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, 1 Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756 helpdesk@smeda.org.pk
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REGIONAL OFFICE PUNJAB Waheed Trade Complex, 1st Floor, 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore. Tel: (042) 111-111-456 Fax: (042) 5896619, 5899756 helpdesk@smeda.org.pk

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

March, 2001

Pre-Feasibility Study

Garments Stitching Unit (Polo T-shirt)

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 Issue Date Issued by PREF-03 1 SMEDA-Punjab GM Punjab March 28, 2001 Library Officer

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1 INTRODUCTION
1.1 Project Brief

The 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 for export purpose, and hence will contribute in the earning of foreign exchange for the country. 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 CMT1 (commercial basis), but ultimately, this would be an export-oriented unit. Therefore, all the calculations and financial 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. 1.2 Opportunity Rationale

Exports 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 levels and introduction of international brands with local garment manufacturers are some of 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 of opportunities in the global trade of garment exports in the coming years. It has been forecasted, that in the coming days of post quota scenario, specialized and small or medium size garments stitching units will be able to perform in a better way. The reason for this is a lower cost structure and more developed and concentrated skills to produce the best possible products as per the requirement of international customers. 1.3 Proposed Capacity:

2,000 Garments/Day (52 Stitching Machines) 1.4 Total Project Cost:

Rs. 7.5 Million 1.5 Process flow Chart

Inspection Cutting Stitching Trimming

Finished Fabric Receipt

Washing (Optional)

Final Inspection

Pressing

Packing

CMT: Cutting, Manufacturing and Trimming 2

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2 CURRENT INDUSTRY STRUCTURE

The garments and apparel industry of Pakistan, especially the knitwear segment, is characterized by heavy presence of vertically integrated units. Garments industry comprises of approximately 700 vertically integrated units in the knitwear sector. There are approximately 4,000 garment units with a diverse range of stitching capability including leather, knit and woven garments, with 160,000 industrial and 450,000 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 few major cities. Major concentration of the industry is in Lahore and Karachi. Other hubs are Faisalabad, Gujranwala, and Sialkot.

3 MARKETING
In view of the fact that main raw material and skilled manpower is available in Pakistan, scope for garment exports from Pakistan is unlimited. Effective marketing plays a very crucial role for making this business a success. Export orders can be generated either through local or foreign buying houses that have their presence in the country and source export orders for foreign customers from local industry. The other way to get export orders is through direct marketing in the international markets while initiating contacts with potential customers directly and/or through participation in international trade fairs, exhibitions etc. In the absence of export orders, other factories that have excess export orders can also provide sub-contract work on CMT (cut, manufacture & trim) basis. 3.1 Guidelines for Garments Export Business

In order to enter into the export business of garments, following basic guidelines can provide help to any new comer in this business: a) Ensure best quality at all costs. This is a basic key for a successful exporter in the garment exports. b) Commitments with buyers regarding quality, price and shipment are basic essentials to enter and grow in the export business. Pakistan has lost much business and goodwill due to this factor alone. Therefore, for any newcomer, commitments with the buyers should be met very seriously. c) Initially, it is recommended that a new exporter should avoid to deal in expensive quota items or to enter in quota markets. Concentration should be on nonquota or low priced quota garments and on those categories of garments where newcomers can get share of the cheap quotas at the time of auction. Buying expensive quotas is the main hurdle due to which new exporters become noncompetitive 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 new exporters2. d) Sourcing of export orders, through several apparel buying houses based in Pakistan, can be a good startup point of marketing efforts. The prices offered by these 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 their overseas offices and warehouses in the potential markets. Overseas office cannot only assist in sales, but also keep the garment factory continuously informed about the latest design changes, buyers' requirements and market trends. Warehouses of supplier(s) in the customer's country make it convenient for the customer to make the purchase decisions effectively as in this case customer gets the required products on LDP (Landed Duty Paid) basis and without any hassle of being involved in shipment and import procedures. f) The professional marketing staff and owner(s) should regularly visit international clothing fairs, shows and exhibitions. Such events provide very promising opportunities to penetrate in the international markets, meeting new customers and negotiating orders4. g) In order to be successful in the market, it is very important to be active and quick in response to the customers. Being flexible with buyers regarding their requests and requirements can help to develop mutual understandings with them. Many buyers themselves guide the manufacturer in correct designing, fabric and accessories selection and procurement, improvements in production and quality control etc. h) Regular subscriptions with local and foreign textile trade and fashion magazines will ensure the flow of latest marketing and trade information to the exporter. 3.2 Total Market Size and Growth

Total 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 total value of $7.4 billion. USA is a rapidly growing market with annual growth rates of 10% 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 grown by only 1%. Japan is the third largest importer with total imports of $3.8 billion. Other major importers are given in the following table:

2 3

A list of quota and non-quota products/markets can be obtained separately. A list of apparel buying houses can be obtained separately. 4 The calendar of such events can be obtained from EPB. 4 PREF-03/March, 2001/1

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Table: 3-1

International Market Statistics Value ($ Million ) 3,218 2,222 2,327 1,192 858 660 870 4,439 Share in World Trade 9.50% 6.56% 6.87% 3.52% 2.53% 1.95% 2.57% 13.10%

Country Hong Kong France United Kingdom Netherlands Belgium Switzerland Italy Others

Kenya, Tunisia, Zimbabwe, Algeria and other African countries are growing markets for T-shirts.

4 RAW MATERIAL
The 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 in different ratios) Buttons Threads Labels Zippers Packing material

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5 HUMAN RESOURCE REQUIREMENTS

For a garment-stitching unit of 52 stitching machines, following manpower is required: Table: 5-1 Human Resources Requirements Required 1 1 1 1 1 2 2 1 2 52 4 7 1 6 1 1 3 1 3 1 1 1 2 96 Salary/ Month Salary/Annum 50,000 13,000 8,000 12,000 4,000 3,000 5,000 8,000 4,500 7,000 2,000 2,200 5,000 2,500 3,000 2,500 6,000 2,500 2,500 10,000 5,000 3,500 3,000 600,000 156,000 96,000 144,000 48,000 72,000 120,000 96,000 108,000 4,368,000 96,000 184,800 60,000 180,000 36,000 30,000 216,000 30,000 90,000 120,000 60,000 42,000 72,000 7,024,800

Positions Chief Executive Production Manager Production Planning officer Cutting Master R & I Supervisor Cutting Helper Sampling Stitcher Stitching Supervisor Rowing Inspector Machine Operator5 Helper (Machine Operator) Final table inspector Finishing Supervisor Clippers Stain Remover Spot Washer Iron Presser Rafo Packing Staff Commercial Manager Accounts Officer Technician/Electrician Security Guards Total

Stitching Staff is hired on piece rate basis. Here an average figure of per month earning has been taken. 6

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6 MACHINERY DETAILS
6.1 Machinery List

Following combination of stitching machines is required for manufacturing 2,000 knitted Polo T-shirts per day. Approx. prices for Japanese origin machinery as given below: Table: 6-1 Stitching Machinery Required
Machines Required Cost / Machine (Rs.) Total Cost (Rs.)

Stitching Machinery6 Cutting Machine 10" Lock Stitch (Single Needle) Safety Stitching Overlock (3 Thread) Safety Stitching Overlock (4 Thread) Flat Lock Button Hole Machine Button Stitching Machine Total Table: 6-2 Other Equipment

1 27 12 4 7 1 1 53

95,000 50,000 96,000 105,000 228,000 264,000 124,000

95,000 1,350,000 1,152,000 420,000 1,596,000 264,000 124,000 5,001,000

Other Equipment Steam Boiler with 3 irons Factory fixture (wooden tables, stools, boxes etc) Machine Installation & Electric wiring cost Total Table: 6-3

Total 161,000 166,000 53,000 380,000

Total Cost of Machinery & Other Equipment 5,001,000 380,000 5,381,000

Main Machinery Cost Other Equipment Total 6.2 Other Options Available for Machinery

Garments stitching machinery is available in quite a diversified range of suppliers origins 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 7

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However, there is a substantial difference between their prices. European and Japanese machinery is 2 to 3 times more expensive as compared to Chinese or Far Eastern machinery. Second hand machinery of different origins is also available from the local market.

7 LAND & BUILDING

7.1 Total Land Requirement

For 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: 7.2 Covered Area Requirement

The split of different sections and accordingly covered area requirements are as follows: Table: 7-1 Covered Area requirement Required area (sq. ft) 3,540 600 400 1,300 1,400 1,400 3,000 11,640 2,000 13,640

Description Fabric & Accessories inventory Store Cutting Room Sampling Room Stitching Room Inspection Room Packing Room Finished Garment Store Total factory area Management Building Total area required (sq. ft.) Table: 7-2 Construction Cost

Land & Building Construction Cost per unit (Rs./sq. ft.) Cost Land cost (Rs.) @ Rs. 600,000/4,500 sq. ft Factory area Management building Total construction cost Total Cost (Land & Building ) 350 600

Cost 1,818,667 4,074,000 1,200,000 5,274,000 Rs. 7,092,667

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7.3

Recommended Mode

It is recommended that this project should be started in a rented building. This will reduce the initial capital cost of the project. An appropriate shed is normally available in many commercial/industrial areas of under mentioned clusters. Table: 7-3 Rent cost Rent Cost

Monthly rent Annual rent (Rs.) (Rs.) Building rent cost (@ Rs.10,000 per 4,500 sq. ft) 30,000 360,000 7.4 Suitable Locations

The clusters of garments stitching industry exist predominantly in Lahore, Karachi and Faisalabad. Most of the garment manufactures are based in these major cities, so it is recommended that such unit should be started in these areas. However, the basic criterion for the selection of location within these clusters should be the accessibility of skilled manpower. 7.5 Utilities Requirements

Electricity Telephone Fax

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8 PROJECT COSTS
8.1 Project Costs Project Cost/Capital Requirements 5,381,000 205,000 682,000 180,000 361,000 6,809,000 15,900 360,000 322,400 698,300 7,507,300

Table: 8-1

Project Costs Machinery & Equipment7 Furniture & Fixtures Office Vehicles Office Equipment Pre-operating Costs8 Total Capital Costs Equipment spare part inventory Pre-paid building rent Pre-paid insurance payment Total Working Capital Total Investment in the Project

Financing Plan Equity Debt Debt Breakup Long-term loan Running finance 8.2

50% 50%

3,753,650 3,753,650

3,055,350 698,300

Estimated Time Frame for Project Completion

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 trial run. 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 8

Machinery cost does not include the installation charges. Includes admin expenses, civil works and interest accrued. 10

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

9 KEY SUCCESS FACTORS

The total commercial viability of this proposed stitching unit depends on the regular supply of export orders, i.e. at least 300 days per year production. This requires very aggressive marketing efforts at the entrepreneur's end and the concerned management team. Following are other key points that can be taken as the key success factors for any export 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. 10 THREATS FOR THE BUSINESS Quota factor (price and availability) plays a major role in defining the trends of exports of knitted products from Pakistan, and directly affects the exports of knitted garments. The labor force at the lowest level i.e. skilled/semi skilled manpower, machine operators are quite unorganized. Their job behavior and seriousness about the completion of any assigned job is sometimes quite unpredictable. Stitching expertise is not available at the very best possible level. This restricts the industry only to the production of basic garments and it cannot enter in the production of high quality or fashion garments. In case of CMT based unit, the requirement of credit and/or delay of payments from customer 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.

11 REGULATIONS
Being the export-based unit, tax exemptions are available on earnings and profits. Also, government offers re-finance facilities, incentives in terms of rebates, and duty free machinery imports.
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12 FINANCIAL ANALYSIS
12.1 Income Statement
PR O JE C T E D IN C O M E S T A T E M E N T Y ea r 1 S a le s C o st o f g o od s so ld R a w M ate rial P ayro ll (P rod u ction S taff) M ach ine M a in ten an ce D irect E lectric ity T ex tile q uo ta Lan d F reigh t c ost fo r e x p o rt Fo rw ardin g/clearin g c ost T o ta l G r oss P ro fit O p e ra tin g E x p en ses P ayro ll (A d m in ) P ayro ll (M arke tin g an d S ales) Fix e d e lec tricity In su ran ce E x pe nse A d m in istrativ e O v erhe ad s A m o rtiz atio n (P re -o p eratio n al E x pe nses) D e prec ia tio n O ffic e ex p en ses T o ta l O p e ra tin g P ro fit N o n -o p e ra tin g E x p en ses Fin an cial C h a rge s o n Lo n g-term Lo an Fin an cial C h a rge s o n R u n n in g F ina nc e Lan d L ease B u ild ing R e ntel T o ta l Pr ofit B efo re T a x T ax Pr ofit A fter T a x R e ta in ed E a rn in gs b egin nin g o f ye ar R e ta in ed E a rn in gs en d of year 15 ,6 3 3 ,5 0 9 Y e ar 2 8 9 ,7 33 ,5 0 9 Y ea r 3 9 8 ,55 3 ,5 0 9 Y ea r 4 1 0 8,2 5 5 ,5 09 Y ea r 5 1 18 ,9 2 7 ,7 0 9

5 ,7 2 8 ,8 0 0 1 4 ,4 0 0 5 5 8,8 3 1

6 ,3 0 2 ,0 3 1 9 ,3 3 1 ,4 7 8

5 8 ,6 56 ,0 0 0 6 ,3 01 ,6 8 0 15 ,4 0 8 6 14 ,7 1 4 5 ,8 80 ,0 0 0 1 ,1 76 ,0 0 0 5 88 ,0 0 0 7 3 ,2 31 ,8 0 2 1 6 ,5 01 ,7 0 7

6 1 ,58 8 ,8 0 0 6 ,93 1 ,8 4 8 1 6 ,4 8 7 67 6 ,1 8 5 5 ,88 0 ,0 0 0 1 ,17 6 ,0 0 0 58 8 ,0 0 0 7 6 ,85 7 ,3 2 0 2 1 ,69 6 ,1 8 9

6 4 ,6 6 8 ,2 40 7,6 2 5 ,03 3 1 7 ,64 1 7 4 3 ,8 04 5,8 8 0 ,00 0 1,1 7 6 ,00 0 5 8 8 ,0 00 8 0 ,6 9 8 ,7 17 2 7 ,5 5 6 ,7 92

67 ,9 0 1 ,6 5 2 8 ,3 8 7 ,5 3 6 1 8 ,8 7 5 8 1 8 ,1 8 4 5 ,8 8 0 ,0 0 0 1 ,1 7 6 ,0 0 0 5 8 8 ,0 0 0 84 ,7 7 0 ,2 4 8 34 ,1 5 7 ,4 6 1

1 ,2 9 6 ,0 0 0 6 6 1,6 0 6 3 2 2,4 0 0 1 5 6,3 3 5 3 6 ,1 0 0 6 4 4,8 0 0 1 2 ,9 6 0 3 ,1 3 0 ,2 0 1 6 ,2 0 1 ,2 7 7

1 ,4 25 ,6 0 0 7 27 ,7 6 6 2 90 ,1 6 0 8 97 ,3 3 5 36 ,1 0 0 6 44 ,8 0 0 14 ,2 5 6 4 ,0 36 ,0 1 8 1 2 ,4 65 ,6 8 9

1 ,56 8 ,1 6 0 80 0 ,5 4 3 25 7 ,9 2 0 98 5 ,5 3 5 3 6 ,1 0 0 64 4 ,8 0 0 1 5 ,6 8 2 4 ,30 8 ,7 4 0 1 7 ,38 7 ,4 4 9

1,7 2 4 ,97 6 8 8 0 ,5 97 2 2 5 ,6 80 1,0 8 2 ,55 5 3 6 ,10 0 6 4 4 ,8 00 1 7 ,25 0 4,6 1 1 ,95 8 2 2 ,9 4 4 ,8 33

1 ,8 9 7 ,4 7 4 9 6 8 ,6 5 7 1 9 3 ,4 4 0 1 ,1 8 9 ,2 7 7 3 6 ,1 0 0 6 4 4 ,8 0 0 1 8 ,9 7 5 4 ,9 4 8 ,7 2 3 29 ,2 0 8 ,7 3 8

4 8 8,8 5 6 8 3 ,7 9 6 3 6 0,0 0 0 9 3 2,6 5 2 5 ,2 6 8 ,6 2 5 1 ,7 1 9 ,0 1 9 3 ,5 4 9 ,6 0 6 3 ,5 4 9 ,6 0 6

4 17 ,7 7 2 7 10 ,9 9 7 3 78 ,0 0 0 1 ,5 06 ,7 6 9 1 0 ,9 58 ,9 2 1 3 ,7 10 ,6 2 2 7 ,2 48 ,2 9 8 3 ,5 49 ,6 0 6 1 0 ,7 97 ,9 0 5

33 5 ,3 1 4 1 ,32 6 ,5 5 7 39 6 ,9 0 0 2 ,05 8 ,7 7 1 1 5 ,32 8 ,6 7 8 5 ,24 0 ,0 3 7 1 0 ,08 8 ,6 4 1 1 0 ,79 7 ,9 0 5 2 0 ,88 6 ,5 4 5

2 3 9 ,6 63 1,4 6 5 ,58 4 4 1 6 ,7 45 2,1 2 1 ,99 2 2 0 ,8 2 2 ,8 41 7,1 6 2 ,99 4 1 3 ,6 5 9 ,8 47 2 0 ,8 8 6 ,5 45 3 4 ,5 4 6 ,3 92

1 2 8 ,7 0 8 1 ,6 1 9 ,7 0 5 4 3 7 ,5 8 2 2 ,1 8 5 ,9 9 5 27 ,0 2 2 ,7 4 3 9 ,3 3 2 ,9 6 0 17 ,6 8 9 ,7 8 3 34 ,5 4 6 ,3 9 2 52 ,2 3 6 ,1 7 5

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12.2 Cashflow Statement

PROJECTED CASH FLOW STATEMENT Year 0 Operating activities Net profit Amortization (Pre-operational Expenses) Depreciation Accounts receivable Equipment Spare Parts Inventory Up-Front Insurnace payment Stocks-RM Accounts payable Cash provided by operations Financing acivities Long term debt principal repayment Add: buliding rent expense Building rent payment Addition to long term debt Addition to running finance Issuance of share Cash provided by/ (used for) financing activities Total Investing activities Capital expenditure Cash (used provided by invetsing activities Net Cash Cash balance brought forward Cash carried forward Year 1 Year 2 Year 3 Year 4 Year 5

(15,900) (322,400) 0 (338,300)

3,549,606 36,100 644,800 (2,345,026) (1,590) 32,240 (2,932,800) 38,500 (978,170)

7,248,298 36,100 644,800 (11,115,000) (1,749) 32,240 (146,640) 6,120,380 2,818,429

10,088,641 36,100 644,800 (1,323,000) (1,924) 32,240 (153,972) 307,944 9,630,829

13,659,847 36,100 644,800 (1,455,300) (2,116) 32,240 (161,671) 323,341 13,077,241

17,689,783 36,100 644,800 (1,600,830) (2,328) 32,240 (169,754) 339,508 16,969,519

(360,000) 3,055,350 698,300 3,753,650 7,147,300 6,809,000

(444,277) 360,000 (378,000) 5,226,676 4,764,400 3,786,230

(515,361) 378,000 (396,900) 5,129,669 4,595,408 7,413,838

(597,819) 396,900 (416,745) 1,158,557 540,893 10,171,722

(693,470) 416,745 (437,582) 1,284,343 570,036 13,647,277

(804,425) 437,582 (459,461) 1,423,043 596,739 17,566,258

(6,809,000) (6,809,000) 0 0 0

3,786,230 0 3,786,230

7,413,838 3,786,230 11,200,067

10,171,722 7,413,838 17,585,560

13,647,277 10,171,722 23,818,999

17,566,258 13,647,277 31,213,536

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12.3 Balance Sheet

PROJECTED BALANCE SHEET Year 0 Current Assets Cash Equipment Spare Parts Inventory Up-Front Insurnace payment Stocks and Inventory Receivable 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 Year 1 Year 2 Year 3 Year 4 Year 5

0 15,900 322,400 0 0 360,000 698,300 6,448,000 0 6,448,000

3,786,230 17,490 290,160 2,932,800 2,345,026 378,000 9,749,706 6,448,000 644,800 5,803,200

11,200,067 19,239 257,920 3,079,440 13,460,026 396,900 28,413,593 6,448,000 1,289,600 5,158,400

21,371,789 21,163 225,680 3,233,412 14,783,026 416,745 40,051,815 6,448,000 1,934,400 4,513,600

35,019,067 23,279 193,440 3,395,083 16,238,326 437,582 55,306,777 6,448,000 2,579,200 3,868,800

52,585,325 25,607 161,200 3,564,837 17,839,156 459,461 74,635,586 6,448,000 3,224,000 3,224,000

361,000 361,000 7,507,300

324,900 324,900 15,877,806

288,800 288,800 33,860,793

252,700 252,700 44,818,115

216,600 216,600 59,392,177

180,500 180,500 78,040,086

698,300 698,300

5,924,976 38,500 5,963,476

11,054,645 6,158,880 17,213,525

12,213,202 6,466,824 18,680,026

13,497,545 6,790,165 20,287,710

14,920,588 7,129,673 22,050,261

3,055,350 3,055,350

2,611,073 2,611,073

2,095,713 2,095,713

1,497,894 1,497,894

804,425 804,425

(0) (0)

3,753,650 0 3,753,650 7,507,300

3,753,650 3,549,606 7,303,256 15,877,806

3,753,650 10,797,905 14,551,555 33,860,793

3,753,650 20,886,545 24,640,195 44,818,115

3,753,650 34,546,392 38,300,042 59,392,177

3,753,650 52,236,175 55,989,825 78,040,086

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12.4 Assumptions Table 121 Production Assumptions

Number of Machines (cutting, stitching, buttoning) Capacity Utilization Waste production (kg) Average weight/garment (grams) Total Production per day (garments) Defective garment (% of total finished garments) Annual Production Capacity (garments) Production of defective garments 53 100% 14% 185 2,000 2% 588,000 12,000

Table 122 Operating Assumptions

Hours operational per day Days operational per month Days operational per year Maximum capacity utilization 10 25 300 100%

Table 123 Economy-Related Assumptions

Electricity growth rate Wage growth rate Office equipment price growth rate Office vehicles price growth rate Exchange rate 10% 10% 5% 10% Rs 60/US$

Table 124 Cash Flow Assumptions

Accounts Receivable cycle (in days) Accounts payable cycle (in days) Raw material inventory (in days) Equipment spare part inventory (in days) 45 30 15 7

Table 125 Revenue Assumptions

Production of the unit (double shift basis) Sale price per garment in year 1 ($) Export Sales Share Sale price of defective garments (Rs/garment) Sale price of cutting waste (Rs/kg) CMT rate (for 1st year of operation only) (Rs/gmt) Sale price growth rate 588,000 2.5 100% 50 60 25 10%

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Table 126 Expense Assumptions

Factory overhead (% of Sales) Office expenses (stationery, entertainment etc) Machine maintenance (per month) Machine maintenance growth rate (annual) Pre-paid building Rent (months) Pre-paid insurance (months) Insurance rate (% of net fixed assets) Spare part inventory growth rate Raw material price growth rate Rent growth rate Textile quota (Rs per garment) Land/Truck freight cost (Rs per garment) Forwarding/clearing cost (Rs per garment) 2.0% 1% of admin expense Rs 1200 per machine 7% 12 12 5% 10% 5% 5% 10 2 1

Table 127 Financial Assumptions

Project life (years) Debt Equity Interest rate on long-term debt Interest rate on short term debt Debt tenure Debt payments per year Discount rate (weighted avg. cost of capital for NPV) 10 50% 50% 16% 12% 5 1 17%

16 PREF-03/March, 2001/