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Feasibility Study
(Saw Mills)
Furniture Pakistan Ministry of Industries & Production Government of Pakistan
www.furniturepakistan.org.pk
HEAD OFFICE
A subsidiary of PIDC, Ministry of Industries & Production 4-A Lawrence Road,
Lahore-54000
Tel.: 092-042-99205271-3 Fax: -092-042-99205276
Note: All Services / information related to PM's Youth Business Loan are Free of Cost
February , 2014
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Table of Contents
1. DISCLAIMER .......................................................................................................................................... 3
2. PURPOSE OF THE DOCUMENT ......................................................................................................... 4
3. INTRODUCTION TO FURNITURE PAKISTAN ..................................................................... 4
4. INTRODUCTION TO SCHEME ........................................................................................................... 5
5. EXECUTIVE SUMMARY ...................................................................................................................... 5
6. BRIEF DESCRIPTION OF PROJECT & PRODUCT ........................................................................ 6
7. CRITICAL FACTORS ............................................................................................................................6
8. INSTALLED & OPERATIONAL CAPACITIES................................................................................. 6
9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ..................................................................... 7
10. POTENTIAL TARGET MARKETS ............................................................................................... 7
11. PRODUCTION PROCESS FLOW .................................................................................................. 7
12. PROJECT COST SUMMARY ......................................................................................................... 7
12.1 PROJECT ECONOMICS .................................................................................................................... 8
12.2 PROJECT FINANCING....................................................................................................................... 8
12.3 PROJECT COST ............................................................................................................................. .. 8
12.4 SPACE REQUIREMENT..................................................................................................................... 9
12.5 MACHINERY & EQUIPMENT ............................................................................................................. 9
12.6 RAW MATERIAL REQUIREMENTS .................................................................................................. 9
12.7 HUMAN RESOURCE REQUIREMENT .............................................................................................. 9
12.8 REVENUE GENERATION AND PRODUCTION MIX ....................................................................... .... 9
12.9 O T H E R C O S T S ....................................................................... .... 9
13. K E Y A S S U M P T I O N S ...................................................................................................... 10
14. ANNEXURE 14.1. INCOME STATEMENT (ANNEXURE 1) 14.2 BALANCE SHEET (ANNEXURE 2)
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1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a
general idea and information on the subject. Although, the material included in
this document is based on data / information gathered from various reliable
sources; however, it is based upon certain assumptions which may differ from
case to case. The information has been provided on ‘as is where is’ basis without
any warranties or assertions as to the correctness or soundness thereof. 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. Furniture
Pakistan, its employees or agents do not assume any liability for any financial or
other loss resulting from this memorandum in consequence of undertaking this
activity. The contained information does not preclude any further professional
advice. The prospective user of this memorandum is encouraged to carry out
additional diligence and gather any information which is necessary for making an
informed decision, including taking professional advice from a qualified
consultant / technical expert before taking any decision to act upon the
information.
For more information on services offered by Furniture Pakistan, please contact our website:
www.furniturepakistan.org.pk.org.pk
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2. 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 purpose of this document is to facilitate potential investors in Saw Mills by
providing them with a general understanding of the business with the intention of
supporting potential investors in crucial investment decisions.
The need to come up with feasibility reports for undocumented or minimally
documented sectors attains greater importance, as the research that precedes
such reports reveal certain thumb rules; best practices developed by existing
enterprises by trial and error, and certain industrial norms that become a guiding
source regarding various aspects of business set-up and it’s successful
management.
Apart from carefully studying the whole document one must consider critical
aspects provided later on, which form basis of any investment decision.
3. INTRODUCTION TO FURNITURE PAKISTAN
For many decades, since independence of Pakistan, Textile and agro based
products were considered to be the major commodities for export purposes.
Unfortunately, little concern was given to other industrial sectors for export
promotion. Due to drastic increase in population of Pakistan, the exports of these
products were not only reduced; instead, these commodities are imported from
around the world in order to fulfill the requirements of local population.
The need of time is to focus on different industrial sectors other than Textile and
agro-based products for diversification of our exports and uplift our economic
plight. The new sectors may involve labour intensive products, the quality of labour
intensive products are totally dependent on the skills of artisans and craftsmen.
The export from Sialkot in surgical and sports products is an example of labour
intensive diversification of products that can be exported and are readily
acceptable in the international markets. Through promotion of labour intensive
products, the job opportunities are enhanced and resources are utilized in an
appropriate way.
To promote and enhance the compatibility of the furniture industry and
craftsmanship of Pakistan in international markets, the Government of Pakistan
developed a strategy. Establishment of the company ‘Furniture Pakistan’ is the
major component of the strategy as envisioned by the eminent Government
Authorities.
The project was taken up as a joint collaboration between Small and Medium
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Enterprise Development Authority (SMEDA) and USAID. Renowned international
consultancy firms like J.E Austin were involved for this purpose. An organization
was formulated under the name of the Strategic Working Group (SWOG),
consisting of 27 members that included stakeholders from all major furniture
business and production clusters from across the country, as well as
representatives from SMEDA. The SWOG carried out cross-country studies of the
major furniture exporters of the world, and drafted the plan of incorporating their
techniques and technologies into Pakistan's industry, which then resulted in the
inception of Furniture Pakistan as a sector development company. The basic
structure of the company was formulated in 2007-08 and in 2009, Furniture
Pakistan initiated its operations under the administration of Pakistan Industrial
Development Corporation (PIDC).
4. INTRODUCTION TO SCHEME
Prime Minister’s Youth Business Loan’ scheme, for young entrepreneurs, with an
allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide
subsidized financing at 8% mark-up per annum for one hundred thousand
(100,000) beneficiaries, through designated financial institutions, initially by the
National Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL).
Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of
1 year grace period, and a debt: equity of 90: 10 will be disbursed to SME
beneficiaries+ across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa,
Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered
Tribal Areas (FATA).
5. Executive Summary:
The proposed project is for setting up a Saw Mill. This unit will be capable of
cutting lumber into cut to size planks as per the client requirement.
The project will focus and cater to the growing needs of domestic wooden furniture
market. Housing and construction industry has seen a steady growth over the last
many years due to a number of factors. These include; development of new
housing schemes, introduction of housing finance schemes / loans by different
banks, increased urbanization, a growing middle class and enhanced purchasing
power of the public. All these factors have contributed directly and indirectly
towards an increased demand for wooden furniture.
The wooden furniture business venture entails a total investment of about Rs.
190,2000/- . This includes a capital investment of Rs.750,000/-. The project is
financed through 90% debt and 10% equity. The project will generate direct
employment opportunity for 4 persons.
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6. BRIEF DESCRIPTION OF PROJECT & PRODUCT This unit is capable of cutting lumber into cut to size planks as per the client’s
requirement.
Although benchmark sawmill “A” is small in terms of annual production, it is
successful in its own right, and serves as a useful model for smaller, forward
looking operations. The factual and pictorial information contained in this report
is structured in a fashion that should assist the reader in making direct
comparisons to their own plants, and in identifying opportunities for improvements.
Where capital expenditures might be required, some possible sources of supply
are included to facilitate consideration by the reader.
The entire finished product depends on the quality of wood. Detailed technical
know-how about the quality of wood
7. CRITICAL FACTORS
Four core areas have been analyzed:
• The implementation of best practices
• Value-added / secondary wood product manufacturing
• Log home building
• Wood pellet manufacturing
• Selection of skilled and responsible labor is an important factor, as it can
improve quality of finished product by better craftsmanship & lower wastage.
It is recommended that specialized labor is hired for this business.
• Aggressive marketing needs to be undertaken.
• The manufacturing unit will require selling directly to furniture
manufacturers direct clients, for which the owner would need to develop
extensive knowledge of the market.
• Higher return on investment and a steady growth of business is expected
with the entrepreneur having some prior experience/education in the related
field of business.
• Easy access to raw material should be ensured.
8. INSTALLED & OPERATIONAL CAPACITIES
The proposed project is capable of handling lumber for cut to size planks with variable thicknesses as per the client’s requirement. Total quantity of lumber can be cut through the proposed saw mills is approx. 1872 tons per annum.
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9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT
The demand for cut to size wood is higher in densely populated cities of
Pakistan i.e. Lahore, Multan, Karachi, Peshawar, Rawalpindi and Islamabad,
making all these options viable. However, establishment of the unit in the vicinity
of established wooden furniture clusters i.e. Lahore, Chiniot or Gujrat & Karachi
gives the added advantage of easy availability of skilled labor.
10. POTENTIAL TARGET MARKETS Potential markets for cut to size wood can be categorized into the following; building contractors, suppliers, furniture manufacturers both large and small scale. Wooden furniture retail clusters are found in most areas of all big cities of Pakistan, where furniture manufacturing raw materials can be sold easily.
11. PRODUCTION PROCESS FLOW
12. PROJECT COST SUMMARY
A detailed financial model has been developed to analyze the commercial
viability of Saw Mill under the ‘Prime Minister’s Youth Business Loan’ scheme.
Various costs and revenue related assumptions along with results of the analysis
are outlined in this section.
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The projected Income Statement, Cash Flow Statement and Balance Sheet are
attached as annexure.
12.1 Project Economics:
It is estimated that around 1872 tons per annum will be cut by the proposed
saw mill program and the cost of each kg cut is approx.. Rs. 50 on an average.
The commercial viability of this project will depend upon the expertise and
creativeness of the workmen and their knowledge about the types of wood &
cutting techniques. Regular orders from customers will play a vital role in
sustainability of the project and delivering orders on time will add to the
credibility of the business.
12.2 Project Financing:
Details of the equity required and variables related to bank loan are as
follows:
Table 1: Project Financing Description Details
Total Equity (10%) Rs. 190,200 Bank Loan (90%) Rs. 1,711,800 Markup to the Borrower (Percentage / annum) 8% Loan Tenure (years) 8 Years Grace Period (years) 1 year
12.3 Project Cost: Following requirements have been identified for operations of the proposed business.
Table 2: Capital Investment for the project
Sr. No. Description Cost in PKR
Equipment
1 Trolley Log Saw Capacity 100 Cubic Feet/Day
750,000
750,000
Operating Cost (Per Month)
Sr. No. Description Cost in PKR
1 Utilities 54,000
2 Labour (4 Person @Rs. 10,000 per person)
40,000
3 Accessories/Maintenance 2,000
96,000
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12.4 Space Requirement: The project is proposed to be set-up in an owned premises, however following space requirement is proposed:
Table 3: Space Requirement
Space Requirement (in ft) Sq.ft Workshop 2400 Total Area 2400
12.5 Machinery and Equipment: Following combination of tools is required for this program:
Table 5: List of tools included in tool kit
Sr. No.
Description Qty Rate Amount
1. Trolley Log Saw 1 750,000 750,000
2. Accessories (clamps) 1 set 2000 2000
Total
75,2000
12.6 Consumables and Raw Material: Nil
12.7 Human Resource Requirement:
Table 5: Human Resource Requirement Description No. of
employees Salary per
person Rupees
Per Month Salary
Rupees
Annual Salary
Rupees Workmen 4 10,000 40,000 480,000
Total 480,000
12.8 Revenue Generation:
Table 6: Revenue Generation (at 60% of production capacity for first year) Product Sales price First Year
Production First Year Sales Revenue (Rs.) Wood Cutting 80 per
kg
1872 tons 2,340,000
Waste (5% of total cutting) 5 per kg
93.6 tons 436,800
Total Sales Revenue 1965.6 tons 2,776,800
12.9 Other Costs: Approximately 2400 sq.ft of space will be required to setup this p r o g r a m . utility charges @54,000/ (10% yearly increase). In year 1, which comes to Rs.648,000/- per annum, maintenance cost @ 2,000 per month which comes to be 24,000 per annum.
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13. KEY ASSUMPTIONS
Maximum Capacity Utilization 100%
REVENUE ASSUMPTIONS
80 Wood / kg (1st
year)
Sale price growth rate (15.5%) OR (times) 1.155
EXPENSES ASSUMPTIONS
Electricity Expenses Per/Year (Rs)
600,000
Equipments/ Machine maintenance Cost /year (% of total machinery cost) 2.%
Growth in maintenance cost (3 %) OR (times) 1.03
Pre-paid land rent (12 months) 0
Raw material 0.00
Consumables cost 0 Rent growth rate 5%
COST OF GOODS SOLD ASSUMPTIONS
COGS Growth Rate (21%) OR (times) 1.21
Financial Assumptions
Project Life (Years) 08
Debt 90%
Equity 10%
Interest Rate on Long term debt 8%
Debt Tenure (Years) 8
Debt payments per years 12
Grace Period (Year) 1
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Annexure-1
Prime Minister Youth Business Loan
Furniture Pakistan
Saw Mill
Income StatementYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 2,776,800 3,054,480 3,359,928 3,695,921 4,065,513 4,472,064 4,919,271 5,411,198 5,952,317 6,547,549
Cost of Good Sold
Operation Cost 1 (Direct Labour) 480,000 528,000 580,800 638,880 702,768 773,045 850,349 935,384 1,028,923 1,131,815
Operation Cost 2 (Direct Electricity) 540,000 594,000 653,400 718,740 790,614 869,675 956,643 1,052,307 1,157,538 1,273,292
Operation Cost 3 ( Raw Material) - - - - - - - - - -
Total Cost of Sales 1,020,000 1,122,000 1,234,200 1,357,620 1,493,382 1,642,720 1,806,992 1,987,691 2,186,461 2,405,107
Gross Profit 1,756,800 1,932,480 2,125,728 2,338,301 2,572,131 2,829,344 3,112,278 3,423,506 3,765,857 4,142,443
General Administration & Selling Expense
Administration expense - - - - - - - - - -
Building Rental expense - - - - - - - - - -
Utility expense 108,000 118,800 130,680 143,748 158,123 173,935 191,329 210,461 231,508 254,658
Travelleing expense - - - - - - - - - -
Communciation expense - - - - - - - - - -
Maintenance 24,000 26,400 29,040 31,944 35,138 38,652 42,517 46,769 51,446 56,591
Sub Total 132,000 145,200 159,720 175,692 193,261 212,587 233,846 257,231 282,954 311,249
Earning Before Interest 1,624,800 1,787,280 1,966,008 2,162,609 2,378,870 2,616,757 2,878,432 3,166,276 3,482,903 3,831,193
Interest Expense on long term debt 136,944 130,074 114,297 97,210 78,705 58,663 36,959 13,453 - -
Earnings after Interest 1,487,856 1,657,206 1,851,711 2,065,399 2,300,165 2,558,094 2,841,473 3,152,823 3,482,903 3,831,193
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Annexure-2
Prime Minister Youth Business Loan
Furniture Pakistan
Saw Mill
Balance SheetYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Current Assets
Cash & Bank 1,902,000 2,639,856 4,297,062 6,148,773 8,214,172 10,514,336 13,072,430 15,913,903 19,066,726 22,549,629 26,380,822
Total Current Assets 1,902,000 2,639,856 4,297,062 6,148,773 8,214,172 10,514,336 13,072,430 15,913,903 19,066,726 22,549,629 26,380,822
Fixed Assets
Machinery & Equipment - 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000
Furniture & Fixture - - - - - - - - - - -
Office Equipment - - - - - - - - - - -
Total Fixed Assets - 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000
Total Assets 1,902,000 3,389,856 5,047,062 6,898,773 8,964,172 11,264,336 13,822,430 16,663,903 19,816,726 23,299,629 27,130,822
Liabilities & Shareholder's Equity
Current Liabilities
Accounts Payable - - - - - - - - - -
Total Current Liabilities - - - - - - - - - -
Other Liabilities
Long Term Debt 1,711,800 1,711,800 1,521,709 1,315,840 1,092,884 851,423 589,920 306,713 - -
Shareholder's Equity
Paid up Capital 190,200 190,200 380,291 586,160 809,116 1,050,577 1,312,080 1,595,287 1,902,000 1,902,000 1,902,000
Retained earnings - 1,487,856 3,145,062 4,996,773 7,062,172 9,362,336 11,920,430 14,761,903 17,914,726 21,397,629 25,228,822
Total Equity 190,200 1,678,056 3,525,353 5,582,933 7,871,288 10,412,913 13,232,510 16,357,190 19,816,726 23,299,629 27,130,822
Total Capital and Liabilities 1,902,000 3,389,856 5,047,062 6,898,773 8,964,172 11,264,336 13,822,431 16,663,904 19,816,726 23,299,629 27,130,822
