirement of Technical Staff
No. of
Salary per Salary per
Description Employees per
Month (in Rs.) Annum (in Rs.)
Shift
CEO 1 60,000 720,000
Operations manager 1 40,000 480,000
Technologist 1 25,000 300,000
Accountant 1 15,000 180,000
Purchase Officer &
1 20,000 240,000
Supervisor
Marketing Executive 1 40,000 480,000
Sales person 2 12,000 288,000
Carding Master 1 10,000 120,000
Chamber Master 1 10,000 120,000
Willow Master 1 10,000 120,000
Cutting Master 1 10,000 120,000
Rolling Master 1 10,000 120,000
Kier/ Boiler Operator 1 10,000 120,000
Worker (Carding Section) 2 7,000 168,000
Worker (Cooking Section) 2 7,000 168,000
Worker (Washing Section) 3 7,000 252,000
Worker (Drying Section) 2 7,000 168,000
Worker (Blow room Section) 3 7,000 252,000
Worker (Rolling Section) 3 7,000 252,000
Worker (Cutting Section) 2 7,000 168,000
Worker (Packing Section) 3 7,000 252,000
Janitorial Staff 3 7,000 252,000
Security Guard 2 8,500 204,000
TOTAL 37 5,544,000

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9 FINANCIAL ANALYSIS
9.1 Project Costs
Total project cost for the Surgical Cotton Manufacturing Unit of Capacity 1,000 kgs per
day is estimated to be around Rs. 37.525 million. It includes capital expenditure as well
as working capital required for setting up the project.
Table 9-1: Project Cost Details
Capital Investment Rs. in actuals
Land 2,000,000
Building/Infrastructure 16,625,000
Machinery & equipment 8,665,000
Furniture & fixtures 735,000
Office vehicles 1,492,400
Office equipment 274,000
Pre-operating costs 2,024,906
Total Capital Costs 31,816,305

Working Capital Rs. in actuals

Equipment spare part inventory 67,183
Raw material inventory 4,735,500
Upfront insurance payment 406,296
Cash 500,000
Total Working Capital 5,708,979

Total Investment 37,525,284

9.2 Capital Structure

The proposed financing plan of the project is as follows:
Table 9-2: Capital Structure Details
Initial Financing Rs. in actuals
Debt 50% 18,762,642
Equity 50% 18,762,642

9.3 Project Returns

The projected returns of the project are as follows
Table 9-3: Project Returns
Equity Project
Internal Rate of Return (IRR) 43% 32%
Payback Period (yrs) 4.05 4.27
Net Present Value (NPV) 26,706,371 38,721,651

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9.4 Projected Income Statement

Calculations SMEDA
Income Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 45,492,150 62,076,630 76,819,830 89,196,358 98,115,994 107,927,593 118,720,352 130,592,387 143,651,626 158,016,789
Cost of sales
Cost of goods sold 28,413,000 34,095,600 40,275,428 44,638,599 46,870,529 49,214,055 51,674,758 54,258,496 56,971,421 59,819,992
Operation costs 1 (direct labor) 2,303,400 2,527,662 2,773,759 3,043,816 3,340,166 3,665,370 4,022,235 4,413,846 4,843,584 5,315,162
Operating costs 2 (machinery maintenance) 403,095 483,714 571,387 633,287 664,952 698,199 733,109 769,765 808,253 848,666
Operating costs 3 (direct electricity) 4,762,523 5,987,172 7,409,125 8,602,818 9,463,099 10,409,409 11,450,350 12,595,385 13,854,924 15,240,416
Operating costs 5 (direct gas) 586,320 737,088 912,146 1,059,103 1,165,014 1,281,515 1,409,667 1,550,633 1,705,696 1,876,266
Total cost of sales 36,468,338 43,831,236 51,941,845 57,977,623 61,503,760 65,268,549 69,290,119 73,588,125 78,183,878 83,100,502
Gross Profit 9,023,812 18,245,394 24,877,984 31,218,734 36,612,234 42,659,044 49,430,233 57,004,262 65,467,748 74,916,287
General administration & selling expenses
Administration expense 2,904,000 3,186,738 3,497,003 3,837,476 4,211,098 4,621,096 5,071,013 5,564,734 6,106,524 6,701,064
Electricity expense 725,205 797,726 877,498 965,248 1,061,773 1,167,950 1,284,745 1,413,220 1,554,542 1,709,996
Travelling expense 145,200 159,337 174,850 191,874 210,555 231,055 253,551 278,237 305,326 335,053
Communications expense (phone, fax, mail, internet, etc.) 203,280 223,072 244,790 268,623 294,777 323,477 354,971 389,531 427,457 469,074
Office vehicles running expense 74,620 82,082 90,290 99,319 109,251 120,176 132,194 145,413 159,955 175,950
Office expenses (stationary, entertainment, janitorial services, etc.) 145,200 159,337 174,850 191,874 210,555 231,055 253,551 278,237 305,326 335,053
Promotional expense 454,922 620,766 768,198 891,964 981,160 1,079,276 1,187,204 1,305,924 1,436,516 1,580,168
Insurance expense 406,296 365,666 325,037 284,407 243,778 203,148 162,518 121,889 81,259 40,630
Professional fees (legal, audit, consultants, etc.) 45,492 62,077 76,820 89,196 98,116 107,928 118,720 130,592 143,652 158,017
Depreciation expense 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890
Amortization of pre-operating costs 404,981 404,981 404,981 404,981 404,981 - - - - -
Subtotal 7,457,086 8,009,671 8,582,208 9,172,852 9,773,933 10,033,051 10,766,356 11,575,667 12,468,447 13,452,895
Operating Income 1,566,726 10,235,723 16,295,777 22,045,882 26,838,300 32,625,993 38,663,876 45,428,596 52,999,301 61,463,392

Earnings Before Interest & Taxes 1,566,726 10,235,723 16,295,777 22,045,882 26,838,300 32,625,993 38,663,876 45,428,596 52,999,301 61,463,392

Interest on short term debt 469,182 559,776 90,594 - - - - - - -

Interest expense on long term debt (Project Loan) 2,457,454 2,077,377 1,634,056 1,116,966 513,832 - - - - -
Interest expense on long term debt (Working Capital Loan) 427,861 358,070 276,255 180,347 67,916 - - - - -
Subtotal 3,354,497 2,995,223 2,000,905 1,297,313 581,748 - - - - -
Earnings Before Tax (1,787,771) 7,240,500 14,294,871 20,748,569 26,256,552 32,625,993 38,663,876 45,428,596 52,999,301 61,463,392

Tax - 1,810,125 3,573,718 5,187,142 6,564,138 8,156,498 9,665,969 11,357,149 13,249,825 15,365,848
NET PROFIT/(LOSS) AFTER TAX (1,787,771) 5,430,375 10,721,154 15,561,427 19,692,414 24,469,495 28,997,907 34,071,447 39,749,476 46,097,544

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9.5 Projected Cash flow Statement

Calculations SMEDA
Cash Flow Statement

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating activities
Net profit (1,787,771) 5,430,375 10,721,154 15,561,427 19,692,414 24,469,495 28,997,907 34,071,447 39,749,476 46,097,544
Add: depreciation expense 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890
amortization of pre-operating costs 404,981 404,981 404,981 404,981 404,981 - - - - -
Deferred income tax - 1,604,688 37,310 37,310 37,310 (253,935) (253,935) (253,935) (253,935) (253,935)
Accounts receivable (3,739,081) (681,554) (1,287,439) (1,114,509) (875,185) (769,777) (846,754) (931,430) (1,024,573) (1,127,030)
Finished goods inventory (1,741,563) (351,619) (387,326) (288,242) (168,392) (179,789) (192,052) (205,253) (219,472) (234,796)
Equipment inventory (67,183) (17,467) (20,342) (17,193) (12,524) (13,808) (15,223) (16,783) (18,504) (20,400) 219,427
Raw material inventory (4,735,500) (1,231,230) (1,433,880) (1,211,850) (882,777) (973,262) (1,073,021) (1,183,006) (1,304,264) (1,437,951) 15,466,740
Advance insurance premium (406,296) 40,630 40,630 40,630 40,630 40,630 40,630 40,630 40,630 40,630 40,630
Accounts payable 2,865,820 593,214 616,154 437,291 267,178 284,796 303,732 324,095 346,008 (1,051,823)
Cash provided by operations (5,208,979) (3,257,793) 7,534,383 10,864,311 16,131,477 20,359,756 24,451,066 28,797,628 33,670,676 39,127,672 61,104,646

Financing activities
Project Loan - principal repayment (2,284,114) (2,664,190) (3,107,512) (3,624,602) (4,227,735) - - - - -
Working Capital Loan - principal repayment (405,126) (474,918) (556,732) (652,641) (765,072) - - - - -
Short term debt principal repayment - (5,447,033) (1,051,758) - - - - - - -
Additions to Project Loan 15,908,153 - - - - - - - - - -
Additions to Working Capital Loan 2,854,489 - - - - - - - - - -
Issuance of shares 18,762,642 - - - - - - - - - -
Cash provided by / (used for) financing activities 37,525,284 (2,689,240) (8,586,141) (4,716,002) (4,277,243) (4,992,807) - - - - -

Investing activities
Capital expenditure (31,816,305) - - - - - - - - - -
Acquisitions
Cash (used for) / provided by investing activities (31,816,305) - - - - - - - - - -

NET CASH 500,000 (5,947,033) (1,051,758) 6,148,309 11,854,234 15,366,949 24,451,066 28,797,628 33,670,676 39,127,672 61,104,646

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9.6 Projected Balance Sheet

Calculations SMEDA
Balance Sheet

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Assets
Current assets
Cash & Bank 500,000 - - 6,148,309 18,002,543 33,369,492 57,820,557 86,618,185 120,288,861 159,416,533 220,521,179
Accounts receivable 3,739,081 4,420,635 5,708,074 6,822,583 7,697,768 8,467,545 9,314,299 10,245,729 11,270,302 12,397,332
Finished goods inventory 1,741,563 2,093,182 2,480,508 2,768,750 2,937,142 3,116,932 3,308,984 3,514,237 3,733,710 3,968,505
Equipment spare part inventory 67,183 84,650 104,992 122,185 134,709 148,517 163,739 180,523 199,026 219,427 -
Raw material inventory 4,735,500 5,966,730 7,400,610 8,612,460 9,495,237 10,468,499 11,541,520 12,724,525 14,028,789 15,466,740 -
Pre-paid insurance 406,296 365,666 325,037 284,407 243,778 203,148 162,518 121,889 81,259 40,630 -
Total Current Assets 5,708,979 11,897,691 14,344,456 23,355,943 37,467,599 54,824,565 81,272,811 112,268,405 148,357,902 190,147,341 236,887,017

Fixed assets
Land 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
Building/Infrastructure 16,625,000 15,793,750 14,962,500 14,131,250 13,300,000 12,468,750 11,637,500 10,806,250 9,975,000 9,143,750 8,312,500
Machinery & equipment 8,665,000 7,798,500 6,932,000 6,065,500 5,199,000 4,332,500 3,466,000 2,599,500 1,733,000 866,500 -
Furniture & fixtures 735,000 661,500 588,000 514,500 441,000 367,500 294,000 220,500 147,000 73,500 -
Office vehicles 1,492,400 1,343,160 1,193,920 1,044,680 895,440 746,200 596,960 447,720 298,480 149,240 -
Office equipment 274,000 246,600 219,200 191,800 164,400 137,000 109,600 82,200 54,800 27,400 -
Total Fixed Assets 29,791,400 27,843,510 25,895,620 23,947,730 21,999,840 20,051,950 18,104,060 16,156,170 14,208,280 12,260,390 10,312,500

Intangible assets
Pre-operation costs 2,024,906 1,619,924 1,214,943 809,962 404,981 - - - - - -
Legal, licensing, & training costs - - - - - - - - - - -
Total Intangible Assets 2,024,906 1,619,924 1,214,943 809,962 404,981 - - - - - -
TOTAL ASSETS 37,525,284 41,361,125 41,455,019 48,113,635 59,872,420 74,876,515 99,376,871 128,424,575 162,566,182 202,407,731 247,199,516

Liabilities & Shareholders' Equity

Current liabilities
Accounts payable 2,865,820 3,459,034 4,075,188 4,512,479 4,779,657 5,064,453 5,368,185 5,692,280 6,038,288 4,986,465
Short term debt - 5,447,033 1,051,758 - - - - - - - -
Other liabilities
Total Current Liabilities - 8,312,853 4,510,792 4,075,188 4,512,479 4,779,657 5,064,453 5,368,185 5,692,280 6,038,288 4,986,465

Other liabilities
Deferred tax - 1,604,688 1,641,998 1,679,308 1,716,618 1,462,683 1,208,748 954,813 700,878 446,943
Long term debt (Project Loan) 15,908,153 13,624,039 10,959,849 7,852,337 4,227,735 - - - - - -
Long term debt (Working Capital Loan) 2,854,489 2,449,363 1,974,445 1,417,713 765,072 - - - - - -
Total Long Term Liabilities 18,762,642 16,073,402 14,538,982 10,912,048 6,672,115 1,716,618 1,462,683 1,208,748 954,813 700,878 446,943

Shareholders' equity
Paid-up capital 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642
Retained earnings (1,787,771) 3,642,603 14,363,757 29,925,184 49,617,598 74,087,093 103,085,000 137,156,447 176,905,923 223,003,467
Total Equity 18,762,642 16,974,870 22,405,245 33,126,399 48,687,826 68,380,240 92,849,735 121,847,642 155,919,089 195,668,565 241,766,109
TOTAL CAPITAL AND LIABILITIES 37,525,284 41,361,125 41,455,019 48,113,635 59,872,420 74,876,515 99,376,871 128,424,575 162,566,182 202,407,731 247,199,516

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10 KEY ASSUMPTIONS
Table 10-1: Operating Assumptions
Hours operational per day 8
Days operational per year 330
Table 10-2: Production Assumptions
Annual production capacity in Kgs 330,000
Annual production capacity in Rolls after
Wastage at full capacity
500 Gram Roll 410,293
350 Gram Roll 109,412
250 Gram Roll 218,823
Capacity utilization (1st Year) 70%
Capacity growth rate (yearly) 10%
Maximum Capacity utilization 95%
First Year utilized production (Rools)
500 Gram Roll 241,857
350 Gram Roll 115,170
250 Gram Roll 161,238
Table 10-3: Economic Assumptions
Electricity growth rate 10%
Wages growth rate 10%
Machine maintenance growth rate 5%
Table 10-4: Cash Flow Assumptions
Accounts Receivable cycle (in days) 30
Accounts Payable cycle (in days) 30
Raw material inventory (in days) 60
Finished Goods inventory (in days) 15
Table 10-5: Expense Assumptions
Professional fees (audit, legal etc.) 0.1% of Revenue
Office Expenses (stationery, entertainment, etc.) 5% of administrative expenses
Promotional Expenses 1% of revenue
Communication Expenses 5% of administrative expenses

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Table 10-6: Raw Material Assumptions

Wastage Cost per Kg.(in Rs)
Dessi 10% 98
Comber Noil 5% 105
Delenter 25% 38
Chemicals
Caustic Soda
Soda Ash
Detergent
39.25
Opticle Brightner
Hydrogen Peroxide
Acitic Acid-Formacide
Packing Paper, labels, gum, PE
3.25
sheets, sacks etc
Raw Material Cost per Kg in Rs. 123
Table 10-7: Expense Assumptions
Professional fees (audit, legal etc.) 0.1% of Revenue
Office Expenses (stationery, entertainment, etc.) 5% of administrative expenses
Promotional Expenses 1% of revenue
Communication Expenses 7% of administrative expenses
Table 10-8: Depreciation Rates
Depreciation Method Straight Line Method
Building & infrastructure 5%
Machinery & Equipment 10%
Furniture & Fixtures 10%
Table 10-9: Financial Assumptions
Project life (Years) 10
Debt: Equity 50:50
Interest rate on long and short term debt 16%
Table 10-10: Product Sale Price
Size Price (Rs)
500 Gram Roll 110
350 Gram Roll 80
250 Gram Roll 60

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11 ANNEXURE
Table 11-1: Raw Material & Machinery Supplier
Raw Material Suppliers Machinery Suppliers
Noorani Industries
SULTAN TRADING COMPANY
Samundri Road
P-130, Gole Lakkarwala, Faisalabad
Faisalabad, Pakistan
Faisalabad
Tel: 041-8544683
Tel: 041-2643262-2648262
Fax: 041- 8545692
Fax: 041-2647262
Mobile: 0300-8650205
Email: muzammil@fsd.comsats.net.pk
Email: noorani@fsd.comsats.net.pk
Jamil Engineering Works
FABRICHEM TRADING COMPANY
Muhallah Naseerabad, Nishatabad
1419-B Peoples Colony No 1
Opposite Total Petrol Pump
Faisalabad, Pakistan
Sheikhupura Road, Faisalabad.
Tel: 041-8547430,8541344
Tel: (92-41) 8750941
Fax: 041-8555634
Fax: (92-41) 8750741
Mobile: 0300-8654191
Mobile: (92-300) 6692741
Ishaq Engineering Works
Sheikhupura Road,
Under bridge Nishatabad
Faisalabad, Pakistan
Tel: 041-8755818
Fax: 041-8753632
Cell: 0301-7149435
Email: ishaqeng@cyber.net.pk

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