SMEDA Boutique (Women Designer Wear)

Pre-Feasibility Study

BOUTIQUE (Women Designer Wear)

Small and Medium Enterprises Development Authority

Government of Pakistan www.smeda.org.pk

HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore

Tel (042)111 111 456, Fax: 36304926-7

[email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE KHYBER PAKTUNKHWA

REGIONAL OFFICE BALOCHISTAN

8th Floor LDA Plaza,

Egerton Road, Lahore.

Tel: (042) 111 111 456, Fax: (042) 36370474

[email protected]

5th Floor, Bahria Complex II, M.T.

Khan Road, Karachi.

Tel: (021) 111-111-456 Fax: (021) 5610572

[email protected]

Ground Floor

State Life Building The Mall, Peshawar.

Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908

[email protected]

Bungalow No. 15-A Chamn

Housing Scheme Airport Road, Quetta.

Tel: (081) 2831623, 2831702 Fax: (081) 2831922

[email protected]

December, 2011

Pre-Feasibility Study Boutique (Women Designer Wear)

DISCLAIMER

The purpose and scope of this information memorandum is to introduce the subject

matter and provide a general idea and information on the said area. All the material

included in this document is based on data/information gathered from various

sources and is based on certain assumptions. Although, due care and diligence has

been taken to compile this document, the contained information may vary due to any

change in any of the concerned factors, and the actual results may differ substantially

from the presented information. SMEDA does not assume any liability for any

financial or other loss resulting from this memorandum in consequence of

undertaking this activity. Therefore, the content of this memorandum should not be

relied upon for making any decision, investment or otherwise. The prospective user

of this memorandum is encouraged to carry out his/ her own due diligence and

gather any information he/she considers necessary for making an informed decision.

The content of the information memorandum does not bind SMEDA in any legal or

other form.

DOCUMENT CONTROL

Document No. PREF-57

Revision 3

Prepared by SMEDA-Punjab

Revision Date December, 2011

Issued by Library Officer

PREF-57/Dec, 2011/ Rev 03 2


1 EXECUTIVE SUMMARY ................................................................................ 5

2 INTRODUCTION .............................................................................................. 6 2.1 PROJECT BRIEF................................................................................................ 6 2.2 OPPORTUNITY RATIONALE.............................................................................. 6 2.3 PROPOSED CAPACITY...................................................................................... 7 2.4 TOTAL PROJECT COST:.................................................................................... 7

3 CURRENT INDUSTRY STRUCTURE ........................................................... 7

4 MARKETING..................................................................................................... 8

5 RAW MATERIAL.............................................................................................. 9 5.1 RAW MATERIAL.............................................................................................. 9

6 PRODUCTION PROCESS FLOW .................................................................. 9 6.1 PRODUCTION PROCESS FLOW.......................................................................... 9

7 PRODUCTS ...................................................................................................... 10 7.1 PRODUCT MIX............................................................................................... 10

7.1.1 Ethnic Wear........................................................................................... 11 7.1.2 Contemporary Wear .............................................................................. 11 7.1.3 Western Wear ........................................................................................ 11

7.2 COSTS OF GOODS SOLD AND OTHER EXPENSES:............................................ 11

8 HUMAN RESOURCE REQUIREMENTS.................................................... 12

9 MACHINERY/EQUIPMENT DETAILS ...................................................... 12

10 PREMISES FOR SHOP AND STITCHING UNIT................................... 14 10.1 RECOMMENDED MODE FOR RENTING A SHOP ........................................... 14 10.2 INFRASTRUCTURE REQUIREMENTS............................................................. 14

11 KEY SUCCESS FACTORS ......................................................................... 14

12 THREATS FOR THE BUSINESS............................................................... 15 12.1 COMPETITIVE STRUCTURE OF THE MARKET ............................................... 15 12.2 ECONOMIC RECESSION .............................................................................. 15 12.3 PILFERAGE IN THE DESIGNS........................................................................ 15 12.4 SELECTION OF THE WRONG VENUE............................................................. 15 12.5 SELECTION OF THE WRONG DESIGN............................................................ 15 12.6 TAX ........................................................................................................... 15

13 PROJECT ECONOMICS ............................................................................ 16 13.1 PROJECT COST, FINANCING PLAN AND PROJECT RETURNS:....................... 16

14 FINANCIAL ANALYSIS ............................................................................. 17 14.1 PROJECTED INCOME STATEMENT:.............................................................. 17

PREF-57/Dec, 2011/ Rev 03 3


14.2 PROJECTED CASH FLOW STATEMENT: ....................................................... 18 14.3 PROJECTED BALANCE SHEET STATEMENT:................................................ 19

15 KEY ASSUMPTIONS .................................................................................. 20 15.1 PRODUCTION ASSUMPTIONS ...................................................................... 20 15.2 OPERATING ASSUMPTIONS ........................................................................ 20 15.3 CASH FLOW ASSUMPTIONS ........................................................................ 20 15.4 EXPENSE ASSUMPTIONS............................................................................. 20 15.5 FINANCIAL ASSUMPTIONS ......................................................................... 20

16 ANNEXURE: ................................................................................................. 21

PREF-57/Dec, 2011/ Rev 03 4


11 EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY Clothing is a beautiful visual demonstration of the social and emotional needs of people wearing it. It also portrays in a clearly understood visual manner, what people of different cultures and styles want socially. Fashion, through times, has gone through so many rapid changes and bizarre extremes that it has examples of nearly every kind of clothing function. The range of Pakistani dresses is remarkably wide, according to the vast cultures, geographical differences, purchasing capacities, influence of the western culture, and bewildering diversities of the ethnic groups. One has, therefore, to sift and isolate, and then relate and bring together, the ideas for creating various designs, which can fit in the context of the fashion in vogue and the culture in practice. Few years back Boutique industry of Pakistan was totally unorganized and only few players were working. But now the scenario is totally changed as a lot of business enterprises have entered in to this industry rapidly and still many more are expected. The reason behind this change is the shift in demand of people of Pakistan in recent years. Many people now prefer to purchase readymade designers outfits instead of measure to make clothing. So now we can say that the Boutique Industry of Pakistan is much Organized and Competitive as well. One needs to come up with innovative ideas of dress designing and marketing in order to grab market share in Pakistan. Beside local market, there is a huge demand of Pakistan Cultural dresses and bridle ware in international market especially in United Kingdom and United Arab Emirates. So one can also export his designer wear dresses. The Boutique shop needs a total investment of about Rs. 4.072 million. This includes a capital investment of Rs.2.007 million and a sum of Rs.2.064 million as working capital. Projected IRR, NPV and Payback period of the proposed project are 39%, Rs. 9.983 million and 4.11 years respectively. The pre-feasibility study is prepared by SMEDA and is intended on the establishment of women designer wear Boutique including the operations of apparel designing, manufacturing, marketing and selling. The study has been designed to capture the dynamics of the Boutique industry with its many components and possible strategic opportunities.

PREF-57/Dec, 2011/ Rev 03 5


22 IINNTTRROODDUUCCTTIIOONN

2.1 Project Brief The pre-feasibility study focuses on the establishment of women designer wear Boutique including the operations of apparel designing, stitching, selling and marketing. The study has been designed to capture the dynamics of the Boutique industry with its many components and possible strategic opportunities.

2.2 Opportunity Rationale Clothing is a beautiful visual demonstration of the social and emotional needs of people wearing it. It also portrays in a clearly understood visual manner, what people of different cultures and styles want socially. Fashion, through times, has gone through so many rapid changes and bizarre extremes that it has examples of nearly every kind of clothing function.

However, in a boutique business, the specifications and descriptions of the designs and clothes are so general that they can fit more than one costume, which actually are quite different in nature from each other and this is solely dependent on the taste of the people.

The range of Pakistani dresses is remarkably wide, according to the vast cultures, geographical differences, purchasing capacities, influence of the western culture, and bewildering diversities of the ethnic groups. One has, therefore, to sift and isolate, and then relate and bring together, the ideas for creating various designs, which can fit in the context of the fashion in vogue and the culture in practice.

In reference to Pakistan, the Boutique business is quite in vogue and very much organized now. Few years back the market of this enterprise was quite scattered and unorganized. There were a few major players in Boutique business and those entrepreneurs have also taken an initiative based on their caprice and experience in the field of fashion design. However, now the scenario is totally changed in Boutique industry of Pakistan and there is an intense competition in this industry. A Lot of organizations enter in this market as wearing trend changes with the passage of time. But still there is a massive potential in this field, if one has the ability to design and market his/her products through introducing innovative designs both in stitching as well as the fabric sector. So one need to market its products through innovative, eye catching designs and massive advertisement.

Furthermore, there is massive export potential in this sector, as the demand of Pakistani dresses, especially in countries like UAE, USA, and UK, is massive due to a high number of Pakistani expatriates who have settled in these countries. The Boutique business can also be expanded into a more profitable venture by providing stitching facilities to other boutiques, which do not own a stitching unit or are lacking this facility.

PREF-57/Dec, 2011/ Rev 03 6


2.3 Proposed Capacity

The Boutique business capacity is greatly dependent on the market size and the number of potential clientele one can attract. Furthermore, the women fashion wear garments will be designed through two in-house designers and then stitched through in-house stitching unit. On average, a designer can supply 3,000 designs per annum from which nearly 100 designs are selected on average. Approximately, total capacity of the defined unit with 6 stitching machines (basis on 8-10 hours shift) will be about 1,920 dresses. The breakup of the total number of dresses will be as follows:

TTaabbllee 22--11:: PPrrooppoosseedd CCaappaacciittyy

Total designs selected by designer 120Number of dresses in each design 4Number of dresses in each size 4Total Number of Ready Made Dresses 1,920Made to Order as percentage of Ready Made Dresses @ 40%.

768

Total No. of Dresses 2,688This production and sales capacity is estimated to be economically viable and justifies the capital as well as operational costs of the project.

2.4 Total Project Cost: The proposed Boutique shop would need a total investment of about Rs. 4.072 million. This includes a capital investment of Rs.2.007 million and a sum of Rs.2.064 million as working capital.

33 CCUURRRREENNTT IINNDDUUSSTTRRYY SSTTRRUUCCTTUURREE Currently, the boutique industry is relatively organized and is working in and around the posh areas of the metropolitan cities of Pakistan i.e. Lahore, Islamabad, Karachi, Peshawar, Quetta, Faisalabad, Sialkot and Multan. The boutiques in Peshawar and Quetta, mostly sell the traditional dresses having indigenous/local designs, whereas the ones in Lahore, Islamabad, and Karachi deal in fashion wear greatly influenced by the west and the local trends in vogue. As such, there is no exact detail available of the number of boutiques, especially in women wear, because there is no association or link between these enterprises. The reason being the business rivalries and the competitive structure of this industry. However, one can name a few major players in the business such as Indifference, The Working Women, Mohagni, Generation, Chinyor, Parahan, Beech Tree, Nee Punhal, Bossini, Kapre Waghera, Maria B, Nina’s, and some individual designer players like Beejee’s, Nilofar Shahid, Nadia Mistri, Amir Adnan, Shayan Malik, and Sahar Saigol. Beside these, there are many other Brands who entered in Boutique industry in last few years which make this industry very much competitive.

PREF-57/Dec, 2011/ Rev 03 7


44 MMAARRKKEETTIINNGG The marketing of boutique follows the conventional marketing pattern which is dependent on selection of venue of the outlets and the product mix (designs and sizes), as well as the promotional strategy. Furthermore, the boutique owner has to use marketing techniques like: • Usage of print media i.e. printing of boutique Catalog and Pamphlets which will

comprise on own designs and different promotional and business information to attract customers. Catalogs and Pamphlets can be sent to loyal customers at their homes to provide New Arrival Information.

• Advertisement in print media i.e. newspapers and fashion magazines, etc. • Outdoor Advertisement i.e. should launch a complete outdoor marketing

campaign with Hoarding and Streamers in target area to spread information regarding Boutique Opening.

• Cable Advertisement i.e. should advertise the boutique through a TVC on cable networks of Targeted Area. This will provide the required mileage in very low cost.

• Usage of electronic media i.e. projection of the boutique in fashion programs, advertisement on television, and provision of dresses to various television plays and films. As initially the proposed target market is Lahore, therefore it is suggested to advertise on City 42 channel only to cut cost of advertisement.

• Event arrangement like fashion shows and photo-shoots. • Usage of e-commerce i.e. launching of website and advertising on web. • Social Media Networks i.e. develop own business pages on face book and twitter

may that more people could see the designs on line by using internet and can grab all the information regarding new arrivals and promotions going on.

• Membership Cards can also be issued to the regular customer of the boutique through which they can get 10% to 15% discount on purchases.

Moreover, in order to keep abreast with the emerging trends and client tastes, surveys regarding customer satisfaction/needs should be a regular feature of this project.

As this project of Boutique deals in designer women wear, therefore the product mix will comprise of different styles of the female dresses in different sizes. Whereas the styles will be Shalwar Kameez, Q-lots, Pajama Kameez, Frocks, Kurta, Peeshwaz, Party dresses, Casual Dresses and other prevalent dresses based on the market trends. Beside this Boutique will also deal in Bridal Dresses in readymade category as well as on made to measure basses.

Apart from this, there is a huge export potential in this industry for Pakistan, which is evident from the export figures of Rs. 161,492.91 millions for Ready Made Garments available at Federal Bureau of Statistics website.

1 Figure represents over all Export of Ready made Garment from Pakistan. This figure is taken from following link. http://www.statpak.gov.pk/fbs/sites/default/files/other/yearbook2011/Foreign%20Trade/9-7.pdf

PREF-57/Dec, 2011/ Rev 03 8


Most of the women dresses prepared in Pakistan are exported to USA, UK, Germany, UAE, Saudi Arabia, France, Belgium, Netherlands, and South Africa. The end users of these dresses in foreign countries are mostly Pakistani and Indian women who have immigrated to these countries.

55 RRAAWW MMAATTEERRIIAALL

5.1 Raw Material The raw-material required for such sort of projects, would be as follows: • Fabric: The fabric, which is the basic raw material requirement for a boutique

and a major component of the cost, can be obtained from wholesale markets or from markets specializing in designer cloth at Faisalabad, Karachi, and Lahore.

• Accessories: Accessories such as buttons, laces, zippers, elastics, threads, needles, embroidery threads, glasses, etc. will be procured from the local market at competitive rates.

• Labels, tags and packaging: Labels and tags can be obtained on order, as these serve as an identity for the boutique and are useful for promotion.

66 PPRROODDUUCCTTIIOONN PPRROOCCEESSSS FFLLOOWW

6.1 Production Process Flow The process for converting fabric in designer wear garments follows the below mentioned sequence: • Purchasing of Material: The first process of designer wear suits is the

purchasing of Raw Material such as Fabric and Accessories. Purchasing of Raw Material is done in the beginning because every year textile industry uses to introduce new designs in fabric and also change the quality of fabric. As boutique industry is dependent on the textile industry therefore they use to purchase raw material in the beginning may that they well aware of the latest designs and could design their garments according to the newly introduced trends by Textile industry.

• Design: The second step starts from the designing phase. Various patterns of clothing and the fashions in vogue, which also relate to the tastes of the concerned clientele, are designed. This is done by the contracted designer as he/she will provide the basic designs of which the fabric will be converted into the designer wear garment. On average, a designer is supposed to provide more than 250 designs per month or 750-800 designs per season i.e. three months. From these designs, approximately 10% of the designs are selected for further development of clothes.

• Pattern Making/Cutting: Based on the designs selected, patterns for cutting are developed and based on these patterns, fabric is cut, embroided, block printed, and processed accordingly.

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• Stitching: The cutting is then followed by stitching, which can either be done by In-house stitching unit or by Outsourcing it2. Labels are also attached to the apparels in this process.

• Finishing: The final phase is that of finishing, in which the garment will be checked for quality control and will cleaned (if required) for final presentation at the outlet. The garments will be ironed and also be tagged for identification of sizes, prices, addresses, handling instructions, etc.

• Presentation/Market: Once the designer wear garment is ready after going through the above-mentioned process, it is presented at the outlet/shop for sale to the clientele.

FFiigguurree 66--11:: PPrroodduuccttiioonn PPrroocceessss FFoollllooww

Purchasing of Raw

Material

Designing

Pattern Making

Stitching

Embroidery

Cutting

Finishing

Presentation

Market/Clientele

77 PPRROODDUUCCTTSS

7.1 Product Mix

Products will be priced at the high end to reflect the quality and exclusiveness associated with the brand. High-end materials such as Crinkle Chiffon, Georjot Chiffon, Chinese Raw Silk, Medium Silk, Leafy Print Jamawar, Chamose Silk etc will be used. This boutique will offer following product categories of women wears:

Casual Wear Semi Formal Wear

2 In case of over-lock stitching, it will be done in-house. The stitching of buttonholes as well as elastic embedding will be outsourced. This will cost approximately @Rs.5 per dress.

PREF-57/Dec, 2011/ Rev 03 10


Formal Wear Each product category will include the following product lines:

7.1.1 Ethnic Wear

Formal Wear – Party dresses and special occasion dresses

7.1.2 Contemporary Wear

Fusion Wear – Combination of eastern and western wear, suitable for the international market as well.

7.1.3 Western Wear

Tops, Pants and various other styles

The combination of outfits for the proposed outlet will be as follows

TTaabbllee 77--11 PPrroodduucctt MMiixx

Category % Of Total Outfits Casual Wear 60% Semi Formal Wear 30% Formal Wear 10%

TTaabbllee 77--22 AAvveerraaggee SSaallee PPrriiccee Category Avg. Price per outfitCasual Wear 3,200Semi Formal Wear 6,500Formal Wear 16,500

7.2 Costs of Goods Sold and other Expenses:

The cost of goods sold has been taken as a percentage of sale price; which is 20% of sale price of a product is estimated as Material cost of that particular product.

PREF-57/Dec, 2011/ Rev 03 11


88 HHUUMMAANN RREESSOOUURRCCEE RREEQQUUIIRREEMMEENNTTSS The project of Boutique requires the following Human Resources/Staff:

TTaabbllee 88--11 SSttaaffff SSaallaarriieess

Positions Required Salary per Month Salary per AnnumCEO/ Marketing Manager 1 50,000 600,000Design Manager 1 40,000 480,000 Asst Design Manager & Purchase Officer

1 25,000 300,000

Master Tailor 2 12,000 288,000 Tailors 6 9,000 648,000 Embroidery Workers 4 9,000 432,000 Press/iron man/finishing 1 8,000 96,000Dyer 1 8,000 96,000 Cashier/ Head Sales Girl 1 15,000 180,000 Sales Girls 2 13,000 312,000 Accountant 1 17,000 204,000 Office Boy 2 7,000 168,000 Guard 2 8,000 192,000Total 25 333,000 3,996,000

99 MMAACCHHIINNEERRYY//EEQQUUIIPPMMEENNTT DDEETTAAIILLSS The boutique will require a small in-house stitching unit. The cost of the stitching machinery will be as follows:

TTaabbllee 99--11:: MMaacchhiinneerryy DDeettaaiill

Stitching Machinery 3 No. Rs/Unit Rs.Single needle lock stitching machine 6 19,500 117,000Over lock Machine 2 38,500 77,000Embroidery 2 46,000 92,000Generator for Workshop of 1200 KW 1 350,000 350,000UPS of 2200 Watts for Outlet 1 65,000 65,000Total 701, 000

3 Though the prices here are given of the new machines but second hand machines are also widely available which can function properly and can reduce the project cost too.

PREF-57/Dec, 2011/ Rev 03 12


Furthermore, the following will also be required to setup a Boutique:

TTaabbllee 99--22--OOffffiiccee EEqquuiippmmeenntt

Other Equipment No. Rs/Unit RsComputers 5 40,000 200,000Computer printer 2 15,000 30,000Telephones 4 2,000 8,000Total 238, 000

TTaabbllee 99--33--FFuurrnniittuurree aanndd FFiixxttuurreess ddeettaaiill::

Furniture Description Quantity Cost / Rate Rs. Air Conditioner 1.5 ton split 4 40,000 160,000Office Table 6x3 with Box 1 16,000 16,000Grace Office Chair 1 9,000 9,000Office Tables 2.5x4 4 4,800 19,200Office Chairs 4 2,600 10,400Visitors Chairs 8 1,800 14,400Work Shop Chairs 14 1,000 14,000Hanging Units and Storage Cabinets 7 15,000 105,000

Cutting Tables at Work shop 2 2,500 5,000Iron Table 1 2,500 2,500Energy Savers 30 160 4,800Fans 11 2,500 27,500Electric Iron 2 3,000 6,000Scissors 12 500 6,000

Statues 5 3,500 17,500

Embroidery Frame Set 1 10,000 10,000 Chalks (Pack) 3 100 300 Cutting Scales 5 150 750 Measuring scales 10 25 250 Wood Flooring 450 115 51,750 Roof Sealing 450 50 22,500 Wall Mirror 2 10,000 20,000 Wall Papers for Outlet 450 50 22,500 Main door 1 25,000 25,000 Shop Fascia 1 40,000 40,000 Decoration Pieces 8 1,000 8,000 Lighting for Outlet 1 20,000 20,000 Total 638,350

PREF-57/Dec, 2011/ Rev 03 13


1100 PPRREEMMIISSEESS FFOORR SSHHOOPP AANNDD SSTTIITTCCHHIINNGG UUNNIITT

10.1 Recommended Mode for Renting a Shop It is recommended that the proposed location for the said enterprise be a posh area, where people have the buying capacity for women fashion wear, for example a boutique can be opened in W town, as it is newly developed area and people of Wapda Town also have the purchasing power of Designer wear clothes. Plus Wapda town is very much economical as compared to Defense and Gulberg with low competition as well. The size of the shop should be at least 550 Sq.ft i.e. 20 feet front and 27.5 feet depth. Furthermore, a small building will be required to establishing the stitching unit. One viable option is to rent a small house for this purpose.

The shop will be obtained on rental basis, and the rent estimation for such a shop is Rs. 82,500 / month. According to the prevailing practice, three months’ rent as security would be required for renting the shop. It is assumed that security is a one-time expenditure, whereas the rent is paid quarterly in advance.

The cost estimates for setting up the Boutique are as follows:

TTaabbllee 1100--11 RReenntt CCoosstt DDeettaaiill

Rs.Security for renting shop/outlet (Rent @ Rs.82, 500 per month. 3 months rent as security) 247,500

Interior decoration (installing lighting, mannequins, hanging racks, mirrors, glass panes, cash counter, and other décor, etc.)

209,750

Security for renting a house for installing the stitching unit (Rent @ Rs15, 000 per month) 45,000

10.2 Infrastructure requirements

The project will have the following infrastructure components:

TTaabbllee 1100--22--IInnffrraassttrruuccttuurree RReeqquuiirreemmeenntt

Description Sq.ft.Main shop 450Try Room 36Small Store 64Building for Stitching Unit 10 Marla House

1111 KKEEYY SSUUCCCCEESSSS FFAACCTTOORRSS There are a number of factors, which contribute towards the success of a project. In case of the project of Boutique, some of the Key Success Factors are as follows:

PREF-57/Dec, 2011/ Rev 03 14


• Proper care while producing dresses should be adopted • Proper Inventory management i.e. keeping minimum inventory as per past sales

trends. • The dress designs should be according to the emerging trends and fashions. • Designing of dresses according to the consumer tastes/preferences gathered

through consumer surveys. • The location of the outlet should be properly selected and attractively decorated

so as to target the clientele effectively. • The customer satisfaction should be given due importance, because it is the

customer satisfaction, which can increase the sales. Hence, excellent customer service should be provided.

• A well designed Marketing campaign is very important while Launching the business and at the time of promotions to get success.

1122 TTHHRREEAATTSS FFOORR TTHHEE BBUUSSIINNEESSSS

12.1 Competitive Structure of the market The market of the boutiques is highly competitive; therefore if the entrepreneur is not well responsive to the tastes and response of the clientele as well as the fashions in vogue he/she may not be able to capitalize the opportunity properly.

12.2 Economic Recession World wide intense economic recession is a largest threat for any business activity now days. Therefore one needs to take proactive actions according the economic instigators for survival in business.

12.3 Pilferage in the designs The designs which a designer produce can be sold by the staff even before that design is launched and that can pose serious threat to the business because in the fashion industry it is the uniqueness of the design which matters.

12.4 Selection of the wrong venue

Selection of the wrong venue can be a major hurdle in achieving the desired business objectives.

12.5 Selection of the wrong design If the designs are not selected according to the tastes of the clientele then it can be detrimental for the business, so the clientele taste should be properly tracked.

12.6 Tax

Improper documentation of the sales receipt record may lead to problems with Tax department.

PREF-57/Dec, 2011/ Rev 03 15


PREF-57/Dec, 2011/ Rev 03 16

1133 PPRROOJJEECCTT EECCOONNOOMMIICCSS

13.1 Project Cost, Financing Plan and Project Returns: Capital Investment Rs. in actualsMachinery & equipment 701,000 Furniture & fixtures 638,350 Office equipment 238,000 Pre-operating costs 430,000 Total Capital Costs 2,007,350

Working Capital Rs. in actualsEquipment spare part inventory 2,576 Raw material inventory 142,195 Upfront building rent 1,170,000 Cash 750,000 T 2,064,771

T 4,072,121

Rs. in actualsD 2,036,061

2,036,061

y Project39%

P 4.11 8 9,982,958

otal Working Capital

otal Investment

Initial Financingebt 50%

Equity 50%

EquitInternal Rate of Return (IRR) 56%

ayback Period (yrs) 3.40 Net Present Value (NPV) 6,493,15


1144 FFIINNAANNCCIIAALL AANNAALLYYSSIISS

14.1 Projected Income Statement: Calculations SMEDAIncome Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Revenue 8,531,712 11,357,069 14,288,145 17,691,865 20,592,508 22,701,543 24,971,697 27,468,867 30,215,753 33,237,329 Cost of sales

Cost of goods sold 1 1,706,342 2,168,168 2,603,749 3,077,467 3,419,209 3,598,060 3,777,963 3,966,861 4,165,205 4,373,465 Operation costs 1 (direct labor) 2,242,500 2,552,541 2,803,157 3,077,865 3,385,799 3,723,611 4,086,147 4,483,980 4,920,546 5,399,618 Operating costs 2 (machinery maintenance) 15,456 19,639 23,585 27,876 30,971 32,591 34,221 35,932 37,728 39,615 Operating costs 3 (direct electricity) 240,148 319,676 402,179 497,986 579,632 638,997 702,897 773,186 850,505 935,555

Total cost of sales 4,204,447 5,060,024 5,832,669 6,681,194 7,415,612 7,993,259 8,601,228 9,259,959 9,973,984 10,748,253 Gross Profit 4,327,265 6,297,045 8,455,476 11,010,671 13,176,896 14,708,284 16,370,470 18,208,907 20,241,769 22,489,076

General administration & selling expensesAdministration expense 1,656,000 1,817,231 1,994,159 2,188,313 2,401,370 2,635,171 2,891,735 3,173,278 3,482,233 3,821,268 Administration benefits expense 49,680 54,517 59,825 65,649 72,041 79,055 86,752 95,198 104,467 114,638 Building rental expense 1,170,000 1,287,000 1,415,700 1,557,270 1,712,997 1,884,297 2,072,726 2,279,999 2,507,999 2,758,799 Electricity expense 457,338 503,072 553,379 608,717 669,589 736,548 810,202 891,223 980,345 1,078,379 Travelling expense 82,800 90,862 99,708 109,416 120,068 131,759 144,587 158,664 174,112 191,063 Communications expense (phone, fax, mail, internet, 33,120 36,345 39,883 43,766 48,027 52,703 57,835 63,466 69,645 76,425 Office expenses (stationary, entertainment, janitorial 16,560 18,172 19,942 21,883 24,014 26,352 28,917 31,733 34,822 38,213 Promotional expense 1,023,805 1,362,848 1,714,577 2,123,024 2,471,101 2,724,185 2,996,604 3,296,264 3,625,890 3,988,479 Depreciation expense 157,735 157,735 157,735 157,735 157,735 157,735 157,735 157,735 157,735 157,735 Amortization of pre-operating costs 86,000 86,000 86,000 86,000 86,000 - - - - -

Subtotal 4,733,039 5,413,781 6,140,908 6,961,773 7,762,942 8,427,804 9,247,093 10,147,559 11,137,248 12,225,000 Operating Income (405,773) 883,264 2,314,568 4,048,898 5,413,954 6,280,480 7,123,377 8,061,348 9,104,522 10,264,076

Other income (interest on cash) 88,720 33,275 59,887 159,870 389,429 725,240 1,160,131 1,675,024 2,278,450 3,051,216 Earnings Before Interest & Taxes (317,054) 916,540 2,374,455 4,208,768 5,803,383 7,005,719 8,283,508 9,736,372 11,382,972 13,315,292

Interest expense on long term debt (Project Loan) 155,045 131,066 103,096 70,471 32,419 - - - - - Interest expense on long term debt (Working Capital Lo 156,637 131,630 102,375 68,152 28,115 - - - - - Subtotal 311,682 262,696 205,471 138,623 60,534 - - - - - Earnings Before Tax (628,736) 653,844 2,168,984 4,070,144 5,742,850 7,005,719 8,283,508 9,736,372 11,382,972 13,315,292

Tax - 98,077 542,246 1,017,536 1,435,712 1,751,430 2,070,877 2,434,093 2,845,743 3,328,823 NET PROFIT/(LOSS) AFTER TAX (628,736) 555,767 1,626,738 3,052,608 4,307,137 5,254,289 6,212,631 7,302,279 8,537,229 9,986,469

PREF-57/Dec, 2011/ Rev 03 17


14.2 Projected Cash Flow Statement:

Calculations SMEDACash Flow Statement

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Operating activities

Net profit (628,736) 555,767 1,626,738 3,052,608 4,307,137 5,254,289 6,212,631 7,302,279 8,537,229 9,986,469 Add: depreciation expense 157,735 157,735 157,735 157,735 157,735 157,735 157,735 157,735 157,735 157,735 amortization of pre-operating costs 86,000 86,000 86,000 86,000 86,000 - - - - - amortization of training costs - - - - - - - - - - Deferred income tax - 98,077 (213,627) (651,223) (918,856) (1,149,656) (1,354,102) (1,586,561) (1,850,017) (2,159,188) Accounts receivable (701,237) (116,111) (236,566) (260,334) (259,083) (205,877) (179,967) (195,917) (215,509) (237,060) Finished goods inventory (182,802) (29,295) (32,203) (35,378) (29,985) (23,390) (25,332) (27,447) (29,751) (32,261) Equipment inventory (2,576) (861) (897) (1,045) (896) (658) (711) (783) (864) (952) 10,243 Raw material inventory (142,195) (47,519) (49,505) (57,660) (49,460) (36,339) (39,225) (43,245) (47,678) (52,565) 565,390 Pre-paid building rent (292,500) (29,250) (32,175) (35,393) (38,932) (42,825) (47,107) (51,818) (57,000) (62,700) 689,700 Accounts payable 157,393 42,445 40,950 43,427 31,384 18,116 18,539 19,656 20,848 (30,040)

Cash provided by operations (437,271) (1,189,277) 712,042 1,334,930 2,303,548 3,294,509 3,964,175 4,733,658 5,564,204 6,504,319 8,950,987

Financing activitiesProject Loan - principal repayment (144,109) (168,089) (196,059) (228,683) (266,736) - - - - - Working Capital Loan - principal repayment (147,222) (172,229) (201,483) (235,707) (275,744) - - - - - Additions to Project Loan 1,003,675 - - - - - - - - - - Additions to Working Capital Loan 1,032,386 - - - - - - - - - - Issuance of shares 2,036,061 - - - - - - - - - - Purchase of (treasury) shares

Cash provided by / (used for) financing activities 4,072,121 (291,331) (340,318) (397,542) (464,390) (542,480) - - - - -

Investing activitiesCapital expenditure (2,007,350) - - - - - - - - - - Acquisitions

Cash (used for) / provided by investing activities (2,007,350) - - - - - - - - - -

NET CASH 1,627,500 (1,480,608) 371,724 937,388 1,839,158 2,752,030 3,964,175 4,733,658 5,564,204 6,504,319 8,950,987

PREF-57/Dec, 2011/ Rev 03 18

Pre-Fea

PREF-57/Dec, 2011/ Rev

sibility Study Boutique (Women Designer Wear)

03 19

Calculations SMEDABalance Sheet

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Current assetsCash & Bank 1,627,500 146,892 518,616 679,120 2,518,278 5,270,308 9,234,482 13,968,140 19,532,344 26,036,663 34,987,650 Accounts receivable 701,237 817,347 1,053,913 1,314,247 1,573,330 1,779,208 1,959,174 2,155,092 2,370,601 2,607,661 Finished goods inventory 182,802 212,097 244,300 279,678 309,663 333,052 358,384 385,832 415,583 447,844 Equipment spare part inventory 2,576 3,437 4,334 5,378 6,274 6,933 7,643 8,427 9,290 10,243 - Raw material inventory 142,195 189,715 239,219 296,879 346,339 382,678 421,903 465,148 512,825 565,390 - Pre-paid building rent 292,500 321,750 353,925 389,318 428,249 471,074 518,182 570,000 627,000 689,700 -

Total Current Assets 2,064,771 1,545,832 2,145,538 2,668,908 4,893,066 8,013,986 12,294,470 17,329,273 23,222,383 30,088,179 38,043,155

Fixed assetsMachinery & equipment 701,000 630,900 560,800 490,700 420,600 350,500 280,400 210,300 140,200 70,100 - Furniture & fixtures 638,350 574,515 510,680 446,845 383,010 319,175 255,340 191,505 127,670 63,835 - Office equipment 238,000 214,200 190,400 166,600 142,800 119,000 95,200 71,400 47,600 23,800 -

Total Fixed Assets 1,577,350 1,419,615 1,261,880 1,104,145 946,410 788,675 630,940 473,205 315,470 157,735 -

Intangible assetsPre-operation costs 430,000 344,000 258,000 172,000 86,000 - - - - - - Legal, licensing, & training costs - - - - - - - - - - -

Total Intangible Assets 430,000 344,000 258,000 172,000 86,000 - - - - - - TOTAL ASSETS 4,072,121 3,309,447 3,665,418 3,945,053 5,925,476 8,802,661 12,925,410 17,802,478 23,537,853 30,245,914 38,043,155

Current liabilitiesAccounts payable 157,393 199,838 240,788 284,216 315,599 333,715 352,254 371,910 392,759 362,719

Total Current Liabilities - 157,393 199,838 240,788 284,216 315,599 333,715 352,254 371,910 392,759 362,719

Other liabilitiesDeferred tax - 98,077 (115,550) (766,773) (1,685,629) (2,835,285) (4,189,387) (5,775,948) (7,625,965) (9,785,152) Long term debt (Project Loan) 1,003,675 859,566 691,477 495,419 266,736 - - - - - - Long term debt (Working Capital Loan) 1,032,386 885,164 712,935 511,451 275,744 - - - - - -

Total Long Term Liabilities 2,036,061 1,744,730 1,502,489 891,320 (224,293) (1,685,629) (2,835,285) (4,189,387) (5,775,948) (7,625,965) (9,785,152)

Shareholders' equityPaid-up capital 2,036,061 2,036,061 2,036,061 2,036,061 2,036,061 2,036,061 2,036,061 2,036,061 2,036,061 2,036,061 2,036,061 Retained earnings (628,736) (72,969) 776,885 3,829,493 8,136,630 13,390,920 19,603,551 26,905,830 35,443,059 45,429,528

Total Equity 2,036,061 1,407,325 1,963,092 2,812,945 5,865,554 10,172,691 15,426,980 21,639,611 28,941,890 37,479,119 47,465,588 TOTAL CAPITAL AND LIABILITIES 4,072,121 3,309,447 3,665,418 3,945,053 5,925,476 8,802,661 12,925,410 17,802,478 23,537,853 30,245,914 38,043,155

Liabilities & Shareholders' Equity

Assets

14.3 Projected Balance Sheet Statement:


1155 KKEEYY AASSSSUUMMPPTTIIOONNSS

15.1 Production Assumptions

Number of Stitching Machines 6Production Capacity (No. of dresses per Annum) 2,688Capacity Utilization for the first year 60%Ready Made Dresses (% of total production) 60%Dresses manufactured on CMT basis (% of total production) 40%

15.2 Operating Assumptions Hours operational per day 8Days operational per month (Production) 25Days operational per month (Boutique) 30

15.3 Cash flow Assumptions Account Payable Cycle (Days) 10Account Receivable Cycle (Days) 15 (of 30%

of sales)

15.4 Expense Assumptions Promotion Expenses after Year 1 (% of expected sales) 12%Machine Maintenance 1% of

machinery cost

Raw Material Price Growth rate 5%Payroll growth rate 10%Machine Maintenance growth rate 5%Rent growth rate 10%

15.5 Financial Assumptions Project Life 10 YearsDebt: Equity 50:50Interest Rate on Long Term Debt 16%Debt Tenure 5 YearsDebt Payment per year 4

PREF-57/Dec, 2011/ Rev 03

20


1166 AANNNNEEXXUURREE:: Machinery Suppliers Furniture Suppliers AA Appliances Shop # 1, Taj Mehal Street # 22, Abid Market, Temple Road, Lahore Phone: +92-42-36313170

Farrukh and Shabbir Office Furniture Shop # 6, Ground floor, Sharif Complex, Main Market, Gulberg, Lahore Phone: +92-42-35873347

Al-Mustafa Machinery Company Showroom 3-A1, Al-Mustafa Center, 6-Allama Iqbal Road, Near Boharwala Chowk. Lahore Phone: +92-42-363.69962

Rex Machinery (PVT) Ltd. Rex Market, 6-Allama Iqbal Road, Near Boharwala Chowk, Lahore Phone: +92-42-36375524

M. Ramazan (Industrial Sewing Machine Co.) 92-B McLeod Road, Lahore Phone: +92-42-37223762

PREF-57/Dec, 2011/ Rev 03

21

Documents

SMEDA Boutique (Women Designer Wear)