Professional Documents
Culture Documents
June, 2002
Pre-Feasibility Study Fabric Weaving Unit (Auto Looms)
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-39
Revision 1
Prepared by SMEDA-Punjab
Approved by GM Punjab
Issue Date June 15, 2002
Issued by Library Officer
PREF-39/June, 2002/1
Pre-Feasibility Study Fabric Weaving Unit (Auto Looms)
1 INTRODUCTION
1.1 Textile Sector of Pakistan
Pakistan is amongst the leading producers of cotton in the world. To make full use of
its abundant resources, the development of Textile Industry has been a priority area
towards industrialization and export growth. Textile industry is the bulwark of
Pakistan's economy that contributes more than 60% to the total export earnings, 40%
to employment, 33% to stock market capitalization and 8.5% to GDP of the country.
Weaving sector is one of the most important textile sub-sectors. The exports of
woven fabrics and other woven made ups comprise a major portion of textile exports
from Pakistan. Out of total world fabric trade of $18 billion, Pakistan's share was
about $1.10 billion in the year 1999-20001, which highlights the key position of
Pakistan in the world textile trade. Other than direct fabric exports, Pakistan has also
emerged as a leading exporter of woven made-ups with a value of more than $950
million in the year 1999-20002.
1
Source: Federal Bureau of Statistics (FBS)
2
Source: Federal Bureau of Statistics (FBS)
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Pre-Feasibility Study Fabric Weaving Unit (Auto Looms)
The Power Loom sector employees low level of technology and hence has low
productivity and quality. The fabric manufactured on Power Looms is of inferior
quality and is unable to fetch high unit value in the international markets. Also, due
to technical limitations (i.e. shorter width), it does not produce the specifications,
which are required in the international market.
The diversification of the garments/made-ups sector is not possible without
modernization of the non-mill-weaving sector. Installation of the modern looms is
therefore, necessary to upgrade the product quality, reduce production cost,
strengthen the competitiveness and stabilize the operations so as to be more
profitable.
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Pre-Feasibility Study Fabric Weaving Unit (Auto Looms)
Keeping in view the export growth rates of made-ups from Pakistan during the last
few years, post quota years will be having a multiplier effect on the made-ups export
from Pakistan. The Auto Loom sector is the major source of raw material of grey
fabric to be converted into printed fabric and ultimately into bed sheets and pillow
covers. It is expected that demand will increase for this sector in the coming days. If
this sector is equipped with better technology and produce better quality products, it
will certainly fetch better unit values and more value and quantity of exports.
2 INDUSTRY STRUCTURE
2.1 Current Structure of industry
Weaving sector of Pakistan is comprised of both the organized and the unorganized
sectors. The organized sector3 has shuttle-less and Air-Jet looms. Shuttle-less looms
are either the Projectile or Rapier type. The un-organized sector called "Power
Loom" sector has about 225,000 looms. Major known Power Loom clusters are in
Faisalabad, Gujranwala, Gujrat, Multan, Karachi, Kasur and Jhang. However,
Faisalabad is the biggest cluster in Pakistan, having about 125,000 Power Looms.
Power Loom sector in Pakistan is highly fragmented and is based on cottage/small
scale and unorganized manufacturing clusters. Out of 225,000 total looms in this
sector, 90% consists of basic Power Looms units and 10% are equipped with an auto
cop changer, which are called Auto Looms.
3
According to an estimate by Textile Commissioner's Organization, there are 10,200 Projectile,
1,307 Rapier, 600 Water Jet and 4,033 Air Jet looms in the organized mill sector.
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There are a substantial number of units in this sector, which have 50 to 100 looms in
a single premise as one unit.
Historically, Power Looms industry started on a cottage scale in the country. Even in
present days, major chunk of the industry is based on small home-based units.
Mostly, the owners and their family members themselves are managing these units.
However, eventually with the increase in the number of looms, these families have
been multiplying the number of their units and looms. Under the existing set-up,
same family can own a multiple of units but they keep the size of one unit as low as
maximum of eight looms per unit. In this way, they try to get the benefit of tax and
avoid formal documentation that may be required by different Government agencies.
There are two representative Associations of this sector. "Pakistan Small Units
Power Looms Association" represents those units having up to eight looms and "All
Pakistan Cotton Power Looms Association" represents those units having more than
eight looms. Different clusters have their independent Associations as well.
Since the last 5 to 10 years, the numbers of independent loom units with 24 looms
(or above) have been increasing. These units are comparatively more structured and
have formal set-ups as compared to cottage units. It has been observed that a
substantial number of units with 100 looms or above do exist in the main clusters as
well.
It has also been observed that traditionally, there is no concept of formal bank
financing in this sector to establish new projects or to expand an existing one. Most
of the projects are based on 100% self-financing. Generally, most of the people own
the land and building themselves and there are very few units, which are on rental
premises.
There are two types of systems on which Auto Looms industry is operating. The
units, which are comparatively structured and have a high number of looms, have
good financial strength. These units procure their raw material with their own
investment, go for their own production and earn good margins on the sale of fabric
in the local market or by exporting it in the form of fabric or made-ups.
The other system operates on "conversion" basis. These units don't have the financial
strength to procure raw material for themselves. The customers provide the main raw
material that is yarn and these manufacturing units just take the conversion charges
for converting yarn into fabric. In this case, the profit margins are limited.
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Pre-Feasibility Study Fabric Weaving Unit (Auto Looms)
3 MACHINERY
3.1 Machinery Details
Following is the list of machinery and other equipment, required for a new unit of 36
wider width Auto Looms. It is recommended to install a humidifier plant in the
premises because it keeps the humidity level in the manufacturing area high, which
helps in reducing breakage of yarn. Folding machine helps in folding the cloth more
efficiently.
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Pre-Feasibility Study Fabric Weaving Unit (Auto Looms)
4 MANPOWER REQUIREMENTS
4.1 Human Resource Requirements
For an Auto Loom unit of 36 looms, following manpower is required:
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Pavement/driveway 700
Grounds 700
Management Building 600
Total area required (sq. ft.) 9,200
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6 PROJECT ECONOMICS
Working Capital
Equipment Spare Part Inventory 69,000
Raw Material Inventory 793,000
Up front Insurance Payment 14,000
Cash 500,000
Total Working Capital 1,376,000
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7 FINANCIAL ANALYSIS
7.1 Projected Income Statement
Statement Summaries SMEDA
Income Statement
Rs. in thousands
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 27,824 28,381 28,948 29,527 30,118 30,720 31,335 31,961 32,601 33,253
Cost of goods sold 21,424 21,716 22,017 22,326 22,646 22,976 23,317 23,670 24,036 24,416
Gross Profit 6,400 6,665 6,932 7,201 7,472 7,744 8,018 8,291 8,565 8,837
Earnings Before Interest & Taxes 3,897 4,071 4,240 4,405 4,562 4,710 4,843 4,955 5,028 5,026
Tax 1,033 1,115 1,198 1,282 1,366 1,450 1,534 1,594 1,620 1,619
NET PROFIT/(LOSS) AFTER TAX 2,318 2,470 2,624 2,780 2,937 3,094 3,249 3,361 3,408 3,407
Balance brought forward 2,318 4,789 7,413 10,193 13,130 16,224 19,473 22,833 26,241
Total profit available for appropriation 2,318 4,789 7,413 10,193 13,130 16,224 19,473 22,833 26,241 29,648
Balance carried forward 2,318 4,789 7,413 10,193 13,130 16,224 19,473 22,833 26,241 29,648
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Fixed assets
Land 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200
Building/Infrastructure 2,194 2,084 1,974 1,865 1,755 1,645 1,536 1,426 1,316 1,207 1,097
Machinery & equipment 4,961 4,465 3,969 3,473 2,977 2,481 1,984 1,488 992 496 -
Furniture & fixtures 34 31 27 24 20 17 14 10 7 3 -
Office vehicles 450 405 360 315 270 225 180 135 90 45 -
Total Fixed Assets 8,839 8,185 7,531 6,877 6,222 5,568 4,914 4,260 3,605 2,951 2,297
Intangible assets
Pre-operation costs 172 154 137 120 103 86 69 51 34 17 0
Total Intangible Assets 172 154 137 120 103 86 69 51 34 17 0
TOTAL ASSETS 10,395 12,691 14,177 15,735 17,355 19,029 20,708 22,419 25,235 28,092 30,926
Other liabilities
Deferred tax - (389) (796) (1,223) (1,668) (2,133) (2,656) (3,198) (3,754) (4,315) (4,877)
Long term debt 5,198 4,676 4,093 3,443 2,718 1,909 1,007 - - - -
Total Long Term Liabilities 5,198 4,287 3,297 2,221 1,050 (224) (1,649) (3,198) (3,754) (4,315) (4,877)
Shareholders' equity
Paid-up capital 5,198 5,198 5,198 5,198 5,198 5,198 5,198 5,198 5,198 5,198 5,198
Retained earnings - 2,318 4,789 7,413 10,193 13,130 16,224 19,473 22,833 26,241 29,648
Total Equity 5,198 7,516 9,987 12,611 15,391 18,328 21,422 24,670 28,031 31,439 34,846
TOTAL CAPITAL AND LIABILITIE 10,395 12,691 14,177 15,735 17,355 19,029 20,708 22,419 25,235 28,092 30,926
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Operating activities
Net profit - 2,318 2,470 2,624 2,780 2,937 3,094 3,249 3,361 3,408 3,407
Add: depreciation expense - 654 654 654 654 654 654 654 654 654 654
amortization expense - 17 17 17 17 17 17 17 17 17 17
Deferred income tax - (389) (407) (426) (446) (465) (523) (542) (556) (562) (561)
Accounts receivable - (1,143) (11) (23) (24) (24) (25) (25) (26) (26) (27)
Finished good inventory - (931) (13) (13) (13) (14) (14) (15) (15) (16) (17)
Equipment inventory (69) (4) (4) (5) (5) (5) (6) (6) (6) (7) 117
Raw material inventory (802) (16) (16) (17) (17) (17) (18) (18) (19) (19) 959
Advance insurance premium (14) 1 1 1 1 1 1 1 1 1 1
Accounts payable - 888 5 10 10 11 11 11 11 11 (11)
Cash provided by operations (884) 1,395 2,696 2,823 2,959 3,095 3,192 3,326 3,423 3,463 4,540
Financing activities
Change in long term debt 5,198 (522) (582) (650) (725) (809) (903) (1,007) - - -
Issuance of shares 5,198 - - - - - - - - - -
Cash provided by / (used for) financin 10,395 (522) (582) (650) (725) (809) (903) (1,007) - - -
Investing activities
Capital expenditure (9,011) - - - - - - - - - -
Cash (used for) / provided by investin (9,011) - - - - - - - - - -
NET CASH 500 873 2,114 2,174 2,234 2,286 2,290 2,319 3,423 3,463 4,540
Cash balance brought forward 500 1,373 3,487 5,660 7,894 10,180 12,469 14,789 18,212 21,675
Cash available for appropriation 500 1,373 3,487 5,660 7,894 10,180 12,469 14,789 18,212 21,675 26,215
Cash carried forward 500 1,373 3,487 5,660 7,894 10,180 12,469 14,789 18,212 21,675 26,215
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Liquidity ratios
Current ratio 5 7 10 12 14 17 19 23 26 30
Quick ratio 4 6 9 11 13 16 18 21 25 30
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8 KEY ASSUMPTIONS
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