Leather Goods Manufacturing Unit (Wallets)

Pre-Feasibility Study
(Leather Goods Manufacturing Unit - Wallets)
Small and Medium Enterprises Development Authority Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road, Lahore Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7
helpdesk@smeda.org.pk
REGIONAL OFFICE Punjab 3rd Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road Lahore, Tel: (042) 111-111-456 Fax: (042) 36304926-7 helpdesk.punjab@smeda.org.pk REGIONAL OFFICE Sindh 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 35610572 helpdesk-khi@smeda.org.pk REGIONAL OFFICE Khyber Pakhtunkhwa Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 111-111-456 Fax: (091) 5286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE Balochistan Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922 helpdesk-qta@smeda.org.pk
Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost December, 2013
Leather Goods Manufacturing Unit - Wallets
Table of Contents
1. DISCLAIMER .......................................................................................................................................... 2 2. PURPOSE OF THE DOCUMENT ......................................................................................................... 3 3. INTRODUCTION TO SMEDA .............................................................................................................. 3 4. INTRODUCTION TO SCHEME ........................................................................................................... 4 5. EXECUTIVE SUMMARY ...................................................................................................................... 4 6. BRIEF DESCRIPTION OF PROJECT & PRODUCT ........................................................................ 4 7. CRITICAL FACTORS ............................................................................................................................ 5 8. INSTALLED & OPERATIONAL CAPACITIES ................................................................................. 5 9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ..................................................................... 5 10. 11. 12. 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10 13. 14. 14.1. 13.1 13.2 13.3 13.4 15. POTENTIAL TARGET MARKETS ............................................................................................... 6 PRODUCTION PROCESS FLOW .................................................................................................. 6 PROJECT COST SUMMARY ......................................................................................................... 6 PROJECT ECONOMICS ....................................................................................................................... 6 PROJECT FINANCING ........................................................................................................................ 7 PROJECT COST ................................................................................................................................. 7 SPACE REQUIREMENT ...................................................................................................................... 7 MACHINERY AND EQUIPMENT.......................................................................................................... 8 OFFICE EQUIPMENT.......................................................................................................................... 8 RAW MATERIAL REQUIREMENTS ..................................................................................................... 9 HUMAN RESOURCE REQUIREMENT .................................................................................................. 9 REVENUE GENERATION.................................................................................................................. 10 OTHER COSTS ................................................................................................................................ 10 CONTACT DETAILS OF EXPERTS & CONSULTANTS ........................................................ 10 ANNEXURE ..................................................................................................................................... 11 INCOME STATEMENT ............................................................................................................ 11 STATEMENT OF CASH FLOW........................................................................................................... 12 BALANCE SHEET ............................................................................................................................ 13 USEFUL PROJECT MANAGEMENT TIPS ................................................................................ 14 USEFUL LINKS................................................................................................................................ 15 KEY ASSUMPTIONS ..................................................................................................................... 15
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 exercised 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, 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 SMEDA, please contact our website: www.smeda.org.pk.
SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -
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 Leather Goods Manufacturing Unit - Wallets business by providing them a general understanding of the business with the intention of supporting potential investors in crucial investment decisions. The need to come up with pre-feasibility reports for undocumented or minimally documented sectors attains greater imminence as the research that precedes such reports reveal certain thumb rules; best practices developed by existing enterprises by trial & error and certain industrial norms that become a guiding source regarding various aspects of business set-up and its 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 SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was established in October 1998 with an objective to provide fresh impetus to the economy through development of Small and Medium Enterprises (SMEs). With a mission "to assist in employment generation and value addition to the national income, through development of the SME sector, by helping increase the number, scale and competitiveness of SMEs" , SMEDA has carried out sectoral research to identify policy, access to finance, business development services, strategic initiatives, institutional collaboration and networking initiatives etc. Preparation and dissemination of prefeasibility studies in key areas of investment has been a hallmark of SME facilitation by SMEDA. Concurrent to the prefeasibility studies, a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of experts and consultants and delivery of need based capacity building programs of different types in addition to business guidance through help desk services.
4. INTRODUCTION TO SCHEME
Prime Ministers 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 subsidised financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially through 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 01 year grace period and a debt : equity of 90 : 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
5. EXECUTIVE SUMMARY
Leather Industry of Pakistan, including leather based manufactured goods, ranks among top 5 export earners, contributing significantly to the national exchequer. International demand for Pakistans leather products, low investment as compared to other sectors, easy availability of quality hides and skins, high craftsmanship, cheap availability of skilled labor are some of the encouraging factors that provide a potent opportunity for a new entrant to venture into leather goods manufacturing business . Leather wallets manufacturing business venture entails a total investment of about Rs. 2.12 million. This includes a capital investment of Rs.1.09 million and a sum of Rs.1.03 million as initial working capital. The project is financed through 90% debt and 10% equity. The Net Present Value (NPV) of the project is around Rs. 20.08 million with an Internal Rate of Return (IRR) of 66% and a payback period of 2.36 years. The project will generate direct employment opportunity for 16 persons. Higher return on investment and a steady growth of business is expected with the entrepreneur having some prior experience or education in the related field of business. This pre-feasibility encompasses essential information regarding various aspects of starting a Leather Goods Manufacturing Unit Wallets, business in Pakistan.
6. BRIEF DESCRIPTION OF PROJECT & PRODUCT

The proposed project provides information on one of the sub sectors of leather manufacturing in Pakistan namely Leather Wallets. This sub sector offers aspiring entrepreneurs a potent opportunity to establish their business in one of the top export oriented sectors of Pakistan. Easy and sustained access to high quality raw material coupled with availability of skilled labor puts this sub sector as an attractive opportunity for start-ups to venture into leather goods
manufacturing in Pakistan. This proposed project provides details about investment opportunity in the area of leather goods manufacturing focusing on leather wallets. However the unit is also capable of manufacturing leather key rings, credit card holders, ladies bill folders and other small articles of leather without any additional machinery. The leather goods manufacturing unit will primarily focus on exports catering to the international leather markets. The leather goods manufacturing unit needs an investment estimated at Rs.2.12 million. This pre-feasibility is based on a unit with 3 stitching machines with a capacity of manufacturing 300 wallets per 8 hours shift. The total labor required for this unit would be 16.
7. CRITICAL FACTORS
Awareness about international leather fashion trends especially wallets. Higher return on investment and a steady growth of business is closely associated with regular training and capacity building of the entrepreneur. Prior experience/education in the related field of business. Strict compliance regarding local and international environmental regulations. Good quality leather conforming to the international standards like Registration, Evaluation, Authorization & Restriction of Chemical (REACH) substances. Availability of skilled labor. Stringent supervision of the production process at every level. Continuous flow of export orders through aggressive marketing (website & social media) and international networking. Special attention on packaging.
8. INSTALLED & OPERATIONAL CAPACITIES

This pre-feasibility is based on 3 stitching machines with a capacity of manufacturing 300 wallets per 8 hours shift. The total labor required for this unit would be 16. Total number of wallets produced in year one would be 45,000 achieving 50% of the total installed capacity, while maximum capacity (95%) will be achieved with production reaching at 85,500 wallets.
9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT

Lahore, Karachi and Sialkot are three key clusters of leather goods manufacturing. Availability of skilled labor is vital while selecting a location; all the above cities have adequate availability of skilled labor, raw material and other support infrastructure. Leather goods manufacturing unit can be established in the suburbs / periphery areas of these cities.
10.
POTENTIAL TARGET MARKETS
Leather wallets manufactured in this unit will primarily be exported. Germany, USA, United Kingdom, Turkey, Japan, France & UAE are some of the key importing countries of Pakistani leather products. Export market customers mainly include chain stores and major leather product brands in Europe and USA.
11.
PRODUCTION PROCESS FLOW

Pattern Making Hand Cutting Skiving
Purchase of Raw Material
Stitching
Finishing
Packing
12.
PROJECT COST SUMMARY
A detailed financial model has been developed to analyze the commercial viability of Leather Goods Manufacturing Unit Wallets under the Prime Ministers Youth Business Loan scheme. Various cost and revenue related assumptions along with results of the analysis are outlined in this section. The projected Income Statement, Cash Flow Statement and Balance Sheet are attached as appendix. 12.1 Project Economics The installed production capacity of the project is 90,000 leather wallets per year. However during first year of operations it will operate at 50% of the installed capacity producing 45,000 leather wallets. The following table shows internal rate of return, payback period and Net Present Value;
Table 1: Project Economics
Description Internal Rate of Return (IRR) Payback Period (yrs) Net Present Value (NPV)
Details 66% 2.36 20,082,086
Returns on the scheme and its profitability are highly dependent on acquiring and maintaining export orders, adhering to the daily production schedules and timely shipments. In case the manufacturing of leather wallets are not at par with the international standards or the competitors, the project may not remain viable. 12.2 Project Financing
Following table provides details of the equity required and variables related to bank loan;
Table 2: Project Financing
Description Total Equity (10%) Bank Loan (90%) Markup to the Borrower (%age/annum) Tenure of the Loan (Years) Grace Period (Year) 12.3 Project Cost
Details Rs. 211,888 Rs.1,906,988 8% 8 1
Following requirements have been identified for operations of the proposed business. A rented premise for the unit has been recommended for this project.
Table 3: Capital Investment for the Project
Capital Investment Machinery Furniture & Office equipment Pre operational expenses Total Capital Cost Initial Working Capital Total Project Cost 12.4 Space Requirement
Amount (Rs.) 648,000 359,500 82,000 1,089,500 1,029,375 2,118,875
The area has been calculated on the basis of space requirement for production, management and storage requirements. However, the units operating in the industry do not follow any set pattern. Following table shows calculations for project space requirement.
Table 4: Space Requirement
Space Requirement Management building Production area Store Open area Total Area
Sqft. 120 600 200 200 1,120
Premises will be obtained on rent @ Rs 30,000 per month. 12.5 Machinery and Equipment
Following table provides list of machinery and equipment required for an average leather goods manufacturing unit - wallets.
Table 5: Machinery & Equipment
Description Single needle flat bed stitching machine (Taiwan) Skiving machine (Taiwan) Creasing tools Genset 5KVA (China) Working tables with stone surface Packing table Tools, gauges, patterns, knives, scissors, etc. Store racks Industrial exhaust fan Total
Quantity 3 1 3 1 4 1
Cost Rs/unit 45,000 120,000 15,000 70,000 20,000 15,000 100,000 15,000 8,000
Total Rs. 135,000 120,000 45,000 70,000 80,000 15,000 100,000 75,000 8,000 648,000
5 1
Flat bed lock stitching machines are used for the manufacturing of leather wallets. Skiving machine is used for reducing the thickness of leather pieces along the stitching seems. The production process involves a lot of gluing and hammer pressing work, hence working tables with hard stone surface are required. Metal patterns are preferred over strawboard patterns due to their durability and ease of use. 12.6 Office Equipment
Table 6: Office Equipment Details
Office equipment comprises of necessary IT equipment and furniture items. Quantity 1 3 3 1 1 1 3 Cost 50,000 15,000 5,000 12,000 8,500 10,000 1,500 Amount 50,000 45,000 15,000 12,000 8,500 10,000 4,500
Computer laptop Computer desktop (used) UPS Computer printer Flat bed scanner Networking Telephone
Fax Total 12.7
1 Raw Material Requirements
20,000
20,000 165,000
Cow skin will be used for the manufacturing of leather wallets, while satin polyester based lining will be used for partitioning purposes. Following table shows raw material requirement to produce one leather wallet having two pockets with six card slots:
Table 7: Cost of Materials
Cow skin finished leather Satin lining Metal corners Packaging Misc. (thread, glue, etc.) Cost per Unit 12.8
Unit Sqft. Meter Number Number Lump Sum
Rate 190 80 2.00 15 20
Quantity 0.75 0.125 4 1 1
Rs./Unit 142.50 10.00 8.00 15.00 19.50 195.00
Human Resource Requirement

Table 8: Human Resource Requirement
Following table provides details of human resource required for this venture: Description No. of Employees 1 1 1 1 3 1 5 1 2 16 Salary per employee per month (Rs.) 50,000 20,000 12,000 10,000 16,000 15,000 11,000 15,000 10,000 159,000
Owner Manager Accountant Store keeper Office assistant Stitchers Skiving machine operator Fitter/helper Cutter Security guard Total Staff
The owner will focus on export marketing, purchase of leather and monitoring the production along with overall management of the unit. With proper support from fitters / helpers who glue, fold and hammer the leather pieces, a stitcher on an average can stitch 100 leather wallets of prescribed type in an 8 hour shift. The skiving machine operator will provide the leather patches after thinning edges as per requirement of the process. Support functions of inventory, accounts,
security, etc. will be managed by the other staff. Salaries of all employees are estimated to increase at 10% annually. 12.9 Revenue Generation Following table provides details of the revenue generated by the project in the first year;
Sales Price (Rs./Unit) First Year Production First Year Sales Revenue (Rs)
Product
Unit
Leather wallet (2 pockets with 6 No. 300 card slots) Total Sales Revenue *Out of 45,000 units produced, 43,125 will be sold 12.10 Other Costs
43,125*
12,937,500 12,937,500
Other essential costs to be borne by the company are; promotional and communication expenses due to the export nature of business.
13.
CONTACT DETAILS OF EXPERTS & CONSULTANTS
Chairman Leather Products and Design Institute, Iqbal Town, Defense Road, Sialkot Ph: 052 3257266
Principal Government Institute of Leather Technology P.O Anwar Industry G.T. Road, Gujranwala Phone: 055 9230056
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14.
ANNEXURE INCOME STATEMENT

Year 1 12,937,500 8,409,375 1,667,500 43,125 129,926 10,249,926 2,687,574 1,200,000 60,000 360,000 91,795 129,375 129,375 24,000 388,125 117,250 8,200 2,508,120 179,454 199,238 378,692 158,279 158,279 220,413 129,375 91,038 Year 2 16,273,125 10,577,531 1,902,176 56,709 163,424 12,699,841 3,573,284 1,316,834 65,842 396,000 100,974 162,731 13,168 26,337 488,194 117,250 8,200 2,695,529 877,754 250,606 1,128,361 144,906 144,906 983,455 162,731 820,723 Year 3 19,533,938 12,697,059 2,088,036 71,167 196,171 15,052,434 4,481,504 1,445,042 72,252 435,600 111,071 195,339 14,450 28,901 586,018 117,250 8,200 3,014,125 1,467,379 300,823 1,768,201 127,329 127,329 1,640,872 195,339 1,445,533 Year 4 23,284,181 15,134,718 2,291,945 88,686 233,834 17,749,182 5,534,999 1,585,734 79,287 479,160 122,179 232,842 15,857 31,715 698,525 117,250 8,200 3,370,748 2,164,251 358,576 2,522,827 108,294 108,294 2,414,533 232,842 2,181,691 Year 5 27,589,134 17,932,937 2,515,669 109,859 277,066 20,835,532 6,753,602 1,740,123 87,006 527,076 134,396 275,891 17,401 34,802 827,674 117,250 8,200 3,769,821 2,983,781 424,873 66,000 3,474,654 87,679 87,679 3,386,975 275,891 3,111,084 Year 6 32,522,236 21,139,454 2,761,148 135,389 326,608 24,362,598 8,159,638 1,909,544 95,477 579,784 147,836 325,222 19,095 38,191 975,667 126,367 8,200 4,225,384 3,934,254 500,842 4,435,097 65,352 65,352 4,369,744 325,222 4,044,522 Year 7 38,166,067 24,807,944 3,030,504 166,107 383,286 28,387,841 9,778,226 2,095,460 104,773 637,762 162,620 381,661 20,955 41,909 1,144,982 126,367 8,200 4,724,688 5,053,538 587,757 5,641,295 41,173 41,173 5,600,122 381,661 5,218,462 Year 8 44,613,442 28,998,737 3,326,069 202,993 448,035 32,975,834 11,637,608 2,299,477 114,974 701,538 178,882 446,134 22,995 45,990 1,338,403 126,367 8,200 5,282,960 6,354,648 687,047 7,041,695 14,987 14,987 7,026,709 446,134 6,580,574 Year 9 51,968,631 33,779,610 3,650,398 247,207 521,900 38,199,116 13,769,516 2,523,357 126,168 771,692 196,770 519,686 25,234 50,467 1,559,059 126,367 8,200 5,907,000 7,862,516 800,317 8,662,833 8,662,833 519,686 8,143,146 Year 10 60,348,724 39,226,670 4,006,295 300,119 606,058 44,139,142 16,209,581 2,769,035 138,452 848,861 216,447 603,487 27,690 55,381 1,810,462 126,367 8,200 6,604,382 9,605,200 929,370 10,534,570 10,534,570 603,487 9,931,083
14.1.
Income Statement
Revenue Cost of sales Cost of goods sold 1 Operation costs 1 (direct labor) Operating costs 2 (machinery maintenance) Operating costs 3 (direct electricity) Total cost of sales Gross Profit General administration & selling expenses Administration expense Administration benefits expense Building rental expense Electricity expense Travelling expense Communications expense (phone, fax, mail, internet, etc.) Office expenses (stationary, entertainment, janitorial services, Promotional expense Depreciation expense Amortization of pre-operating costs Subtotal Operating Income Other income (rebate) Gain / (loss) on sale of office equipment Earnings Before Interest & Taxes Interest expense on long term debt (Project Loan) Subtotal Earnings Before Tax Tax NET PROFIT/(LOSS) AFTER TAX
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13.1
Statement of Cash Flow

Year 0 Year 1 91,038 117,250 8,200 129,375 (531,678) (445,649) (2,737) (208,599) (18,000) 1,126,629 265,829 265,829 Year 2 820,723 117,250 8,200 162,731 (68,540) (85,523) (3,153) (257,094) (19,800) 301,067 975,861 (211,767) (211,767) 764,094 Year 3 1,445,533 117,250 8,200 195,339 (135,543) (98,198) (4,034) (345,897) (21,780) 306,236 1,467,106 (229,343) (229,343) 1,237,763 Year 4 2,181,691 117,250 8,200 232,842 (144,063) (112,557) (5,145) (463,711) (23,958) 360,497 2,151,046 (248,378) (248,378) 1,902,668 Year 5 3,111,084 117,250 8,200 275,891 (165,518) (128,811) (6,543) (619,676) (26,354) 424,802 2,990,324 (268,994) 210,586 (58,407) (210,586) (210,586) 2,721,330 Year 6 4,044,522 126,367 8,200 325,222 (189,823) (147,197) (8,301) (825,738) (28,989) 501,298 3,805,561 (291,320) (291,320) 3,514,241 Year 7 5,218,462 126,367 8,200 381,661 (217,334) (167,979) (10,505) (1,097,496) (31,888) 592,670 4,802,156 (315,500) (315,500) 4,486,656 Year 8 6,580,574 126,367 8,200 446,134 (248,449) (191,454) (13,268) (1,455,299) (35,077) 702,277 5,920,006 (341,686) (341,686) 5,578,320 Year 9 8,143,146 126,367 8,200 519,686 (283,614) (217,954) (16,724) (1,925,665) (38,585) 834,346 7,149,204 7,149,204 Year 10 9,931,083 126,367 8,200 603,487 (323,328) (247,850) 77,597 7,666,365 424,431 (276,656) 17,989,696 17,989,696
Cash Flow Statement

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 Pre-paid building rent Accounts payable Cash provided by operations Financing activities Project Loan - principal repayment Additions to Project Loan Issuance of shares Cash provided by / (used for) financing activities Investing activities Capital expenditure Cash (used for) / provided by investing activities NET CASH
(7,188) (467,188) (180,000) (654,375)
1,906,988 211,888 2,118,875 (1,089,500) (1,089,500) 375,000
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Leather Goods Manufacturing Unit (Wallets)
13.2
Balance Sheet
Balance Sheet
Year 0 Assets Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Current assets Cash & Bank Accounts receivable Finished goods inventory Equipment spare part inventory Raw material inventory Pre-paid building rent Total Current Assets Fixed assets Machinery & equipment Furniture & fixtures Office equipment Total Fixed Assets Intangible assets Pre-operation costs Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Accounts payable Total Current Liabilities Other liabilities Deferred tax Long term debt (Project Loan) Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES
375,000
7,188 467,188 180,000 1,029,375 648,000 194,500 165,000 1,007,500 82,000 82,000 2,118,875
640,829 531,678 445,649 9,924 675,787 198,000 2,501,867 583,200 175,050 132,000 890,250 73,800 73,800 3,465,917
1,404,923 600,218 531,172 13,077 932,881 217,800 3,700,072 518,400 155,600 99,000 773,000 65,600 65,600 4,538,672
2,642,686 735,762 629,370 17,111 1,278,779 239,580 5,543,287 453,600 136,150 66,000 655,750 57,400 57,400 6,256,437
4,545,354 879,824 741,927 22,256 1,742,490 263,538 8,195,389 388,800 116,700 33,000 538,500 49,200 49,200 8,783,089
7,266,684 1,045,342 870,739 28,799 2,362,166 289,892 11,863,622 324,000 97,250 210,586 631,836 41,000 41,000 12,536,458
10,780,925 1,235,165 1,017,936 37,100 3,187,905 318,881 16,577,911 259,200 77,800 168,469 505,469 32,800 32,800 17,116,180
15,267,581 1,452,499 1,185,915 47,605 4,285,401 350,769 22,589,771 194,400 58,350 126,352 379,102 24,600 24,600 22,993,473
20,845,901 1,700,949 1,377,369 60,873 5,740,700 385,846 30,111,638 129,600 38,900 84,235 252,735 16,400 16,400 30,380,773
27,995,106 1,984,563 1,595,323 77,597 7,666,365 424,431 39,743,384 64,800 19,450 42,117 126,367 8,200 8,200 39,877,952
45,984,802 2,307,891 1,843,173 50,135,866 50,135,866
1,126,629 1,126,629 129,375 1,906,988 2,036,363 211,888 91,038 302,925 3,465,917
1,427,696 1,427,696 292,106 1,695,221 1,987,327 211,888 911,761 1,123,649 4,538,672
1,733,932 1,733,932 487,446 1,465,878 1,953,323 211,888 2,357,294 2,569,181 6,256,437
2,094,429 2,094,429 720,287 1,217,499 1,937,787 211,888 4,538,985 4,750,873 8,783,089
2,519,231 2,519,231 996,179 948,506 1,944,684 422,474 7,650,069 8,072,543 12,536,458
3,020,529 3,020,529 1,321,401 657,185 1,978,587 422,474 11,694,591 12,117,065 17,116,180
3,613,199 3,613,199 1,703,062 341,686 2,044,748 422,474 16,913,053 17,335,527 22,993,473
4,315,476 4,315,476 2,149,196 2,149,196 422,474 23,493,627 23,916,101 30,380,773
5,149,822 5,149,822 2,668,883 2,668,883 422,474 31,636,773 32,059,247 39,877,952
4,873,166 4,873,166 3,272,370 3,272,370 422,474 41,567,856 41,990,330 50,135,866
1,906,988 1,906,988 211,888 211,888 2,118,875
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13.3 Technology
USEFUL PROJECT MANAGEMENT TIPS
Required spare parts & consumables: Suppliers credit agreements and availability as per schedule of maintenance be ensured before start of operations. The machines proposed are new and of Taiwanese origin, hence requiring little maintenance and repairing. Energy Requirement: The generator has been recommended but should be used only for operating the machinery and other necessary equipment. All extra load (Air conditioning, extra lights, computers, etc.) should be switched off while generator is operating. Machinery Suppliers: Due to high quality requirement of end product, brand new machinery of Taiwanese origin has been recommended. In selecting the machinery multiple sources must be explored. The availability of spares should also be considered. Such machinery is easily available in local markets e.g. REX market near Lahore Railway station. Quality Assurance Equipment & Standards: Global apex standard that needs to be complied with for exporting leather wallets is REACH. The leather should only be sourced from tanneries that offer REACH compliance leather. Adherence to buyers specification/requirement is similarly critical. Any deviations may result in huge claims charged by the buyer and may also result in loss of the client. Strict quality control procedures should be put in place throughout the production and packing process. It is recommended that the manufacturing unit may acquire ISO 9001 QMS certification.
Marketing Product Development & Packaging: Designing and packaging of wallets for exports is usually buyer driven. Strict compliance to the buyers requirements in design and materials must be adhered to. Ads & Point of Sale Promotion: Website of the business should be developed and regularly updated. All inquiries received to be replied swiftly. During the 2nd year of operations, the business may subscribe to paid membership of a good B2B portal. Sales & Distribution Network: The owner should develop contacts / linkages with prospective international buyers through email, fax and telephone and social media. Lists of prospective buyers can be searched through various sources i.e. B2B sites, chambers of commerce and industry, international exhibitions websites, etc.
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Human Resources Adequacy & Competencies: Skilled and experienced staff is necessary for the unit. Staff having experience in stitching of leather goods, gloves, garments, etc. should be preferred. 13.4 Useful Links
Prime Ministers Office, www.pmo.gov.pk Government of Pakistan, www.pakistan.gov.pk Ministry of Industries & Production, www.moip.gov.pk Small and Medium Enterprises Development Authority, www.smeda.org.pk State Bank of Pakistan (SBP), www.sbp.org.pk National Bank of Pakistan (NBP), www.nbp.com.pk First Women Bank Limited (FWBL), www.fwbl.com.pk Trade Development Authority of Pakistan (TDAP), www.tdap.gov.pk Securities & Exchange Commission of Pakistan (SECP), www.secp.gov.pk Federation of Pakistan Chambers of Commerce and Industry (FPCCI), www.fpcci.com.pk Pakistan Leather Garments Manufacturers & Exporters Association, www.plgmea.pk Pakistan Tanners Association, www.pakistantanners.org Pakistan Institute of fashion Design (PIDC), www.pifd.edu.pk Pakistan Fashion Council Design Council (PFDC), www.pfdc.org
15.
KEY ASSUMPTIONS
Table 14-1 Machinery Assumptions
Number of Machines Installed Capacity Utilization (Year 1) Maximum capacity utilization Total Production of the unit per 8 hour shift
Table 14-2 Operating Assumptions
4 50% 95% 300 90,000 8 25 1 300
Annual Production capacity Hours operational per day Days operational per month No. of Shifts Days operational per year
15
Table 14-3 Economy-Related Assumptions
Electricity & Fuel growth rate Wage growth rate

Table 14-4 Cash Flow Assumptions
10% 10% 15 45 90,000 300 10% 100% 0.3% 5% 6 10% 10% 1.00% 3.00% 10 90% 10% 8% 8 12 1
Accounts Receivable cycle (in days) Accounts payable cycle (in days)
Table 14-5 Revenue Assumptions
Production capacity of the unit Sale price per unit in year 1 (in Rs.) Sale price growth rate Export sales
Table 14-6 Expense Assumptions
Machine maintenance (% of Sales) Machine maintenance growth rate Pre-paid building Rent (months) Rent growth rate Raw material price growth rate Communication Expense (% of Sales) Promotional Expense (% of Sales)
Table 14-7 Financial Assumptions
Project life Debt Equity Interest rate on long-term debt Debt tenure (Years) Debt payments per year Grace Period (Year)
16

Leather Goods Manufacturing Unit (Wallets)

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Pre-Feasibility Study