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Pre-Feasibility Study

WOODEN FURNITURE MANUFACTURING UNI T

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

May, 2007

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 contents of the information memorandum do not bind SMEDA in any legal or other form.

DOCUMENT CONTROL
Document No. Revision Prepared by Approved by Issue Date Revision Date PREF-70 2 SMEDA-Punjab GM Punjab January, 2004 May, 2007

Pre-feasibility Study

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1 2 3 4

Introduction to SMEDA ......................................................................................................5 Purpose of the Document.....................................................................................................5 Crucial Factors & Steps in Decision Making for Investment ................................................5 PROJECT PROFILE ...........................................................................................................6 4.1 Project Brief ................................................................................................................6 4.2 Opportunity Rationale..................................................................................................6 4.3 Market Entry Timing .................................................................................................11 4.4 Proposed Business Legal Status .................................................................................11 4.5 Project Capacity and Rationale ..................................................................................11 4.6 Project Investment .....................................................................................................11 4.7 Proposed Product Mix ...............................................................................................11 4.8 Recommended Project Parameters .............................................................................11 4.9 Proposed Location .....................................................................................................12 4.10 Key Success Factors/Practical Tips for Success .........................................................12 SWOT Analysis ................................................................................................................12 5.1 Strengths....................................................................................................................12 5.2 Weaknesses ...............................................................................................................13 5.3 Opportunities .............................................................................................................13 5.4 Threats.......................................................................................................................13 CURRENT INDUSTRY STRUCTURE ............................................................................13 6.1 Lahore .......................................................................................................................13 6.2 Chiniot.......................................................................................................................14 6.3 Gujrat ........................................................................................................................14 6.4 Karachi ......................................................................................................................14 MARKET INFORMATION..............................................................................................15 7.1 Domestic Market .......................................................................................................15 7.1.1 Target Customers ...............................................................................................15 Production.........................................................................................................................16 8.1 Raw Material Requirement ........................................................................................16 8.2 Production Process Flow............................................................................................17 8.2.1 Purchase of Wood..............................................................................................17 8.2.2 Cutting of Wood ................................................................................................17 8.2.3 Seasoning/Drying of Wood ................................................................................17 8.2.4 Selection of Design ............................................................................................18 8.2.5 Cutting into Slices..............................................................................................18 8.2.6 Molding .............................................................................................................18 8.2.7 Carving ..............................................................................................................18 8.2.8 Assembly/Fitting................................................................................................18 8.2.9 Finishing (Paint/Polishing).................................................................................18 8.3 Product Mix Offered..................................................................................................18 8.3.1 Superior Quality.................................................................................................18 8.3.2 Fine Quality .......................................................................................................19 8.3.3 Normal Quality ..................................................................................................19 8.4 Proposed Production Mix...........................................................................................19 8.5 Product / Project Standards and Compliance Issues....................................................19 Machinery Requirement Details ........................................................................................19
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9.1 Technology and Processes .........................................................................................19 9.2 Technology/Process Options......................................................................................20 9.3 Merits and Demerits of Particular Technology ...........................................................20 9.4 Factory Machinery Requirement................................................................................20 9.5 Supplier of Machinery ...............................................................................................20 9.6 Factory & Showroom Equipment Requirement ..........................................................21 9.7 Office Equipment Requirement for Factory & Showroom..........................................21 9.8 Machine Maintenance................................................................................................22 10 HUMAN RESOURCE REQUIREMENT..........................................................................22 11 LAND & BUILDING REQUIREMENT ...........................................................................23 11.1 Land Requirement .....................................................................................................23 11.2 Covered Area Requirement for Factory Area .............................................................23 11.3 Recommended Mode of Acquisition ..........................................................................23 11.4 Rent Cost...................................................................................................................24 11.5 Land & Construction Cost of Factory & Showroom...................................................24 11.6 Utilities Requirement.................................................................................................24 11.7 Suitable Location.......................................................................................................25 12 Project Economics.............................................................................................................26 12.1 Project Cost Details ...................................................................................................26 12.2 Project Returns ..........................................................................................................26 12.3 Project Financing Details ...........................................................................................26 13 FINANCIAL ANALYSIS .................................................................................................27 13.1 Projected Income Statement.......................................................................................27 13.2 Projected Balance Sheet.............................................................................................28 13.3 Projected Cash flow Statement...................................................................................29 14 KEY ASSUMPTIONS ......................................................................................................31

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INTRODUCTION TO SMEDA

The Small and Medium Enterprise 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 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 sectors including fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDAs areas of operation.

PURPOSE OF THE DOCUMENT

The Objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. 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, production, marketing, finance and business management. The document also provides sectoral information, brief on Government policies and international scenario, which have some bearing on the project itself. This particular pre-feasibility is regarding setting up a Wooden Furniture Manufacturing Unit. In meeting the above tasks we have obtained information from industry sources and officials of major wooden furniture manufacturers in Pakistan. 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 forecasts/projections relate to the future, actual results are likely to be different because events and circumstances frequently do not occur as expected and the differences may be material. Whilst due care and attention have been taken in performing the exercise, no liability can be inferred for any inaccuracies or omissions reported from the results thereof. It is essential that our report be read in its entirety with Financial Model in order to fully comprehend the impact of key assumptions on the range of values determined.

CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT

Manufacturing of wooden furniture requires the basic knowledge of wood quality. Wood is the main raw material and the entire finished product depends on quality of wood. The information and technical know how about the quality of wood and use of seasoned (dry) plays a vital role in the manufacturing of good quality furniture.
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Moreover, establishment of factory in the vicinity of Lahore, Chiniot or Gujrat gives the added advantage of easy availability of skilled labor. Strong competition exists in the international and domestic market. Manufacturing of high quality trendy designs and aggressive marketing is essential to get a permanent place in the market.

PROJECT PROFILE

4.1 Project Brief The proposed project is for setting up a Wooden Furniture Manufacturing Unit. The project will cater to the needs of the domestic market. This project will be capable of integrated manufacturing of wooden furniture starting from cutting of wood to retailing of product to the customer. Auxiliary processes like carving will be met through sub contracting. 4.2 Opportunity Rationale The demand for wooden furniture is increasing in the domestic market as well as in the international market due to its traditional appeal and durability despite the introduction of new materials in furniture manufacturing. Furniture, which is given as dowry, forms the major portion of sales of wooden furniture in Pakistan. As a result, the demand for household furniture increases substantially in winter and spring season due to weddings. With the rapid increase in the development of new housing schemes, the increased demand of wooden furniture is also anticipated. According to the National Housing Policy 2001, The annual additional requirement is estimated around 570,000 housing units whereas the annual production is estimated around 300,000 housing units resulting in a recurring backlog of 270,000 housing units annually. The household size is 6.6 persons and the occupancy per room is 3.3 persons1. Furthermore, introduction of new schemes by different banks for house and consumer financing have also raised the purchasing power of public. In the international market, demand for wooden furniture is increasing for its unique style and aristocratic and elegant appearance. The demand of wooden furniture in the International market is increasing gradually at an annual average rate of 4 percent2. Table 4-1 Year World Growth Wooden Furniture Export from Pakistan (000 in USD) 3 2003
9,318

2004
9,618

2005
11,816

2006
9,794

3.22%

22.85%

-17.11%

Though till now Pakistans share in the international market is not convincing, but its exports of wooden furniture are increasing rapidly due to appealing designs, craftsmanship and quality of wooden furniture manufactured in Pakistan.
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National Housing Policy 2001. Board of Investment Government of Pakistan. Sector Brief wooden furniture SMEDA. 3 UN Comtrade Database, www.comtrade.un.org 6 PREF-70/May, 2007/2

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Major trading partner of wooden furniture manufactured in Pakistan are USA, UK, Italy, France, Saudi Arabia, UAE, Germany4 and earning substantial foreign exchange for the country and contributing towards the strengthening of economy. In 2006 the global exports of wooden furniture was valued at US $ 16.191 billion. The top exporters for wooden furniture in 2006 were China, Germany, Malaysia, Canada, Romania, Denmark and USA. Pakistan share in the furniture exports is around 0.08%5. Following is the table showing the world imports and exports of Office, Bedroom and Wooden Furniture (other then bedroom & office furniture). Table 4-2 World Imports of Office, Bedroom & other Wooden Furniture6 Trade Value of Period 2006 2005 2004 2003 Table 4-3 Office Furniture $1,868,735,641 $2,525,751,393 $2,235,526,134 $2,030,370,356 Bedroom Wooden Furniture Furniture $5,481,387,013 $11,610,683,900 $7,620,142,432 $19,199,602,383 $6,774,292,777 $17,749,738,497 $5,766,064,708 $15,094,230,277 Trade Value of Period 2006 2005 2004 2003 Office Furniture $1,885,689,938 $2,570,088,483 $2,120,947,050 $1,965,001,533 Bedroom Wooden Furniture Furniture $4,526,525,488 $9,779,588,018 $5,696,688,894 $16,403,094,531 $4,811,203,468 $14,675,348,460 $4,657,667,692 $13,271,691,763 Total Exports $16,191,803,444 $24,669,871,908 $21,607,498,978 $19,894,360,988 Total Imports $18,960,806,554 $29,345,496,208 $26,759,557,408 $22,890,665,341

World Exports of Office, Bedroom & other Wooden Furniture7

Following are the pie charts showing the world top importers and exporters of Office, Bedroom and other Wooden Furniture for the year-2006.

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Export by Commodity. EPB Statistics(www.epb.gov.pk) UN ComTrade Database, www.comtrade.un.org/db 6 UN Comtrade Database, http://comtrade.un.org 7 UN Comtrade Database, http://comtrade.un.org 7 PREF-70/May, 2007/2

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World Top Importers of Office Furniture in Ye ar 2006


China, Hong Kong SAR 3% Norway 5% Others 21%

World Top Exporters of Office Furniture in Year 2006


Others 20% Canada 24%

USA 6%

Malaysia 6%

Belgium 5% Canada 5% Germany 6% USA 55%

Denmark 9% Germany 13%

China 22%

World Top Importers of Bedrom Furniture in Year 2006

World Top Exporte rs of Bedrom Furniture in Year 2006


USA 3% Others 14% China 40%

Austria 3% Belgium 3%

Ireland 1%

China, Hong Kong SAR 1%

Others 10%

Malaysia 6%

Canada 5% Germany 7% USA 70%

Brazil 6% Canada 7%

Germany 12%

Denmark 12%

World Top Importers of Wooden Furniture other then Bedroom & Office Furniture in Year 2006
Denm ark 2% Others 17%

World Top Exporters of Wooden Furniture other then Bedroom & Office Furniture in Year 2006
Others 24% China 31%

USA 5% Aus tria 4%

Belgium 5% Canada 5% Germany 13%

USA 54%

Denm ark 7%

Romania 7%

Canada 8%

Malays ia 8%

Germany 10%

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In 2006 Pakistans exports of wooden furniture was valued at US $ 9.7 million. The top importers for wooden furniture from Pakistan in 2006 were USA, UAE, UK, Canada and China. Pakistans share in the furniture exports in 2006 is around 0.08%8. Following is the table showing the Pakistans exports and imports of Office, Bedroom and Wooden Furniture (other then bedroom & office furniture). Table 4-4 Pakistans Exports of Office, Bedroom & other Wooden Furniture9 Trade Value of Period 2006 2005 2004 2003 Table 4-5 Office Furniture $ $ $ $ 695,652 393,533 803,267 434,433 Bedroom Wooden Furniture Furniture $ 1,097,462 $ 8,001,299 $ 995,515 $ 10,427,255 $ 1,093,633 $ 7,721,480 $ 192,453 $ 8,691,787 Trade Value of Period 2006 2005 2004 2003 Office Furniture $3,630,481 $3,510,306 $551,648 $505,951 Bedroom Wooden Furniture Furniture $1,893,772 $3,993,310 $772,475 $2,741,054 $791,117 $1,258,641 $399,661 $697,721 Total Imports $9,517,563 $7,023,835 $2,601,406 $1,603,333 Total Exports $ $ $ $ 9,794,413 11,816,303 9,618,380 9,318,673

Pakistans Imports of Office, Bedroom & other Wooden Furniture10

Following are the pie charts showing the world top importers and exporters of Office, Bedroom and other Wooden Furniture from Pakistan for the year-2006.

Export of Office Furniture from Pakistan in Year 2006


Canada 5% Others 14% Italy 30%

Import of Office Furniture from the World to Pakistan in Year 2006


Others 14% Italy 30%

Canada 5%

Lebanon 11% USA 19%

United Arab Emirates 21%

Lebanon 11% USA 19%

United Arab Emirates 21%

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UN ComTrade Database, www.comtrade.un.org/db UN Comtrade Database, http://comtrade.un.org 10 UN Comtrade Database, http://comtrade.un.org 9 PREF-70/May, 2007/2

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Export of Bedroom Furniture from Pakistan in Year 2006


Others 24% Malaysia 5% Afghanistan 31%
USA 7%

Import of Bedroom Furniture from the World to Pakistan in Year 2006


Germany 5% Others 15% China 26%

United Arab Emirates 12%

United Kingdom 13%

USA 15%

Singapore 10%

Netherlands 10%

Switzerland 27%

Export of Wooden Furniture other than Bedroom & Office Furniture from Pakistan in Year 2006
United Arab Emirates USA 17% 13%

Import of Wooden Furniture other than Bedroom & Office Furniture from the World to Pakistan in Year 2006
Thailand 3% Others 22%

Others 45%

Germany 5%

France 6%

United Afghanistan Kingdom 7% 7%

United Kingdom 5%

United Arab Emirates 7%

USA 11%

China 52%

Over the last 10 years this trend has been positive and by the year 2010 it is estimated that the global furniture trade would increase to US $ 42.02 billion. The forecasted figures of the global furniture trade are depicted in the figure below:
Total Wooden Furniture trade (US $ BLN)
50 40 30 20 10 0 2004* 2005* 2006* 2007* 2008* 2009* 2010* 27.72 30.15 32.79 35.67 38.8 42.21 45.92

However over the years the entry into the furniture global market is becoming more competitive as the market demand has become more subjective to relevant safety and environmental requirements. Some of the factors contributing to the change in international trends include Green furniture, Multi-functionality, Simplicity and neutral colors, Home office, Ready-toassemble (RTA) and Do-it-yourself (DIY) furniture. Malaysia, Philippines, Indonesia and China
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have already established their brand name on their products being comparatively cheaper and of high quality and are emerging as market players. Pakistans growth in this particular region appears to be independent of the international growth trend and show no correlation with the Worlds Wooden Furniture Exports, as the major trading partners of Pakistan do not include any of the major importers of the world in any real value sense. Moreover, Pakistani industry has peculiar issues related to technology, human resource development, lack of formal credit and consequently access to export destinations. Additionally there is a significant presence of SMEs in this sector. 4.3 Market Entry Timing Though the demand for wooden furniture in domestic market is persistent throughout the year, but it significantly increases during the period of October to March because of the wedding season. The demand for the furniture almost doubles during this period. Hence, the prime time to enter into market is start of August. 4.4 Proposed Business Legal Status It is recommended that this project should be started as sole proprietorship or partnership as this does not involve heavy investment. Moreover, less complications and costs are involved in forming, administrating and running the sole proprietorship or partnership business. Lower tax rates for this type of business legal status would be an added advantage. 4.5 Project Capacity and Rationale The proposed project is capable of manufacturing the complete range of wooden furniture and other allied products to meet the demand of domestic market. Show room will work on 11 hours a day for 300 days, while factory will work on 8 hours shift for 300 days. 4.6 Project Investment Total cost of project is Rs 10.25 million. 4.7 Proposed Product Mix This unit is capable of producing different sort of wooden furniture. As this project involves craftsmanship of human resource, different type of product can be manufactured but for the purpose of this pre-feasibility, the project is assumed to manufacture bed sets, dinning sets, sofa sets, misc. furniture (centre table & end tables for sofa set) and office furniture.. 4.8 Recommended Project Parameters Capacity Project Cost 10,249,390 Human Resource 24 IRR 57% NPV 70,896,02411 Technology/Machinery Local Payback Period 3.48 Location Major Cities Cost of Capital 18.5%

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NPV is high because Showroom is to be build in Year-6 having a capital cost of Rs. 45,493,270 which increases the Project Cost up to Rs. 55,742,661 11

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4.9 Proposed Location Local Furniture demand is directly related to the population living in a locality. Therefore, the demand for wooden furniture is higher in heavily populated cities of Pakistan like Lahore, Multan, Karachi, Peshawar etc. & developed cities like Rawalpindi, Islamabad. 4. 10 Key Success Factors/Practical Tips for Success 1. Proper selection of wood is important for the success of business as wood is the major raw material and it plays an important role in achieving good quality finished product. Properly seasoned (Dry) wood ensures high quality furniture as it minimizes deforming due to dampness in wood. 2. Proper selection of labor is also important as it can improve quality of finished product by better craftsmanship & lower wastage. Hence, specialized labor should be used for the particular design and product, which will give high quality furniture at lower cost. 3. New designs and styles can build brand equity for the business. As there is high competition in the market, to make the project commercially viable, creation of new designs and styles and setting new trends is vital. 4. Reasonable number hiring of permanent labor is important to maintain lower overhead cost, as the business is labor intensive and skilled labor is readily available in the local industry. So, it is important to hire permanent skilled labor according to production requirement. Skilled labor is easily available in the market and additional manufacturing workload can be sub-contracted. 5. The final objective of the business is to sell the final product in the market to get the desired return. The location of show room is very important for success. The showroom should be located in heavily populated or developing cities and its location within the city should be in accordance with the target market of the business. 6. While selecting the location for production, proximity to raw material and availability of skilled labor should be taken into account, as this will reduce cost of production.

SWOT ANALYSIS

5.1 Strengths Skilled Labor Force Wood seasoning facility centre is available Suppliers of raw material are available Local tools available Strong historical background of craftsmen Many big cities are link-up with this cluster including Lahore, Islamabad, Sargohha, Jhang, Faisalabad and Gujranwala etc.

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5.2 Weaknesses High cost of production due to high rate of raw material Lack of educated, certified and professionally trained work force Unavailability of ready to use raw material No Designing and R&D facilities available Unawareness of Social compliance and Environmental issues Unawareness of any quality control and standards Unavailability of ready-to use seasoned wood Constraint of Technology Fluctuating prices of the raw material.

5.3 Opportunities Technical up gradation Networking & linkages of cluster players/stakeholders Development of consortiums with specified objectives

5.4 Threats Migration of trained work forces from the sector Raw material cost increase (shortage in the stock of Sheesham wood at any stage because no further plantation as required) Import of low price articles from China and India Instable political set up of the country.

CURRENT INDUSTRY STRUCTURE

6.1 Lahore The Lahore cluster is basically based on the traders of wooden furniture. There are more than 1500 retail shops in Lahore in different locations which basically trade in MDF furniture, office furniture, and bedroom and living room furniture. However in the last decade this market has diversified its product range to all kinds of furniture articles. These traders usually purchase furniture in semi-finished form from Chiniot and polish and upholster it in their workshops. There profit margins are quite high as all the value addition is done in Lahore according to the requirement of the customers. However, there are around 100-200 small cottage sized workshops in Lahore which are engaged in wooden furniture manufacturing. Majority of these manufacturing facilities use low-tech machinery which are either locally assembled or are second hand imported machines. There is only a hand full of furniture manufacturers which have established a production line based on
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new modern machinery and seasoning kiln facilities. On average each manufacturing facilities employs 5-20 workers depending on its scope of work. At present there are around five large clusters of furniture markets within Lahore i.e. Fortress Stadium, Gulberg, AIlama Iqbal Town, Ferozepur Road and Multan Road. These markets mostly cater to the needs of the domestic market. Because of the poor finishing quality and inferior packaging the exports are restricted. 6.2 Chiniot Although wooden furniture industry Chiniot is approximately 150-200 years old, but still exists on a cottage sized scale. There are almost 3000-4000 manufacturing units in Chiniot, which use primitive technology and techniques for manufacturing. Around 40,000 people are directly employed by this industry. The stakeholders can be categorized into manufacturers, craftsmen, traders, timber merchants, exporters, transporters and financial institutions. Declining number of skilled craftsmen comprise the majority of the industrys workforce. The semi-finished items (Kora) are sold to all major cities throughout Pakistan. Direct export from this industry/cluster is negligible. Chiniot is a major cluster engaged in the manufacturing of handmade wooden carved furniture. The demand for this kind of furniture is increasing in the international market. The basic raw material used for hand carved furniture is Sheesham wood, which is under an attack of an unknown kind of disease. This has resulted in a shortage of raw material and increase in its price. 6.3 Gujrat There are about 300 units (including shops) in Gujrat associated with this cluster. The approximate sector breakdown shows that majority of the sector is based on 225 -250 micro units, 40-50 small units and 5 medium units. There are approximately 7,000-8,000 people directly employed in this industry. Gujrat is well known for its top quality furniture all over Pakistan. A few units are exporting furniture to different countries including, UK, US, Saudi Arabia, Middle East etc. The total export of Furniture from Gujrat is about US$ 4.5 million. (Directorate of industries), however due to limited production capacity these firms are not able to fulfill the large export orders and hence can not compete vigorously in international markets. China and India are the major competitors. Their prices are less and quality is better. 6.4 Karachi Furniture items produced in Sindh comprise of chairs, tables, musical instruments and other items like doors and windows. However, in the last decade units have started diversifying their products into office and kids furniture which is designed more trendy designs. At present there are two main clusters of small furniture manufacturers in Karachi, i.e. Manzoor Colony and Akhtar Colony. There are some 1200 1300 units in these clusters that have employed almost 6000 7500 people. One small unit covers an area of 720 to 1000 square feet. The machinery used includes four basic tools/machines for furniture making. The average wood requirement of each of these units is around 150 -200 cubic feet per month. Wood is purchased by unit owners and seasoned naturally. This market mostly caters to the needs of the domestic

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market and because of the poor finishing/polishing quality the furniture manufactured here is not exported. Two smaller clusters in Patelpara and Liaqatabad are also engaged in the manufacturing of low quality (MDF and Keekar wood) furniture. Almost three hundreds small/micro units are operating in these areas. Ayshamanzil, Arambagh, Nursery, Liaquatabad and Manzoor Colony are some of the major furniture retail markets in Karachi selling hardwood, steel, MDF furniture. The prices of raw material fluctuate tremendously and quality raw material is scarce. Seasoned quality rosewood trades at around Rs. 650-850 per cubic ft. American Oakwood and Burma teakwood can be purchased at a price of Rs. 2400 and Rs. 3200 respectively in this market. H.D.F. from this market is currently being used in making door frames. Another issue this cluster is facing is the declining number of skilled craftsmen. Lacquer work is another powerful traditional craft of Sindh. These items have grown popular over the time period. However furniture items are simple in design. Articles such as table lamps, chairs and sofa sets produced by Lacquer industries of Hala in Hyderabad district and Kashmir in the Jacobabad district, are very popular. The above clusters of furniture are rich for the availability of raw wood and skilled labor. Moreover, these areas are also in close proximity from retail markets. Majority of the wooden furniture-manufacturing units are classified as small and medium sized having small and specified production. Most of the manufacturers do not have the complete manufacturing facilities to manufacture the complete range of products. The orders are sub contracted to independent workshops for manufacturing. This reduces the capital cost of the manufacturer but increases the quality control cost.

MARKET INFORMATION

7.1 Domestic Market In local market the target market comprises of the following segments: 7.1.1 Target Customers In local market, the requirement for wooden furniture can be categorized into four namely: 1. 2. 3. 4. 5. For newly built house; For dowry; For renovation; For Institutional buyer. For offices (public & private sector)

The majority of customers in the domestic market belong to first and second category. These customers require furniture for their newly built houses and usually buy range of products like bed sets, dining sets and sofa sets with other decorative material for their entire house. In Pakistani society, Furniture is given as dowry. Therefore, its demand increases in the spring and winter season due to weddings. Basic requirement of these customers is bed set of new designs and styles. These types of customers also buy sofa set or dining set along with bed set.
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Initially entrepreneur should target these customers to establish the business and to increase the customer base. These potential customers can play a dominating role in the successful break through of the business. With the flourishing of tourism and hotel industry, considerable scope emerges for wooden furniture in this sector. Large orders can be secured to supply wooden furniture to these hotels and resorts.

PRODUCTION

8.1 Raw Material Requirement The basic raw materials for manufacturing of furniture is wood. Wood obtained from the forest is of prime quality. Therefore, it is recommended to use dry wood from the forests for manufacturing of quality wooden furniture. Forest wood is easily available in the market. Furniture manufacturing units in Pakistan mostly use sheesham wood. Other types of woods used in manufacturing furniture are: Teak wood Walnut wood Keekar wood

Besides this, substitute material like lasani, winboard are also used in the manufacturing of furniture. Raw material wood is easily available from the forest reserves like Changa manga, Pakhowal, Kundian, Chicha watni, Bahawalpur and other natural forests. Changa manga forest is the major source of wood for furniture. Other material used in the furniture manufacturing process are nails, screws, glue/solution, spirit, lakh, thiner, lacquer, sealer, hardener, etc. These raw materials are easily available in the market.

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8.2 Production Process Flow Figure 8-1 Production Process flow (Wooden Furniture Manufacturing Unit)

Purchase of Wood (Timber


Market)

Wood Cutting at Trolley (Big Saw)

Wood comes in Factory

Wood Seasoning

Wood comes at Shaper Machine

Wood comes to Machine Man

Furniture Designing on CAD

Carpenter shape the wood into Furniture

Furniture comes to Spindle / Molding Machine

Furniture comes to Carver for Carving

Furniture goes to Store or for Polishing

Furniture comes to Inspection before finishing

Carpenter assembles the Furniture

8.2.1 Purchase of Wood Wood is purchased after Quality inspection. In determining quality following points are considered: Age of Wood Dryness of wood Its surface, which should be plane without holes etc 8.2.2 Cutting of Wood When purchased, the wood of natural form, this wood after purchase is cut into different sizes of blocks and slabs. 8.2.3 Seasoning/Drying of Wood Season wood is higher in price than the fresh wood, so if the wood purchased is not properly dried wood than these blocks/slices are seasoned through different processes, namely: Condensation Boiler System Vacuum System Seasoning through putting the wood slices under normal environmental temperature for considerable duration.
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8.2.4 Selection of Design Before start of manufacturing of any furniture product a desired design is selected. Selection of elegant design is important to ensure attractive finished product. 8.2.5 Cutting into Slices The seasoned wood blocks are cut into desired shape and slices according to the requirement of design. 8. 2. 6 M ol di ng The slices of wood are molded into the desired shape according to the design. 8.2.7 Carving Carving means different elegant pattern carved in the wood. Quality of carving depends on the skills of the labor. 8.2.8 Assembly/Fitting Once the different pieces are carved & molded than these parts/pieces are assembled or fixed together to give the shape to the final product. 8.2.9 Finishing (Paint/Polishing) Assembled product is grind to make the surface smooth. Once the surface is smooth, finishing material is applied to make the surface ready for paint or polish. After the base is prepared final finishing is applied depending on requirement in term of paint/polish. Upholstery of fabric is carried out according requirement of design. 8. 3 Product Mix Offered For the purpose of this pre feasibility, it is assumed that project will offer the following products: Bed Set Which includes Bed, side tables, dressing table, dressing stool. Sofa Set Which includes standard sofa set of three seats, two seats and one seat. Dining Set Which includes Glass top dining table with eight chairs. Misc. Furniture Set A part of Sofa Set but not sold along with it. It includes glass top centre table along with two end tables for the Sofa Set. Office Furniture Set Which includes an office table along with side table for computer with one executive and two visitors chairs. 8.3.1 Superior Quality Superior quality bed set, dining set, misc. furniture set and office furniture set are made of supreme quality pure wood furniture with elegant hand carved design. Superior quality has extra carving with complex and elegant design and extra fine polishing and finishing. While Superior quality sofa set is manufacturer from best available upholstery material with elegant design & extra comfort.
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Wooden Furniture Manufacturing Unit

8.3.2 Fine Quality Fine quality bed set, dining set, misc. furniture set and office furniture are made of fine quality pure wood. Simple but appealing hand carving is done with fine quality polishing. While fine quality sofa set has a quality upholstery material & elegant design. 8.3.3 Normal Quality Normal quality bed set, dining set, misc. furniture set and office furniture are made of a mixture of pure wood and substitute material (Lasani, winboard, etc). Lasani gives fine and even surface for finishing and paint Smooth surface gives eye-catching effect. The finish of bed set & dinning set are assumed to be of paint due to the extra fine surface. The normal quality sofa set a simple design sofa set with good quality upholstery material. 8.4 Proposed Production Mix The details of proposed production mix offered by the project is given in below tables: Table 8-1 Proposed Production Mix Percentage 40% 10% 30% 5% 15% 100% Bed Set 20% 30% 50% 100% Dinning Set 20% 30% 50% 100% Sofa Set 20% 30% 50% 100% Misc. Furniture Office Furniture 20% 20% 30% 30% 50% 50% 100% 100% Description Bed Set Dinning Set Sofa Set Misc. Furniture Office Furniture Total Table 8-2 Superior Fine Normal Total Proposed Production Mix Details

8.5 Product / Project Standards and Compliance Issues Manufacturing of wooden furniture involves skilled labor. Issues like use of minor labor, deviation from labor laws can influence the business significantly. To avoid issues like minor labor, social security and employees old age benefit schemes, it is recommended that minimum number of permanent skilled labor should employ and all other manufacturing should be outsourced on contractual basis to avoid such issues.

MACHINERY REQUIREMENT DETAILS

9.1 Technology and Processes In Pakistan, manufacturing of wooden furniture is mostly done by hands. Hence, skilled manpower is the essential element in the manufacturing process of furniture.
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Wooden Furniture Manufacturing Unit

9.2 Technology/Process Options Imported and locally manufactured machinery is available in the local market. As this project is labor intensive, not much based on technical machinery and technological advancement, therefore technology has less impact on the business. Imported machinery and plants are available for seasoning, cutting, molding, finishing, etc. 9.3 Merits and Demerits of Particular Technology Imported machinery can be used in the manufacturing process but this requires high capital investment & high running. Moreover, Skilled labor required to operate these machines is not easily available in the market. As skilled labor and craftsmanship plays an important role in manufacturing of wooden furniture in Pakistan, technological advancement doesnt play an important role in manufacturing process. 9.4 Factory Machinery Requirement The details of machinery requirement for the project is given below: Table 9-1 Factory Machinery Details12 Unit 1 1 1 1 1 1 1 2 2 2 3 2 12 2 1 1 Unit Price 30,000 45,000 55,000 12,000 10,000 42,500 55,000 22,000 36,500 10,000 7,000 6,000 1,500 8,000 20,000 50,000 Total Cost 30,000 45,000 55,000 12,000 10,000 42,500 55,000 44,000 73,000 20,000 21,000 12,000 18,000 16,000 20,000 50,000 523,500 Machinery Description Saw 18" Saw 27" Saw 30" Cutter sliding Cutter round Guage 14" Gauge 18" Planer / Shaper 12" Spindle Moulder Machine Chapaka Hand Chapaka (jug saw) Grinder Drill machine Compressor Miscellaneous Tools (Hand Tools, Paint Gun etc.) Installation costs for machines Total Machinery and Equipment 9.5 Supplier of Machinery Some of suppliers of furniture manufacturing machinery are:
12

Asim Engineering Works, near National Bank, Gondalanwala Road, Gujranwala. M/s Wazir Ali Industries, Badami Bagh, Lahore;
Asim Engineering Works. E-mail: asimenggwrk@yahoo.com, Cell #: 0300-6429509 20

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Wooden Furniture Manufacturing Unit

9.6 Factory & Showroom Equipment Requirement Table 9-2 Furniture & Equipment Details for Factory Required 1 4 3 1 Cost/Unit (Rs) 10,000 1,500 8,000 4,500 Total Cost (Rs) 10,000 6,000 24,000 4,500 44,500 Total Cost (Rs) 120,000 25,000 10,000 25,000 6,000 6,000 4,500 196,500

Description Office Table Set for CAD Operator Visitors Chairs Table & Chair set for admin, store & production Fire Extinguishers Total Furniture & Fixtures Table 9-3 Description Air conditioner Office Table Set for CEO Office Table Set Accountant Sofa Set Executive Chair for Staff Visitors Chairs Fire Extinguishers Total Furniture & Fixtures

Showroom Furniture & Equipment Details Required 4 1 1 1 2 2 1 Cost/Unit (Rs) 30,000 25,000 10,000 25,000 3,000 3,000 4,500

for

9.7 Office Equipment Requirement for Factory & Showroom Table 9-4 Office Equipment Details for Factory Required 1 1 1 2 1 Cost/Unit (Rs) 25,000 5,000 5,000 800 10,000 Total Cost (Rs) 25,000 5,000 5,000 1,600 10,000 46,600 Total Cost (Rs) 50,000 5,000 10,000 1,600 10,000 76,600

Description Computers Printers UPS Telephone Sets Fax Machine Total Office Equipment Table 9-5 Description Computers Printers UPS Telephone Sets Fax Machine Total Office Equipment

Office Equipment Details for Showroom Required 2 1 2 2 1


21

Cost/Unit (Rs) 25,000 5,000 5,000 800 10,000

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Pre-feasibility Study

Wooden Furniture Manufacturing Unit

9.8 Machine Maintenance As technically advanced machines are not required in the manufacturing process, therefore, machine maintenance cost is low. The major maintenance cost is Oiling and Greasing of machines.

10 HUMAN RESOURCE REQUIREMENT


The labor required for manufacturing process is easily available on daily wages, per unit basis and permanently employed. It is recommended that selective highly skilled labor should be employed permanently and other labor should be hired as and when required. Following permanent human resource is required both at factory and show room. Table 10-1 Description Production supervisor Assistant production supervisor Carpenter Machine man Polish man Carving Helpers Factory admin officer Draftsman / CAD Operator Purchaser/Store Officer Gate Keeper Total Production Staff Factory Staff Requirement Details No. 1 0 10 1 3 2 2 1 1 1 2 24 Monthly Salary (Rs) 15,000 10,000 8,000 10,000 8,500 8,000 4,000 12,000 8,000 12,000 4,000 Total Annual Salary (Rs) 30,000 160,000 20,000 51,000 32,000 16,000 24,000 16,000 24,000 16,000 389,000

Sub contracting minimized the implication of labor laws and increases the productivity. However, strategy can also result in increase of supervision cost. There will be one production supervisor sufficient for a labor of 30 but with the increase in labor one assistant to the production supervisor would be added and one machine man would be added to the production crew in order to run the production efficiently. For this project it is assumed that following staff would be added each year in order to increase the production uniformly each year. Table 10-2 Factory staff addition each year No. 3 1 1 2 7 Description Carpenter Polish man Carving Helpers Total Production Staff Added

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Wooden Furniture Manufacturing Unit

11 LAND & BUILDING REQUIREMENT


11. 1 Land Requirement The land sufficient for setting up the proposed wooden furniture manufacturing unit is approximately 3 kanal13 (13,500 sq. ft) production area (Factory area), while the covered area of furniture depends on area available & financial resources available. For the proposed project 1 kanal showroom area is assumed which will not be on lease. For such kind of business it is recommended to have own showroom which will be opened in year-6 when the business is enough liquid. 11. 2 Covered Area Requirement for Factory Area Factory Covered Area Details Area (Sq. ft) 4,000 1,500 1,500 1,000 2,300 500 2,700 13,500 Area (Sq. ft) 120 3,030 1,350 4,500

Table 11-1

Description Factory Main Hall Carving Room Polish Room Store for un-finished products Store for finished product Office for factory admin officer & CAD operator Open Space Total Table 11-2 Showroom Covered Area Details14 Description Owners Office Showroom Display Open area for Car Parking Total 11. 3 Recommended Mode of Acquisition

It is recommended to start the proposed business in own place as this will ensure the savings from the high rentals. Secondly, the machinery used in the project can easily be purchased locally. It can be seen from the table below that the rent cost is high and after establishing the showroom at a certain place there is no surety of ownership. Thats why it is assumed that showroom would be opened and operated at own premises.

13

Land assumed for the project is 3 kanal, because with the increase in labor each year it would be recommended not to have the factory less than that. 14 Showroom to be built in Year-6. 23 PREF-70/May, 2007/2

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Wooden Furniture Manufacturing Unit

11. 4

Rent Cost Rent Expense Details Monthly Rent (Rs) 60,000 200,000 Total Annual Rent (Rs) 720,000 2,400,000 3,120,000

Table 11-3 Description Factory Area Showroom Total 11. 5

Land & Construction Cost of Factory & Showroom15 Land Cost Details of Factory & Showroom Land in Kanals 03 01 Cost per Kanal (Rs) 1,200,000 40,000,000 Total Cost (Rs) 3,600,000 40,000,000 43,600,000 Total Construction Cost (Rs) 4,590,000 5,000,000 9,590,000 Total Amount (Rs) 50,000 18,000 21,000 157,500 94,500 140,000 315,000 796,000

Table 11-4 Description Factory Area Showroom Total Table 11-5 Description Factory Area Showroom Total Table 11-6

Construction Cost Details of Factory & Showroom Covered Area in Sq. ft. 10,800 3,150 Construction Cost per Sq. ft. (Rs) 425 1,587

Showroom Renovation/Dcor Expense Details16 No. 1 60 60 3,150 3,150 7,000 3,150 Cost/Unit 50,000 300 350 50 30 20 100

Description Display Glasses Fancy lights Sign Boards (sqft) Fall Ceiling Carpeting Paint Other Interior Designing Cost Total Cost 11. 6 Utilities Requirement

For smooth operations of the proposed project following utility are required: Electricity Telephone Water

15 16

Showroom to be build in Year-6 Showroom to be build in Year-6 24

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Wooden Furniture Manufacturing Unit

11. 7

Suitable Location

The major clusters of hand carved wooden furniture in Pakistan are Chiniot & Gujrat, which are renowned for its craftsmanship. Skilled labour required for manufacturing of wooden furniture is sufficiently and easily available in other cities like Peshawar & Lahore. It is preferable to establish project and show room in vicinity of Lahore. Lahore is center of fashion and trends and a major market providing range of designs and styles and also fulfilling the demand of near off cities like Gujranwala, Kasur, Okara, and Sahiwal. As mentioned before, the retail outlet for the project can also be established in other major cities of the country i.e. Karachi, Islamabad, Multan & Rawalpindi.

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Wooden Furniture Manufacturing Unit

12 PROJECT ECONOMICS
12. 1 Project Cost Details Amount (Rs.) 3,600,000 4,590,000 523,500 91,100 248,790 9,053,390 696,000 500,000 1,196,000 10,249,390 70,896,02417 57% 3.48 Percentage 50% 50% 100% Amount in (Rs) 5,124,695 5,124,695 10,249,390 Description Land for Factory Building/Infrastructure for Factory Machinery & Equipment Office Equipment, Furniture for Factory Pre-operating Costs Total Capital Expenditure Raw Material Inventory Cash Total Working Capital Total Project Cost 12. 2 Project Returns NPV @ 18% IRR Payback Period (Years) 12. 3 Project Financing Details Description Equity Debt Total

17

NPV is high because Showroom is to be build in Year-6 having a capital cost of Rs. 45,493,270 which increases the Project Cost up to Rs. 55,742,661

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Wooden Furniture Manufacturing Unit

13 FINANCIAL ANALYSIS
13. 1 Projected Income Statement
SMEDA

Calculations
Projected Income Statement
Year 1 11,124,345 Year 2 15,202,165 Year 3 21,065,464 Year 4 29,989,600 Year 5 42,608,007 Year 6 64,832,785 Year 7 89,990,120 Year 8 116,454,790 Year 9 151,622,786

Revenue Cost of sales Procurement Cost Direct Labor (Production Staff) Direct Electricity Total cost of sales Gross Profit General administration & selling expenses Administration expense Electricity expense Communications expense (phone, fax, mail, internet, etc.) Transportation cost Office expenses (stationary, entertainment, janitorial services, etc.) Marketing expense Insurance expense Professional fees (legal, audit, consultants, etc.) Depreciation expense Amortization of pre-operating costs Amortization of legal, licensing, and training costs Subtotal Operating Income Other income (interest on cash) Earnings Before Interest & Taxes Interest expense on long term debt (Debt facility : Bank 1) Subtotal Earnings Before Tax Taxable earnings for the year Tax NET PROFIT/(LOSS) AFTER TAX Balance brought forward Total profit available for appropriation Dividend Balance carried forward

Year 10 200,489,478

5,726,256 2,334,000 180,000 8,240,256 2,884,089

7,027,380 3,149,400 198,000 10,374,780 4,827,385

8,724,549 4,046,340 261,360 13,032,249 8,033,215

10,970,504 5,272,974 319,440 16,562,918 13,426,681

13,984,599 6,382,271 351,384 20,718,254 21,889,753

18,083,300 7,602,499 483,153 26,168,952 38,663,834

23,724,913 8,944,748 531,468 33,201,129 56,788,991

31,575,164 10,541,223 701,538 42,817,926 73,636,864

42,603,463 12,177,346 771,692 55,552,501 96,070,285

58,224,198 13,977,080 990,338 73,191,616 127,297,862

480,000 292,320 24,000 171,788 2,400 55,622 290,960 24,879 1,341,968 1,542,121

528,000 321,552 26,400 210,821 2,640 76,011 290,960 24,879 1,481,263 3,346,122

580,800 353,707 29,040 261,736 2,904 105,327 290,960 24,879 1,649,354 6,383,861

638,880 389,078 31,944 329,115 3,194 149,948 290,960 24,879 1,857,999 11,568,683

702,768 427,986 35,138 419,538 3,514 213,040 290,960 24,879 2,117,823 19,771,930

1,546,090 470,784 77,304 542,499 7,730 324,164 290,960 24,879 3,284,411 35,379,423

1,700,699 517,863 85,035 711,747 8,503 449,951 608,935 24,879 4,107,612 52,681,379

1,870,768 569,649 93,538 947,255 9,354 582,274 608,935 24,879 4,706,653 68,930,212

2,057,845 626,614 102,892 1,278,104 10,289 758,114 608,935 24,879 5,467,673 90,602,612

2,263,630 689,275 113,181 1,746,726 11,318 1,002,447 608,935 24,879 6,460,392 120,837,470

1,542,121 756,010 756,010 786,111 786,111 196,528 589,583

3,346,122 664,932 664,932 2,681,190 2,681,190 670,298 2,010,893 589,583 2,600,475 2,600,475

6,383,861 512,982 512,982 5,870,879 5,870,879 1,467,720 4,403,159 2,600,475 7,003,635 7,003,635

11,568,683 338,616 338,616 11,230,066 11,230,066 2,807,517 8,422,550 7,003,635 15,426,185 15,426,185

19,771,930 138,528 138,528 19,633,403 19,633,403 4,908,351 14,725,052 15,426,185 30,151,236 30,151,236

35,379,423 4,026,782 4,026,782 31,352,641 31,352,641 7,838,160 23,514,480 30,151,236 53,665,717 53,665,717

52,681,379 4,026,782 4,026,782 48,654,597 48,654,597 12,163,649 36,490,948 53,665,717 90,156,665 90,156,665

68,930,212 3,541,664 3,541,664 65,388,547 65,388,547 16,347,137 49,041,410 90,156,665 139,198,075 139,198,075

90,602,612 2,732,326 2,732,326 87,870,286 87,870,286 21,967,572 65,902,715 139,198,075 205,100,790 205,100,790

120,837,470 1,803,592 1,803,592 119,033,878 119,033,878 29,758,470 89,275,409 205,100,790 294,376,198 294,376,198

589,583 0% 589,583

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Wooden Furniture Manufacturing Unit

13. 2

Projected Balance Sheet


SMEDA

Calculations
Projected Balance Sheet
Year 0 Assets Current assets Cash & Bank Accounts receivable Finished goods inventory Equipment spare part inventory Raw material inventory Total Current Assets Fixed assets Land Building/Infrastructure Machinery & equipment Furniture & fixtures Office vehicles Office equipment Total Fixed Assets Intangible assets Pre-operation costs Training costs Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Accounts payable Total Current Liabilities Other liabilities Deferred tax Long term debt (Debt facility : Bank 1) Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES 500,000 21,255 556,217 686,688 952,632 2,216,792 138,115 1,316,325 864,565 1,322,864 3,641,870 2,483,105 1,813,381 1,086,021 1,862,931 7,245,439 8,123,824 2,552,753 1,380,243 2,658,462 14,715,283 19,115,896 3,629,880 1,726,521 3,840,203 28,312,501 39,128,280 5,372,040 2,180,746 5,608,239 52,289,305 70,781,390 7,741,145 2,766,761 8,269,311 89,558,607 107,782,379 10,322,246 3,568,160 12,294,340 133,967,124 158,094,033 13,403,879 4,629,375 18,407,119 194,534,405 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Year 10

696,000 1,196,000

253,672,617 17,605,613 6,099,301 277,377,531

3,600,000 4,590,000 523,500 44,500 46,600 8,804,600

3,600,000 4,360,500 471,150 40,050 41,940 8,513,640

3,600,000 4,131,000 418,800 35,600 37,280 8,222,680

3,600,000 3,901,500 366,450 31,150 32,620 7,931,720

3,600,000 3,672,000 314,100 26,700 27,960 7,640,760

3,600,000 3,442,500 261,750 22,250 23,300 7,349,800

43,802,869 7,434,301 209,400 1,010,300 95,240 52,552,110

43,802,869 6,993,736 157,050 906,600 82,920 51,943,175

43,802,869 6,553,171 104,700 802,900 70,600 51,334,240

43,802,869 6,112,606 52,350 699,200 58,280 50,725,305

43,802,869 5,672,041 595,500 45,960 50,116,370

248,791 248,791 10,249,391

223,911 223,911 10,954,344

199,032 199,032 12,063,582

174,153 174,153 15,351,312

149,274 149,274 22,505,317

124,395 124,395 35,786,696

99,516 99,516 104,940,932

74,637 74,637 141,576,420

49,758 49,758 185,351,123

24,879 24,879 245,284,590

0 0 327,493,901

115,370 115,370

243,723 243,723

310,250 310,250

398,027 398,027

510,765 510,765

657,249 657,249

854,556 854,556

1,126,798 1,126,798

1,505,839 1,505,839

1,716,764 1,716,764

5,124,695 5,124,695

5,124,695 5,124,695

4,094,689 4,094,689

2,912,733 2,912,733

1,556,411 1,556,411

27,295,962 27,295,962

(52,766) 27,295,962 27,243,196

(105,533) 21,809,779 21,704,246

(158,299) 15,514,257 15,355,958

(211,065) 8,290,000 8,078,935

5,124,695 5,124,695 10,249,391

5,124,695 589,583 5,714,278 10,954,344

5,124,695 2,600,475 7,725,171 12,063,582

5,124,695 7,003,635 12,128,330 15,351,312

5,124,695 15,426,185 20,550,880 22,505,317

5,124,695 30,151,236 35,275,932 35,786,696

23,322,003 53,665,717 76,987,720 104,940,932

23,322,003 90,156,665 113,478,668 141,576,420

23,322,003 139,198,075 162,520,079 185,351,123

23,322,003 205,100,790 228,422,793 245,284,590

23,322,003 294,376,198 317,698,202 327,493,901

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Wooden Furniture Manufacturing Unit

13. 3

Projected Cash flow Statement


SMEDA

Calculations
Projected Cash Flow Statement
Year 0 Operating activities Net profit Add: depreciation expense amortization of pre-operating costs Deferred income tax Accounts receivable Finished goods inventory Equipment inventory Raw material inventory Accounts payable Other liabilities Cash provided by operations Financing activities Debt facility : Bank 1 - principal repayment Additions to Debt facility : Bank 1 Issuance of shares Cash provided by / (used for) financing activities Investing activities Capital expenditure Acquisitions Cash (used for) / provided by investing activities NET CASH Cash balance brought forward Cash available for appropriation Dividend Cash balance Cash carried forward Year 1 589,583 290,960 24,879 (556,217) (686,688) (256,632) 115,370 (478,745) Year 2 2,010,893 290,960 24,879 (760,108) (177,877) (370,232) 128,353 1,146,867 Year 3 4,403,159 290,960 24,879 (497,056) (221,456) (540,067) 66,527 3,526,946 Year 4 8,422,550 290,960 24,879 (739,372) (294,222) (795,531) 87,777 6,997,041 Year 5 14,725,052 290,960 24,879 (1,077,127) (346,278) (1,181,741) 112,738 12,548,483 Year 6 23,514,480 290,960 24,879 (1,742,159) (454,225) (1,768,036) 146,484 20,012,384 Year 7 36,490,948 608,935 24,879 (52,766) (2,369,106) (586,015) (2,661,072) 197,306 31,653,110 Year 8 49,041,410 608,935 24,879 (52,766) (2,581,100) (801,400) (4,025,029) 272,243 42,487,172 Year 9 65,902,715 608,935 24,879 (52,766) (3,081,633) (1,061,215) (6,112,779) 379,040 56,607,176

Year 10 89,275,409 608,935 24,879 (52,766) (4,201,734) (1,469,926) 18,407,119 210,926 102,802,840

(696,000)

(696,000)

5,124,695 5,124,695 10,249,391

(1,030,007) (1,030,007)

(1,181,956) (1,181,956)

(1,356,322) (1,356,322)

(1,556,411) (1,556,411)

27,295,962 18,197,308 45,493,270

(5,486,184) (5,486,184)

(6,295,522) (6,295,522)

(7,224,256) (7,224,256)

(9,053,391) (9,053,391) 500,000

(478,745) 500,000 21,255 21,255 21,255

116,860 21,255 138,115 138,115 138,115

2,344,990 138,115 2,483,105 2,483,105 2,483,105

5,640,719 2,483,105 8,123,824 8,123,824 8,123,824

10,992,072 8,123,824 19,115,896 19,115,896 19,115,896

(45,493,270) (45,493,270) 20,012,384 19,115,896 39,128,280 39,128,280 39,128,280

31,653,110 39,128,280 70,781,390 70,781,390 70,781,390

37,000,989 70,781,390 107,782,379 107,782,379 107,782,379

50,311,654 107,782,379 158,094,033 158,094,033 158,094,033

95,578,584 158,094,033 253,672,617 253,672,617 253,672,617

500,000 500,000 500,000

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14 KEY ASSUMPTIONS
Table 14-1 Operating Assumptions 8 25 300 Factory Hours Operational per day Days operational per month Days operational per year Showroom Hours Operational per day Days Operational per month Days Operational per year Table 14-2 Economy Related Assumptions 10% 10% 10% 3% 10% 40% 10% 5% of Administrative Costs 3% of Cost of Goods Sold 0.50% of Revenues Rs. 500,000 7 30 90 30 Straight Line 0% 5% 10% 10% Annual Electricity Price Growth Annual Salary Growth Rate Rent Growth Rate Annual Sale Price Growth Rate for other Showrooms Annual Sale Price Growth Rate for own Customers Annual Raw Material Price Growth Rate for Wood Annual Raw Material Price Growth Rate other than Wood Table 14-3 Expense Assumptions Communication Expense Transportation Expense Marketing Expense Table 14-4 Cash flow Assumptions Initial Cash in Bank Accounts Payable Cycle in (Days) Finished Goods Inventory in (Days) Raw Material Inventory of Wood in (Days) Raw Material Inventory other than Wood in (Days) Table 14-5 Depreciation Expense Depreciation Method Depreciation Rate for Land (Annual) Depreciation Rate for Factory & Showroom (Annual) Depreciation Rate for Machinery & Equipment (Annual) Depreciation Rate for Furniture, Fixture & Office Equipments (Annual)
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Pre-feasibility Study

Wooden Furniture Manufacturing Unit

Table 14-6

Financial Assumptions 10 50:50 25% 14% 5 1 18.50% Sole Proprietorship Tax Slabs Sale Price 72,000 55,000 48,000 70,000 51,000 40,000 56,000 37,000 31,000 18,000 14,000 11,000 73,000 43,000 32,000 Sale Price 85,000 65,000 55,000

Project Life (Years) Debt Equity Ratio Return on Equity Interest Rate on Long Term Debt Long Term Debt Tenure (Years) Number of Payment/Year Net Present Value Rate (Weighted Average Cost of Capital) Income Tax Rates Table 14-7 Description Bed Set Superior Fine Normal Dinning Set Superior Fine Normal Sofa Set Superior Fine Normal Misc. Furniture Superior Fine Normal Office Furniture Superior Fine Normal Table 14-8 Description Bed Set Superior Fine Normal Dinning Set Product Mix 20% 30% 50% 20% 30% 50% 20% 30% 50% 20% 30% 50% 20% 30% 50% Product Mix 20% 30% 50%

Revenue Assumptions from Sales to other Showrooms (First Year)

Revenue Assumptions from Sales to Own Customers (First Year)

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Superior Fine Normal Sofa Set Superior Fine Normal Misc. Furniture Superior Fine Normal Office Furniture Superior Fine Normal Table 14-9 Description Bed Set Superior Fine Normal Dinning Set Superior Fine Normal Sofa Set Superior Fine Normal Misc. Furniture Superior Fine Normal Office Furniture Superior Fine Normal

20% 30% 50% 20% 30% 50% 20% 30% 50% 20% 30% 50% Product Mix 20% 30% 50% 20% 30% 50% 20% 30% 50% 20% 30% 50% 20% 30% 50%

82,000 60,000 45,000 65,000 45,453 35,299 22,000 17,000 14,000 85,000 50,000 40,000 Cost Price 56,024 42,883 36,975 54,279 39,745 30,894 43,366 29,033 23,937 14,561 11,153 8,812 56,193 33,168 24,742

Cost of Goods Detail (First Year)

33 PREF-70/January, 2004/1

Pre-feasibility Study

Wooden Furniture Manufacturing Unit

Table 14-10: Raw Material Costing (Bed Set)18


Costing Bed Set Superior Quality Raw Material Cost Description Wood (Cubic ft) Nails/Screws Glue/Solution Spirit (in Ltr.) Lakh (in kgs) Thinner (in Ltr.) Lacquer (in Ltr.) Wooden Frame for Matress Sealer (in Ltr.) Dressing Set Glass Tapestry Dressing St. (in Meters) Foam Channels, Handles Thinner (Butyl) Thinner (imported) Direct Labor & Electricity Cost Costing Bed Set Fine Quality Raw Material Cost Description Wood (Cubic ft) Nails/Screws Glue/Solution Spirit (in Ltr.) Lakh (in kgs) Thinner (in Ltr.) Lacquer (in Ltr.) Sealer (in Ltr.) wooden Matress frame Dressing Set Glass Tapestry Dressing St. (in Meters) Foam Channels, Handles Thinner (Butyl) Thinner (imported) Direct Labor & Electricity Cost Costing Bed Set Normal Quality Raw Material Cost Description Wood (Cubic ft) Lasani Nails/Screws Glue/Solution Paint (in Ltr.) Thinner (in Ltr.) Lacquer (in Ltr.) Wooden Matress frame Dressing Set Glass Tapestry Dressing St. (in Meters) Foam COB (alternate for Hardner) Thinner (Butyl) Thinner (imported) Channels, Handles Direct Labor & Electricity Cost

No. of Unit Rate/Unit Total Amount 15 1200 18,000 1 200 200 1 200 200 20 50 1,000 1.5 350 525 8 60 480 2 200 400 1 1000 1,000 3 16 0.5 1 1 1 1 1 185 70 250 150 2000 190 150 29,929 555 1,120 125 150 2,000 190 150 29,929

No. of Unit Rate/Unit 12 1 1 15 1 4 2 2 1 16 0.5 1 1 1 1 1

800 200 200 40 350 60 200 185

Total Amount 9,600 200 200 600 350 240 400 370 1,000 1,120 125 150 2,000 190 150 26,188

No. of Unit 3 5 1 1 1 10 1 1 16 0.5 1 1 1 1 1 1

Rate/Unit 800 1,200 200 200 1,500 60 200 1,000 60 250 150 350 190 150 2000 20,950

Total Amount 2,400 6,000 200 200 1,500 600 200 1,000 960 125 150 350 190 150 2,000 20,950

1,000 70 250 150 2000 190 150 26,188

Total

56,024

Total

42,883

Total

36,975

18

Classic Furniture, Mr. Iqbal Hassan. Cell #: 0333-4299169, 0321-8499894 Al-Zahra Group, Mr. Zulfiqar Ali. Cell #: 0300-4261264, Showroom Ph: 042-6866392 Madina Furniture House, Mr. Farhan Abbas. Cell #: 0300-4237702, Showroom Ph: 042-5416465 34

PREF-70/January, 2004/1

Pre-feasibility Study

Wooden Furniture Manufacturing Unit

Table 14-11: Raw Material Costing (Dining Table)19


Costing Dinning Set Superior Quality Raw Material Cost Description Wood (Cubic ft) Poshish/Seat Nails/Screws Glue/Solution Spirit (in Ltrs.) Lakh (in Kgs) Thinner (in Ltrs.) Lacquer (in Ltrs.) Sealer (in Ltrs.) Glass Top (12 mm) in sq.ft Foam Tapestry (in Meters) Misc. Direct Labor & Electricity Cost Costing Dinning Set Fine Quality Raw Material Cost Description Wood (Cubic ft) Poshish/seat Nails/Screws Glue/Solution COB Paint Thinner (in Ltrs.) Lacquer Glass Top 12mm in (Sq.ft) Foam Tapestry (in Meters) Misc. Direct Labor & Electricity Cost Costing Dinning Set Normal Quality Raw Material Cost Description Wood (Cubic ft) Poshish/seat Nails/Screws Glue/Solution COB Lasani Paint Thinner (in Ltrs.) Lacquer Glass Top 12mm in (Sq.ft) Foam Tapestry (in Meters) Misc. Direct Labor & Electricity Cost

No. of Unit 8 8 1 1 18 2 8 2 2 32 1 5 1 1

Rate/Unit 1,200 200 400 300 50 350 60 200 185 200 1,200 300 500 29,929

Total Amount 9,600 1,600 400 300 900 700 480 400 370 6,400 1,200 1,500 500 29,929

No. of Unit 8 8 1 1 1 1 15 2 32 1 3 1 1

Rate/Unit 800 200 400 300 350 1,500 60 200 200 1,200 250 500 19,045

Total Amount 6,400 1,600 400 300 350 1,500 900 400 6,400 1,200 750 500 19,045

No. of Unit 4 8 1 1 1 1 1 10 2 32 1 3 1 1

Rate/Unit 800 150 400 300 350 1,200 1,500 60 200 140 1,200 200 500 14,964

Total Amount 3,200 1,200 400 300 350 1,200 1,500 600 400 4,480 1,200 600 500 14,964

Total

54,279

Total

39,745

Total

30,894

19

Classic Furniture, Mr. Iqbal Hassan. Cell #: 0333-4299169, 0321-8499894 Madina Furniture House, Mr. Farhan Abbas. Cell #: 0300-4237702, Showroom Ph: 042-5416465 35

PREF-70/January, 2004/1

Pre-feasibility Study

Wooden Furniture Manufacturing Unit

Table 14-12: Raw Material Costing (Sofa Set)20


Costing Sofa Set Superior Quality Raw Material Cost Description No. of Unit Rate/Unit Total Amount Wood (Cubic ft) 6 325 1,950 Poshish/per seat 6 700 4,200 Nails/Screws 1 100 100 Glue/Solution 1 400 400 Springs (Dozs) 7 144 1,008 Tat (in Meters) 10 50 500 Rubber Pati 25 8 200 Dori (in Kgs) 0.5 100 50 Foam "A" 1 5,500 5,500 Tapestry (in Meters) 30 400 12,000 Direct Labor & Electricity 1 17,458 17,458 Cost Costing Sofa Set Fine Quality Raw Material Cost Description No. of Unit Rate/Unit Total Amount Wood (Cubic ft) 6 325 1,950 Poshish/Seat 6 600 3,600 Nails/Screws 1 100 100 Glue/Solution 1 400 400 Spring (Doz) 7 144 1,008 Tat (in Meters) 10 50 500 Rubber Patti 25 8 200 Dori (in Kgs) 0.5 100 50 Foam 1 4,500 4,500 Tapestry 25 250 6,250 Direct Labor & Electricity 1 10,475 10,475 Cost Costing Sofa Set Normal Quality Raw Material Cost Description No. of Unit Rate/Unit Total Amount Wood (Cubic ft) 6 325 1,950 Poshish/Seat 6 500 3,000 Nails/Screws 1 100 100 Glue/Solution 1 400 400 Spring (Doz) 7 144 1,008 Tat (in Meters) 10 50 500 Rubber Patti 25 8 200 Dori (in Kgs) 0.5 100 50 Foam 1 4,000 4,000 Tapestry (in Meters) 20 200 4,000 Direct Labor & Electricity 1 8,729 8,729 Cost

Total

43,366

Total

29,033

Total

23,937

20

Classic Furniture, Mr. Iqbal Hassan. Cell #: 0333-4299169, 0321-8499894 Madina Furniture House, Mr. Farhan Abbas. Cell #: 0300-4237702, Showroom Ph: 042-5416465 36

PREF-70/January, 2004/1

Pre-feasibility Study

Wooden Furniture Manufacturing Unit

Table 14-13: Raw Material Costing (Misc. Furniture Set)21


Costing Misc. Funiture Superior Quality Raw Material Cost Description Wood (Cubic ft) Nails/Screws Glue/Solution Spirit (in Ltrs.) Lakh (in Kgs) Thinner (in Ltrs.) Lacquer (in Ltrs.) Sealer (in Ltrs.) Glass Top (12 mm) in sq.ft Misc. Direct Labor & Electricity Cost Costing Misc. Furniture Fine Quality Raw Material Cost Description Wood (Cubic ft) Nails/Screws Glue/Solution COB Paint Thinner (in Ltrs.) Lacquer Glass Top 12mm in (Sq.ft) Misc. Direct Labor & Electricity Cost Costing Misc. Furniture Normal Quality Raw Material Cost Description Wood (Cubic ft) Nails/Screws Glue/Solution COB Lasani Paint Thinner (in Ltrs.) Lacquer (in Ltrs.) Glass Top 12mm in (Sq.ft) Misc. Direct Labor & Electricity Cost

No. of Unit 6 1 1 8 1 3 1 1 17 1 1

Rate/Unit 1,200 100 300 50 350 60 200 185 200 500 1,746

Total Amount 7,200 100 300 400 350 180 200 185 3,400 500 1,746

No. of Unit 6 1 1 1 1 8 1 17 1 1

Rate/Unit 800 100 300 350 1,000 60 200 150 500 873

Total Amount 4,800 100 300 350 1,000 480 200 2,550 500 873

No. of Unit 3 1 1 1 1 1 8 1 17 1 1

Rate/Unit 800 100 300 350 1,200 1,000 60 200 100 500 582

Total Amount 2,400 100 300 350 1,200 1,000 480 200 1,700 500 582

Total

14,561

Total

11,153

Total

8,812

21

Classic Furniture, Mr. Iqbal Hassan. Cell #: 0333-4299169, 0321-8499894 37

PREF-70/January, 2004/1

Pre-feasibility Study

Wooden Furniture Manufacturing Unit

Table 14-14: Raw Material Costing (Office Furniture Set)22


Costing Office Furniture Superior Quality Raw Material Cost Description Wood (Cubic ft) Nails/Screws Glue/Solution Spirit (in Ltrs.) Lakh (in Kgs) Thinner (in Ltrs.) Lacquer (in Ltrs.) Sealer (in Ltrs.) Channels, Handles Thinner (Butyl) Thinner (imported) Executive Chair Visitors Chair Misc. Direct Labor & Electricity Cost Costing Office Furniture Fine Quality Raw Material Cost Description No. of Unit Rate/Unit Total Amount Wood (Cubic ft) 6 800 4,800 Nails/Screws 1 100 100 Glue/Solution 1 300 300 COB 1 350 350 Paint 1 1,000 1,000 Thinner (in Ltrs.) 8 60 480 Lacquer 1 200 200 Glass Top 12mm in 21 200 4,200 (Sq.ft) Channels, Handles 1 1500 1,500 Executive Chair 1 7500 7,500 Visitors Chair 2 3500 7,000 Misc. 1 500 500 Direct Labor & Electricity 1 5,238 5,238 Cost Costing Office Furniture Normal Quality Raw Material Cost Description Wood (Cubic ft) Nails/Screws Glue/Solution COB Lasani Paint Thinner (in Ltrs.) Lacquer (in Ltrs.) Channels, Handles Executive Chair Visitors Chair Misc. Direct Labor & Electricity Cost

No. of Unit Rate/Unit Total Amount 10 1,200 12,000 1 400 400 1 300 300 10 60 600 1.5 350 525 5 60 300 2 200 400 2 185 370 1 1 1 1 2 1 1 2000 190 150 12000 4500 500 17,458 2,000 190 150 12,000 9,000 500 17,458

No. of Unit 2 1 1 1 2 1 10 2 1 1 2 1 1

Rate/Unit 800 100 300 350 1,200 1,500 60 200 1500 6000 3000 500 3,492

Total Amount 1,600 100 300 350 2,400 1,500 600 400 1,500 6,000 6,000 500 3,492

Total

56,193

Total

33,168

Total

24,742

22

Classic Furniture, Mr. Iqbal Hassan. Cell #: 0333-4299169, 0321-8499894 38

PREF-70/January, 2004/1

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