Pre-Feasibility Study

LADIES SHOES MANUFACTURING UNIT

Small and Medium Enterprise Development Authority
Government of Pakistan www.smeda.org.pk HEAD OFFICE
6th Floor LDA Plaza Egerton Road, Lahore
Tel (042)111 111 456,
Fax: (042) 36304926-7 helpdesk@smeda.org.pk REGIONAL OFFICE

REGIONAL OFFICE

REGIONAL OFFICE

REGIONAL OFFICE

PUNJAB

SINDH

KHYBER PAKTUNKHWA

BALOCHISTAN

8th Floor LDA Plaza,
Egerton Road,
Lahore.
Tel: (042) 111 111 456,
Fax: (042) 36370474 helpdesk.punjab@smeda.org.pk 5TH Floor, Bahria Complex II,
M.T. Khan Road,
Karachi.
Tel: (021) 111-111-456
Fax: (021) 5610572 helpdesk.sindh@smeda.org.pk Ground Floor
State Life Building The Mall,
Peshawar.
Tel: (091)111 111 456, 9213046-7
Fax: (091) 286908 helpdesk.NWFP@smeda.org.pk Bungalow No. 15-A Chamn
Housing Scheme Airport Road,
Quetta.
Tel: (081) 2831623, 2831702
Fax: (081) 2831922 helpdesk.balochistan@smeda.org.pk June, 2011

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

1

EXECUTIVE SUMMARY................................................................................................................. 4

2

INTRODUCTION TO SMEDA ........................................................................................................ 5

3

PURPOSE OF THE DOCUMENT ................................................................................................... 5

4

PROJECT PROFILE ......................................................................................................................... 6
4.1
4.2
4.3
4.4
4.5
4.6

OPPORTUNITY RATIONALE ........................................................................................................... 6
PROJECT BRIEF............................................................................................................................. 6
PROPOSED BUSINESS LEGAL STATUS ........................................................................................... 6
PROPOSED CAPACITY ................................................................................................................... 6
TARGET CUSTOMER ..................................................................................................................... 6
PROPOSED LOCATION................................................................................................................... 6

5

KEY SUCCESS FACTORS............................................................................................................... 7

6

SWOT ANALYSIS ............................................................................................................................. 7
6.1
6.2
6.3
6.4

STRENGTHS .................................................................................................................................. 7
WEAKNESSES ............................................................................................................................... 7
OPPORTUNITIES ............................................................................................................................ 7
THREATS ...................................................................................................................................... 8

7

INDUSTRY ANALYSIS .................................................................................................................... 8

8

MARKET ANALYSIS ....................................................................................................................... 8
8.1
8.2

9

MARKET DEMAND ....................................................................................................................... 9
MARKET SUPPLY........................................................................................................................ 10

PRODUCTION PROCESS.............................................................................................................. 10
9.1
PRODUCTION PROCESS FLOW ..................................................................................................... 10
9.1.1
Parts of Footwear................................................................................................................. 10
9.1.2
Shoe making process ............................................................................................................ 11
9.2
PROPOSED PRODUCT MIX .......................................................................................................... 12

10

RAW MATERIAL REQUIREMENT ............................................................................................ 13
10.1
10.2
10.3
10.4
10.5

11

UPPER MATERIAL ...................................................................................................................... 13
INSOLE MATERIAL ..................................................................................................................... 13
OUTSOLE MATERIAL .................................................................................................................. 13
GRINDERIES ............................................................................................................................... 13
AUXILIARY MATERIAL ............................................................................................................... 13

HUMAN RESOURCE REQUIREMENT ...................................................................................... 13
11.1

HUMAN RESOURCE REQUIREMENTS .......................................................................................... 13

12

MACHINERY REQUIREMENT.................................................................................................... 14

13

OFFICE EQUIPMENT AND FURNITURE.................................................................................. 15

14

LAND & BUILDING REQUIREMENT ........................................................................................ 16
14.1
14.2
14.3

15

LAND AND BUILDING REQUIREMENT ......................................................................................... 16
SUITABLE LOCATION ................................................................................................................. 16
UTILITIES REQUIREMENT ........................................................................................................... 16

PROJECT ECONOMICS................................................................................................................ 17
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16

Ladies Shoes Manufacturing Unit

PROJECT INVESTMENT................................................................................................................ 17

FINANCIAL ANALYSIS................................................................................................................. 18
16.1
16.2
16.3
16.4
16.5
16.6
16.7
16.8

PROJECT DETAIL ........................................................................................................................ 18
PROJECTED INCOME STATEMENT ............................................................................................... 19
PROJECTED CASH-FLOW STATEMENT ........................................................................................ 20
PROJECTED BALANCE SHEET ..................................................................................................... 21
COST OF SALES PER PAIR ............................................................................................................ 22
YEAR-WISE PRODUCTION ........................................................................................................... 23
COST OF SALES .......................................................................................................................... 23
REVENUE CALCULATION............................................................................................................ 24

17

KEY ASSUMPTIONS ...................................................................................................................... 25

18

ANNEXURE...................................................................................................................................... 27
18.1
18.2
18.3

MACHINERY SUPPLIERS ............................................................................................................. 27
RAW MATERIAL SUPPLIERS ....................................................................................................... 27
TAX DEDUCTION INCOME SLABS ................................................................................................ 28

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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. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information he/she feels necessary for making an informed decision.
For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk DOCUMENT CONTROL
Document No.

PREF-114

Prepared by

SMEDA-Punjab

Issue Date

June 2011

Issued by

Library Officer

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Ladies Shoes Manufacturing Unit

EXECUTIVE SUMMARY

This pre-feasibility study is for setting up of a semi-mechanized shoe manufacturing unit exclusively for ladies. Footwear manufacturing is a process of manufacturing shoes according to the market need in respect to design and size, trends etc. The unit is assumed to be set up in any city with already established units, such as Karachi, Faisalabad,
Hyderabad, Sahiwal, Gujranwala and Rawalpindi.
Shoe manufacturing industry can be broadly categorized into two main segments i.e. organized and unorganized sector. The organized sector comprises of fully mechanized shoe manufacturing units. These mainly include Bata Pakistan Limited, Servis Industries
Limited, Footlib Limited, Firhaj Footwear (Pvt) Limited, and a few other units. The unorganized sector comprises of labour intensive units having semi-mechanized manufacturing facilities, with relatively modest capital investments, as compared to fully mechanized plants.
The total project cost for setting up this workshop is estimated at Rs. 7.801 million. The project is financed through 50% debt and 50% equity. The project NPV is around Rs.
56.885 million, with an IRR of 56% and payback period of 3.60 years. The legal business status of this project is proposed as ‘Sole Proprietorship’.
The unit is proposed to operate 8 hours everyday. The proposed maximum capacity of the unit is 600 pairs per day. During the first year 40% capacity is assumed, which increases at a rate of 10% each year and assumes maximum capacity of 95% in seventh year of operations. 4
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INTRODUCTION TO SMEDA

The Small and Medium Enterprises Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program.
Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development.
SMEDA has so far successfully formulated strategies for industries such as horticulture, including export of fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport, dairy etc.
Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.
Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual
SMEs to exploit viable business opportunities in a better way.
This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.

3

PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. This 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, and production, marketing, finance and business management. The document also provides sectoral information and international scenario, which have some bearing on the project itself.
The purpose of this document is to facilitate potential investors of Ladies Shoes
Manufacturing unit by providing them a macro and micro view of the business with the hope that the information provided herein will aid potential investors in crucial investment decisions.
Our report is based on the information obtained by us from industry sources as well as our discussions with businessmen. In the financial model, since forecast/projections relate to the future periods, actual results are likely to differ because of the events and circumstances that do not occur as expected.
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Ladies Shoes Manufacturing Unit

PROJECT PROFILE

4.1 Opportunity Rationale
Pakistan is the 6th most populous country in the World and according to an estimate with an average population growth of approximately 1.6 %.The population of Pakistan is estimated about 187 million in the year 20111. Around 45% of the total population comprises of females. Shoes are a basic necessity of every individual and Pakistan has a relatively high population growth rate. This provides an opportunity for the investor to set up a ladies shoes manufacturing unit to meet the demands of this growing sector and earn substantial profits.
4.2 Project Brief
This document provides details for setting up ladies shoes manufacturing unit. The unit will have the capacity to produce approximately 600 pairs of ladies shoes per day on single shift basis. For achieving quality and consistency in the production, some second hand machinery of German and UK origin will be used. This machinery will be acquired locally. 4.3 Proposed Business Legal Status
The business legal status of the proposed project can either be sole proprietorship or partnership. Additionally, it can also be registered under the Companies Ordinance, 1984 with the Securities & Exchange Commission of Pakistan. The selection depends upon the choice of the Entrepreneur. This Pre-feasibility assumes the legal status to be Sole
Proprietorship.
4.4 Proposed Capacity
The proposed project is capable to produce an average of 600 pairs of ladies shoes per day. Considering the market demand and Pakistan’s population growth trends, initially the project would easily be able to produce and sell the quantity, which is required for the project to be economically viable.
4.5 Target Customer
The target customer for the proposed project would be ladies 14 years of age and above.
4.6 Proposed Location
Lahore is the footwear centre of the country, followed by Karachi, Faisalabad,
Hyderabad, Sahiwal, Gujranwala and Rawalpindi. All the shoe manufacturing units are established in these cities. Therefore, any of the above cities would be suitable for setting up a ladies shoe manufacturing unit. Raw material and labour is also easily accessible in these cities.

1

http://en.wikipedia.org/wiki/Demographics_of_Pakistan
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Ladies Shoes Manufacturing Unit

KEY SUCCESS FACTORS

1. The key to success of this project is in manufacturing good quality ladies shoes.
Quality standards should be followed strictly.
2. Strong presence in the domestic market. Traders/Wholesalers are already present in the local market.
3. Tools & equipments locally available at low price.
4. Raw materials are available in sufficient quantity.
5. Availability of other inputs like Adhesives, chemicals, last, punch, mould, grinderies and packing materials (boxes) etc.
6. Vast pool of skilled labour.
7. Stable business environment till today and growing day by day.

6
6.1

SWOT ANALYSIS
Strengths

1. Strong presence in the domestic market. Traders/Wholesalers are present in the local market. 2. Local availability of raw materials, machinery and parts.
3. Easy availability of low cost skilled and unskilled labour
4. Presence of qualified leather technologists in the field.
5. Stable business environment till today and increasing day by day.
6.2

Weaknesses

1.
2.
3.
4.
5.
6.

Imports started coming in especially from China.
Traditional method of production.
High Competition in local and international market.
Low level of technological up-gradation.
Manufacturing defects and use of substandard materials.
Very frequent changes in design, technology, process and marketing due to foreign branded footwear availability in the market.
7. Lack of access to testing, designing and technical services
6.3

Opportunities

1.
2.
3.
4.

Growing international and domestic markets.
Competition is going to make availability of inputs cheaper and sufficient.
Increased awareness is likely to improve the skill base of the workers.
Changing business environment and marketing channel can provide opportunity for enterprising firms.
5. Exposure to newer markets through Fairs/Exhibitions.

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Ladies Shoes Manufacturing Unit

Threats

1. Competition is going to increase because of setting up modern units elsewhere in the country. 2. Overseas importers are smart enough to change their sourcing country.
3. Technology can impose a major threat unless it is changed/ modernized.
4. Innovation is required in every phase of business operation.
5. Fast changing fashion trends are difficult to adapt
6. Threat of increasing competition from Chinese imports.
7. The changing business environment is always a problem for firms.

7

INDUSTRY ANALYSIS2

Pakistan Footwear industry has shown good progress in terms of production and exports.
Footwear industry has increased its exports at large extent since 2003.
Pakistan is one of the most populous countries in the World and according to an estimate with an average population growth of approximately 1.6 %.The population of Pakistan is estimated about 187 million in the year 20113. Keeping in view the growth in population, the growth in the demand of footwear industry is also anticipated. Though, significant growth has taken place in the Shoe Industry of Pakistan, but there is a view that it has not been up to the mark and the industry has suffered due to a growing and fierce competition of the emerging economies like India and China. There is a general perception that after suffering from the cut-throat competition especially with China, the footwear industry is doing better especially in the previous two years and it is regaining the strength to fulfil the local demand as well as compete efficiently in the world market.
This sector has pivotal importance in terms of providing and creating jobs, earning of foreign exchange with the help of exports and fulfilling the local consumption requirements. Yet, according to the Leather Sector Strategy report by J.E. Austin, no new manufacturing unit has been established in Pakistan’s organized sector for the last decade. 8

MARKET ANALYSIS

The leather footwear industry is concentrated in and around the cities of Lahore, Kasur and Charsadda. Other footwear centres are Lahore, Karachi, Faisalabad, Hyderabad,
Sahiwal, Gujranwala and Rawalpindi. The Pakistan footwear sector produces 150 million pairs annually which accounts for 1% of global production. Footwear sector exports add a meagre US$ 110 million to the export earnings of the country and Pakistan holds a market share of 0.1% of the world footwear market. In Charsadda, 2,500 workers produce over a million pairs of shoes annually. The Charsadda cluster is composed of
500 workshops. Besides the local manufacturing of shoes, the markets are flooded with

2
3

A case study of Footwear Industry of Pakistan (http://www.pide.org.pk/psde24/pdf/17.pdf) http://en.wikipedia.org/wiki/Demographics_of_Pakistan 8

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Chinese shoes which are available at very low price. A high level of employment in footwear manufacturing exists in small scale businesses and the informal sector.4
The shoe manufacturers in Pakistan are not organized with the exception of some big manufacturers like Bata and Servis shoes. Therefore, the exact figures regarding number of units, production and consumptions (of ladies shoes) are not available. The last footwear industry survey carried out in Pakistan was in 1996; therefore, updated information is unavailable. However some estimates of overall shoe industry are available. The major players of the Pakistani Footwear industry are5:
1. Service Industries
2. Bata Pakistan
3. Firhaj Footwear
4. EPCT (Pvt) Ltd
5. Elegant (Pvt) Ltd
6. Footlib Ltd
7. Shafi (Pvt) Ltd
8. Starlet Innovations
9. Brothers Associates
10. Simba Enterprises
During the year 2000, a nominal growth of 0.2% and 0.6% was recorded in the production and consumption of shoes respectively.
8.1 Market Demand
According to the estimates by SATRA Technology Centre United Kingdom, per capita consumption of footwear in Pakistan is 1.5 pair per annum. The consumption of footwear during the year 2000 was 234 million pairs6. The following table shows the consumption from 1996 to 2000:
Table 8-1 Market Demand6
Year
1996
1997
1998
1999
2000

Consumption (Million Pairs)
190.0
197.0
218.5
232.5
234.0

4

Percentage Increase
3.68%
10.91%
6.41%
0.65%

Leather sector strategy report – J.E Austin 2008
Pakistan Footwear Manufacturers Association - 2008
6
World Footwear Markets 2002 - (Global Statistics for 1996-2000) by SATRA Technology Centre 2002
5

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8.2 Market Supply
There are different estimates from different sources regarding the number of shoe manufacturing units in Pakistan. According to one estimate, total number of units in the year 1999 was 5007 organized/semi-organized and 20,000 unorganized units. The number of organized units has risen to 6098 during the year 2000.
Production of footwear from 1996 to 2000 from organized and unorganized sector was as follows: Table 8-2 Market Supply8
Year
1996
1997
1998
1999
2000

9

Production (Million pairs)
197.0
205.0
226.8
240.4
241.0

Percentage Increase
4.1%
10.6%
6.0%
0.2%

PRODUCTION PROCESS

9.1 Production Process Flow
A variety of materials are used for making shoes- leather fabrics, plastic, rubber, fabrics, wood, and metal. However, with the development of modern machines, a pair of shoes can be made in very less time as each step in its manufacturing is generally performed by different machines.
9.1.1 Parts of Footwear
1. Sole: The exterior bottom part of a shoe is the sole.
2. Insole: The interior bottom of a shoe, which sits directly beneath the foot, is its insole. They are removable and replaceable too. In some of the shoes, extra insoles are often added for foot comfort, foot or joint pain relief and for other reasons, such as to control the shape, moisture, or smell of the shoe.
3. Outsole: It is that layer of the shoe that is in direct contact with the ground. These can be made of various materials like leather, natural or synthetic rubber etc. Often the heel of the sole is made from rubber for durability and traction and the front is made of leather for style.
4. Heel: The rear part at the bottom of a shoe is the heel. It supports the heels of the feet.
Heels of a shoe are often made from the same material as the sole of the shoe. It can be high for fashion purpose or for making a person look taller. They are also flat for comfort and practical use.
7

Servis Industries
World Footwear Markets 2002 - (Global Statistics for 1996-2000) by SATRA Technology Centre 2002,
UK
8

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5. Upper: The upper part of a shoe that helps in holding the shoe onto the foot is the vamp or simply called the upper. This part is often embellished or given different styles to make shoes attractive.
9.1.2 Shoe making process
A footwear unit has mainly four departments in which a progressive route is followed for producing finished shoes. These departments are: Clicking or Cutting Department,
Closing or Machining Department, Lasting & Making Department and Finishing
Department. Following is the process of footwear manufacturing.
1. Product Development: Product development is the process of designing new styles of shoes or existing ones and then specifying the materials and components, detailing the materials and the processes that are to be followed in order so that the styles of shoes can be produced in bulk.
2. Designing and Pattern Cutting: According to the samples of shoes, design or requirement of the customer the model last is selected by the shoe designers then patterns are developed and sample shoe is manufactured in under the supervision of the shoe designer by the craftsmen/artisan. When the samples are approved the patterns are graded by hand or machines in required sizes and handed over to the production division for manufacturing the shoes. The designers also specify the materials required for making the shoes.
3. Clicking/ Components Division: The components are clicked by hand or machine by the clicker then checked and marked by hand or by stamping machine. The upper and lining components are skived according to the manufacturing process.
4. Closing or Machining: The component pieces are sewn together by skilled machinists so as to produce the completed upper. The work is divided in stages. In early stages, the pieces are sewn together on the flat machine. In the later stages, when the upper is no longer flat and has become three-dimensional, the machine called post machine is used. The sewing surface of the machine is elevated on a position to enable the operative to sew the three dimensional upper. Various edge treatments are also done for giving an attractive look to the finished upper. At this stage only, the eyelets are also inserted in order to accommodate the laces in the finished shoes.
5. Lasting, Making and Finishing: The completed uppers are moulded into a shape of foot with the help of a "Last". Last simulates the foot shape. It is later removed from the finished shoe to be used further in making other shoes. Soles can also be premoulded as a separate component out of various synthetic materials and again glued to the lasted upper to complete the shoe.
6. Packing: The shoe lift is inserted in the shoes to maintain the shape of the finished shoes. After this operation the finished shoes are kept in the boxes.

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Figure 9-1 Process Flow for Ladies shoe manufacturing

Designing

Last Making (Outsourced)

Packing

Press Cutting Dyes

Finishing & Quality
Checking

Upper Cutting

Lasting

Upper Cleaning

Sole Attaching

9.2 Proposed Product Mix
The proposed unit will produce pumps, coat shoes, sandals and sleepers with different leather and non leather materials. The size range will be from 6 to 11. The proposed unit will manufacture ladies shoes in all the sizes, which starts from number 6 and goes up to number 11.
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10 RAW MATERIAL REQUIREMENT
New inventions take place in the footwear industry and new materials have come up for manufacturing of good quality footwear. A number of units have started manufacturing footwear components. Following are the materials required for footwear manufacturing:
10.1 Upper Material
For manufacturing of shoe uppers, natural Leather, Paramedics, Leather Fabrics, Textile materials, Plastic and rubber fall are used; but natural leather is the most important material which is superior in its characteristics to all other materials.
10.2 Insole Material
The leather Board, Texon, Bontex and other cellulose Board and some special types of shoe construction textiles are used as Insole material. The exporters for maintaining the quality and for mass production of shoe manufacturing use moulded insole.
10.3 Outsole Material
The Ethylene Vinyl Acetate (EVA), Polyvinyl chloride (PVC), Polyurethane (PU) and
Thermoplastic rubber (TPR) are found most suitable as soling materials and are easy to manufacture. 10.4 Grinderies
Other materials used are shoe laces, Threads, Tapes, Metal fittings, eyelets, Buckles,
Different types of Nails/Tingles, Shanks, Rivets, Hooks Zip fastener.
10.5 Auxiliary Material
The adhesives which are generally used are solvent, dispersion, hot melt adhesives that are used for joining/sticking the shoe components. The finishing chemicals like Latex, polish, etc. are also used for giving shine to shoes.

11 HUMAN RESOURCE REQUIREMENT
11.1 Human Resource Requirements
The technology level is low in shoe manufacturing industry; therefore training can be imparted to most of the workforce within 30 days. Related technical skilled labour is easily available in cities where shoe manufacturing units are already established. A total of 14 employees are hired as permanent staff, this includes production and administrative staff. The staff salaries for the first year are given in table 11-1 below. The cost of direct labour including cutting man, upper man, bottom man, finishing man, skiving operator and other production staff is included in the cost of production on per pair basis.

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Table 11-1 Human Resource Requirement
Employees
Director/CEO
Production Staff
Production Supervisor
Designer
Foreman
Mechanic
Helper
Administration Staff
Marketing Executive
Purchaser
Accountant
Store Keeper
Office boy
Watchman
Total

No.
1

Salary/Month (Rs.)
50,000

Annual Salary (Rs.)
600,000

1
1
2
1
1

25,000
20,000
15,000
12,000
7,000

300,000
240,000
360,000
144,000
84,000

1
1
1
1
1
2
14

15,000
12,000
12,000
10,000
7,000
8,500

180,000
144,000
144,000
120,000
84,000
204,000
2,604,000

12 MACHINERY REQUIREMENT
The organized units comprise only 2.3%9 of the total shoe manufacturing units.
Therefore, because of low demand of new shoe manufacturing machinery, brand new machinery for shoe manufacturing is not available in the local market. Second hand and refurbished machinery of UK and German origin is mostly used for any new shoe manufacturing unit. Cutting press, skiving and stitching machines, sole attaching press and sole activator machine are the main machinery that will be required for a shoe manufacturing unit. Apart from these machines certain locally manufactured tools for upper, bottom and finishing, lasts, cutting tables and boards are easily available in the local market.
Following table shows the machinery and tools required for setting up a Ladies
Manufacturing Unit.
Table 12-1 Machinery Details
Machinery

Qty

Cutting clicking press and cutting board
GP 4 Machine
Skiving Machine
Upper Stitching Flat Bed Machine
9

1
2
2
4

Unit Price
(Rs.)
150,000
50,000
25,000
20,000

Source: Footwear Industry Pakistan, report compiled by Servis Industries
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Total Amount
(Rs.)
150,000
100,000
50,000
80,000

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Upper Stitching Post Bed Machine
Cylindrical Bed / Bending Machine
Sole Attaching Press
Grinder / Scoring Machine
Sole Activator
Zigzag Machine
Scoring Machine
Finishing machine
Other Machinery:
Embossing machine
Punching machine
Roughening machine
Air Compressor
Heat Seating chamber
Air Gun for colouring
Tools
Lasts
Generator - 50 KVA
Miscellaneous expenses (Inland Freight,
Electric wiring)
Total Machinery cost

2
1
1
3
1
1
1
1

25,000
40,000
230,000
15,000
400,000
20,000
20,000
40,000

50,000
40,000
230,000
45,000
400,000
20,000
20,000
40,000

1
1
2
1
1
1

50,000
50,000
15,000
50,000
50,000
50,000
100,000
500,000
282,000

50,000
50,000
30,000
50,000
50,000
50,000
100,000
500,000
282,000
500,000

1
1

2,887,000

13 OFFICE EQUIPMENT AND FURNITURE
Following tables present the office equipment and furniture/fixtures requirement for a
Ladies Shoes manufacturing unit.
Table 13-1 Office Equipment
Items
Computers
UPS
Printers
Telephone Sets
Fax Machine
Total Cost

Qty
3
3
1
2
1

Cost/Unit (Rs.)
25,000
7,500
12,000
1,000
12,000

Total Cost (Rs.)
75,000
22,500
12,000
2,000
12,000
123,500

Qty
1
7

Cost/Unit (Rs.)
20,000
8,000

Total Cost (Rs.)
20,000
56,000

Table 13-2 Furniture & Fixture
Items
Executive Table
Tables

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Sofa
Store racks/Shelves
Chairs
Stools
Work Tables
File cabinets
Fans and Lights
Fire extinguishers
Air conditioners
Total Cost

Ladies Shoes Manufacturing Unit

1
5
14
3
2
3

12,000
10,000
2,200
800
5,000
5,000
50,000
2,500
35,000

3
2

12,000
50,000
30,800
2,400
10,000
15,000
50,000
7,500
70,000
323,700

14 LAND & BUILDING REQUIREMENT
14.1 Land and Building Requirement
For the proposed project, a building covering an area of approximately 4,500 sq ft. will be required. It is recommended that the building is acquired on rental basis in order to save on initial investment. The rent in this pre-feasibility is taken to be about Rs.
112,500/- per month. Following basic structure is required for a shoe manufacturing unit.
Table 14-1 Space Requirement
Space Required. (Sq. ft)
Management office
Production hall
Raw material store
Finished goods store
Washroom
Loading area
Total Infrastructure Cost

200
3,000
500
500
50
250
4,500

14.2 Suitable Location
Lahore is the footwear centre of the country, followed by Karachi, Faisalabad,
Hyderabad, Sahiwal, Gujranwala and Rawalpindi. All the shoe manufacturing units are established in these cities. Therefore, industrial areas of any of the above cities would be suitable for setting up a ladies shoe manufacturing unit. Raw material and labour is also easily accessible in these cities.
14.3 Utilities Requirement
Utilities required for Ladies Shoes Manufacturing Unit include Electricity, Gas, Water and Telephone connections.

16
PREF-114/June, 2011

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

15 PROJECT ECONOMICS
15.1 Project Investment
The total investment in this project is been estimated at Rs.7.801 million. The estimated capital cost is Rs. 3.904 million and the estimated working capital of Rs. 3.897 million.
The total cost, project returns and financial plan are given in the tables below.
Table 15-1 Total Project Cost
Account Head
Total Capital Cost
Total Working Capital
Total Project Cost (Rs)

Total Cost (Rs)
3,904,247
3,897,270
7,801,517

The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity.
However, this composition of debt and equity can be changed as per the requirement of the investor
Table 15-2 Financing Plan
Financing

Ratio

Equity
Debt

50%
50%

Rs
3,900,759
3,900,759

Table 15-3 Project Returns
Project
56%
56,885,908
3.60

IRR
NPV (Rs)
Payback Period (Years)

17
PREF-114/June, 2011

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

16 FINANCIAL ANALYSIS
16.1 Project Detail
Initial Investment
Capital Investment
Machinery & equipment
Furniture & fixtures
Office equipment
Pre-operating costs
Training costs
Total Capital Costs
Working Capital
Equipment spare part inventory
Raw material inventory
Upfront building rent
Upfront insurance payment
Cash
Total Working Capital

Rs. in actuals
2,887,000
323,700
123,500
520,047
50,000
3,904,247
Rs. in actuals
2,977,920
675,000
144,350
100,000
3,897,270

Total Investment
Initial Financing
Debt
Equity

7,801,517

50%
50%

Rs. in actuals
3,900,759
3,900,759

Project Returns
Net Present Value (Rs.)
Internal Rate of Return
Payback Period (Yrs)

EQUITY
41,998,408
85%
3.04

18
PREF-114/June, 2011

PROJECT
56,885,908
56%
3.60

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

16.2 Projected Income Statement
Income Statement

Revenue

Year 1
32,733,960

Year 2
56,651,573

Year 3
73,837,844

Year 4
93,014,081

Year 5
115,231,931

Year 6
127,780,403

Year 7
140,622,916

Year 8
162,662,614

Year 9
179,572,295

Year 10
197,570,166

Cost of sales
Cost of goods sold 1
Transportation cost
Operation costs 1 (direct labor)
Operating costs 2 (machinery maintenance)
Operating costs 3 (direct electricity)
Operating costs 4 (direct water)
Operating costs 5 (generator diesel)
Total cost of sales
Gross Profit

25,143,690
180,000
1,104,500
476,044
518,400
27,422,633
5,311,327

41,932,176
193,500
1,232,666
523,648
570,240
44,452,230
12,199,343

53,325,311
208,013
1,353,623
576,013
627,264
56,090,224
17,747,620

65,466,103
223,613
1,486,154
633,614
689,990
68,499,474
24,514,607

79,078,466
240,384
1,631,456
696,976
758,989
82,406,271
32,825,660

85,637,211
258,413
1,790,816
766,673
834,888
89,288,003
38,492,401

92,099,327
277,794
1,967,573
843,341
918,377
96,106,412
44,516,504

104,050,567
298,629
2,161,508
927,675
1,010,215
108,448,594
54,214,020

112,221,681
321,026
2,371,956
1,020,442
1,111,236
117,046,341
62,525,954

120,661,422
345,103
2,602,893
1,122,486
1,222,360
125,954,264
71,615,902

1,476,000
73,800
1,350,000
168,100
18,000
6,000
29,520
29,520
29,520
818,349
144,350
163,670
333,420
104,009
5,000
327,340
5,076,598
234,729

1,619,705
80,985
1,485,000
184,910
19,800
6,600
32,394
32,394
32,394
1,416,289
129,915
283,258
333,420
104,009
5,000
566,516
6,332,590
5,866,753

1,777,402
88,870
1,633,500
203,401
21,780
7,260
35,548
35,548
35,548
1,845,946
115,480
369,189
333,420
104,009
5,000
738,378
7,350,280
10,397,340

1,950,453
97,523
1,796,850
223,741
23,958
7,986
39,009
39,009
39,009
1,395,211
101,045
465,070
333,420
104,009
5,000
930,141
7,551,434
16,963,173

2,140,351
107,018
1,976,535
246,115
26,354
8,785
42,807
42,807
42,807
1,728,479
86,610
576,160
333,420
104,009
5,000
1,152,319
8,619,576
24,206,084

2,348,739
117,437
2,174,189
270,726
28,989
9,663
46,975
46,975
46,975
1,916,706
72,175
638,902
333,420
5,000
1,277,804
9,334,675
29,157,726

2,577,416
128,871
2,391,607
297,799
31,888
10,629
51,548
51,548
51,548
1,406,229
57,740
703,115
333,420
5,000
1,406,229
9,504,588
35,011,916

2,828,357
141,418
2,630,768
327,579
35,077
11,692
56,567
56,567
56,567
1,626,626
43,305
813,313
333,420
5,000
1,626,626
10,592,882
43,621,138

3,103,729
155,186
2,893,845
360,337
38,585
12,862
62,075
62,075
62,075
1,795,723
28,870
897,861
333,420
5,000
1,795,723
11,607,365
50,918,590

3,405,913
170,296
3,183,229
396,370
42,443
14,148
68,118
68,118
68,118
1,975,702
14,435
987,851
333,420
5,000
1,975,702
12,708,863
58,907,039

33,125
267,854

5,866,753

174,731
10,572,071

875,941
17,839,114

2,292,580
26,498,663

4,347,151
33,504,877

6,951,250
41,963,166

10,300,015
53,921,153

14,529,030
65,447,620

20,847,882
79,754,921

Interest on short term debt
Interest expense on long term debt (Project Loan)
Interest expense on long term debt (Working Capital Loan)
Subtotal
Earnings Before Tax

386,504
331,861
172,981
891,346
(623,492)

536,994
284,550
821,544
5,045,209

150,490
229,195
379,685
10,192,385

164,431
164,431
17,674,683

88,656
88,656
26,410,007

33,504,877

41,963,166

53,921,153

65,447,620

79,754,921

Tax
NET PROFIT/(LOSS) AFTER TAX

(623,492)

1,261,302
3,783,907

2,548,096
7,644,289

4,418,671
13,256,012

6,602,502
19,807,505

8,376,219
25,128,658

10,490,791
31,472,374

13,480,288
40,440,865

16,361,905
49,085,715

19,938,730
59,816,191

General administration & selling expenses
Administration expense
Administration benefits expense
Building rental expense
Electricity expense
Water expense
Gas expense
Travelling expense
Communications expense (phone, fax, mail, internet, etc.)
Office vehicles running expense
Office expenses (stationary, entertainment, janitorial services, etc.)
Promotional expense
Insurance expense
Professional fees (legal, audit, consultants, etc.)
Depreciation expense
Amortization of pre-operating costs
Amortization of legal, licensing, and training costs
Bad debt expense
Subtotal
Operating Income
Other income (interest on cash)
Earnings Before Interest & Taxes

19
PREF-114/June, 2011

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

16.3 Projected Cash-flow Statement
Cash Flow Statement
Year 0
Operating activities
Net profit
Add: depreciation expense amortization of pre-operating costs amortization of training costs
Deferred income tax
Accounts receivable
Finished goods inventory
Equipment inventory
Raw material inventory
Pre-paid building rent
Advance insurance premium
Accounts payable
Other liabilities
Cash provided by operations

Year 1

Year 2

Year 3

Year 4

Year 5

(3,234,770)

(623,492)
333,420
104,009
5,000
(1,345,231)
(583,460)
(2,064,071)
(11,250)
14,435
1,247,905
(2,922,735)

3,783,907
333,420
104,009
5,000
516,748
(491,458)
(346,503)
(1,597,681)
(12,375)
14,435
756,151
3,065,654

7,644,289
333,420
104,009
5,000
(844,600)
(242,655)
(1,925,505)
(13,613)
14,435
547,938
5,622,719

13,256,012
333,420
104,009
5,000
(747,175)
(258,714)
(2,311,259)
(14,974)
14,435
594,561
10,975,316

19,807,505
333,420
104,009
5,000
(850,563)
(289,948)
(1,400,341)
(16,471)
14,435
617,650
18,324,696

Financing activities
Project Loan - principal repayment
Working Capital Loan - principal repayment
Short term debt principal repayment
Additions to Project Loan
Additions to Working Capital Loan
Issuance of shares
Cash provided by / (used for) financing activities

1,952,124
1,948,635
3,900,759
7,801,517

(278,302)
(1,948,635)
(2,226,937)

(325,614)
(4,487,173)
(4,812,786)

(380,968)
(1,747,133)
(2,128,101)

(445,733)
(445,733)

(521,507)
(521,507)

Investing activities
Capital expenditure
Cash (used for) / provided by investing activities

(3,904,247)
(3,904,247)

NET CASH

(2,977,920)
(112,500)
(144,350)

662,500

(5,149,673)

(1,747,133)

3,494,618

20
PREF-114/June, 2011

10,529,583

17,803,189

Year 6
25,128,658
333,420
5,000
(72,175)
(714,376)
(143,203)
(1,580,635)
(18,118)
14,435
335,236
23,288,241

Year 7
31,472,374
333,420
5,000
(72,175)
(521,733)
(139,932)
(2,653,117)
(19,930)
14,435
375,395
28,793,738

Year 8
40,440,865
333,420
5,000
(72,175)
(716,758)
(254,931)
(2,125,731)
(21,923)
14,435
579,362
38,181,564

Year 9
49,085,715
333,420
5,000
(72,175)
(800,330)
(179,120)
(2,399,418)
(24,115)
14,435
435,326
46,398,738

Year 10
59,816,191
333,420
5,000
(72,175)
(717,278)
(185,582)
21,035,678
265,269
14,435
(516,652)
79,978,306

-

-

-

-

-

-

-

-

-

-

23,288,241

28,793,738

38,181,564

46,398,738

79,978,306

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

16.4 Projected Balance Sheet
Balance Sheet
Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

662,500

1,836,689
929,963
6,639,672
136,125
115,480
9,657,929

3,494,618
2,681,289
1,172,618
8,565,176
149,738
101,045
16,164,484

14,024,201
3,428,464
1,431,332
10,876,436
164,711
86,610
30,011,754

31,827,390
4,279,028
1,721,280
12,276,777
181,182
72,175
50,357,832

55,115,631
4,993,404
1,864,483
13,857,412
199,301
57,740
76,087,970

83,909,369
5,515,137
2,004,415
16,510,529
219,231
43,305
108,201,985

122,090,933
6,231,894
2,259,346
18,636,259
241,154
28,870
149,488,457

168,489,671
7,032,224
2,438,465
21,035,678
265,269
14,435
199,275,742

248,467,977
7,749,503
2,624,047
258,841,527

Assets
Current assets
Cash & Bank
Accounts receivable
Finished goods inventory
Raw material inventory
Pre-paid building rent
Pre-paid insurance
Total Current Assets

2,977,920
112,500
144,350
3,897,270

1,345,231
583,460
5,041,991
123,750
129,915
7,224,347

Fixed assets
Machinery & equipment
Furniture & fixtures
Office equipment
Total Fixed Assets

2,887,000
323,700
123,500
3,334,200

2,598,300
291,330
111,150
3,000,780

2,309,600
258,960
98,800
2,667,360

2,020,900
226,590
86,450
2,333,940

1,732,200
194,220
74,100
2,000,520

1,443,500
161,850
61,750
1,667,100

1,154,800
129,480
49,400
1,333,680

866,100
97,110
37,050
1,000,260

577,400
64,740
24,700
666,840

288,700
32,370
12,350
333,420

Intangible assets
Pre-operation costs
Legal, licensing, & training costs
Total Intangible Assets
TOTAL ASSETS

520,047
50,000
570,047
7,801,517

416,038
45,000
461,038
10,686,165

312,028
40,000
352,028
12,677,317

208,019
35,000
243,019
18,741,443

104,009
30,000
134,009
32,146,284

25,000
25,000
52,049,932

20,000
20,000
77,441,650

15,000
15,000
109,217,245

10,000
10,000
150,165,297

5,000
5,000
199,614,162

258,841,527

-

1,247,905
4,487,173

2,004,055
1,747,133

2,551,993
-

3,146,554
-

3,764,204
-

4,099,440
-

4,474,835
-

5,054,197
-

5,489,523
-

4,972,871
-

-

5,735,077

3,751,188

2,551,993

3,146,554

3,764,204

4,099,440

4,474,835

5,054,197

5,489,523

4,972,871

1,673,821
1,673,821

516,748
1,348,208
1,864,956

516,748
967,240
1,483,988

516,748
521,507
1,038,255

516,748
516,748

444,573
444,573

372,398
372,398

300,223
300,223

228,048
228,048

155,873
155,873

3,900,759
(623,492)
3,277,266
10,686,165

3,900,759
3,160,415
7,061,173
12,677,317

3,900,759
10,804,703
14,705,462
18,741,443

3,900,759
24,060,716
27,961,474
32,146,284

3,900,759
43,868,221
47,768,980
52,049,932

3,900,759
68,996,879
72,897,637
77,441,650

3,900,759
100,469,253
104,370,012
109,217,245

3,900,759
140,910,118
144,810,877
150,165,297

3,900,759
189,995,833
193,896,592
199,614,162

3,900,759
249,812,024
253,712,783
258,841,527

Liabilities & Shareholders' Equity
Current liabilities
Accounts payable
Short term debt
Other liabilities
Total Current Liabilities
Other liabilities
Deferred tax
Long term debt (Project Loan)
Long term debt (Working Capital Loan)
Total Long Term Liabilities
Shareholders' equity
Paid-up capital
Retained earnings
Total Equity
TOTAL CAPITAL AND LIABILITIES

1,952,124
1,948,635
3,900,759

3,900,759
3,900,759
7,801,517

21
PREF-114/June, 2011

-

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

16.5 Cost of Sales per pair
Cost of Sales (per pair)
Rs.

Cost of upper material per meter
1 Meter

=

1,000

(Including Eyelets + laces etc)

14 Sq.ft

Cost of material per ft

Rs.

71.43

Rs.

169.64

Material Requirements:
Material
required

Size categories

Cost of material 6-7

2.00 / Sq.ft

Rs.

142.86

8

2.25 / Sq.ft

Rs.

160.71

9

2.50 / Sq.ft

Rs.

178.57

10-11

2.75 / Sq.ft

Rs.

196.43

Average cost of upper material per pair
Annual Increase

7.5%
Year 1

Per Pair
Req.
Upper material cost
Sole
Rubber solution
Cement solution
Desmokol for sole
Desmoder
MEK (for cleaning)
EVA sheet
Other chemicals
Wage rate per pair:
Cutting Man

1 Pair
1 Pair
-

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

40%

60%

70%

80%

90%

90%

90%

95%

95%

95%

240
72,000

360
108,000

420
126,000

480
144,000

540
162,000

540
162,000

540
162,000

570
171,000

570
171,000

570
171,000

30
30,000
900,000

Capacity Utilization
No. of Pairs / day
Annual Production
Design and Development Cost:
No. of Designs per year
Cost of Cutting Dies per design (Rs.)
Annual cost of cutting dies (Rs.)

Year 2

30
32,250
967,500

35
34,669
1,213,406

35
37,269
1,304,412

35
40,064
1,402,243

35
43,069
1,507,411

35
46,299
1,620,467

35
49,771
1,742,002

35
53,504
1,872,652

35
57,517
2,013,101

Cost Per Unit
(Rs.)
151.88
130.00
3.00
3.00
7.00
2.00
2.00
8.00
6.00

151.88
130.00
3.00
3.00
7.00
2.00
2.00
8.00
6.00

163.27
139.75
3.23
3.23
7.53
2.15
2.15
8.60
6.45

175.52
150.23
3.47
3.47
8.09
2.31
2.31
9.25
6.93

188.68
161.50
3.73
3.73
8.70
2.48
2.48
9.94
7.45

202.83
173.61
4.01
4.01
9.35
2.67
2.67
10.68
8.01

218.04
186.63
4.31
4.31
10.05
2.87
2.87
11.49
8.61

234.40
200.63
4.63
4.63
10.80
3.09
3.09
12.35
9.26

251.98
215.68
4.98
4.98
11.61
3.32
3.32
13.27
9.95

270.87
231.85
5.35
5.35
12.48
3.57
3.57
14.27
10.70

291.19
249.24
5.75
5.75
13.42
3.83
3.83
15.34
11.50

-

2.50

2.50

2.69

2.89

3.11

3.34

3.59

3.86

4.15

4.46

4.79

Upper Man

-

12.00

12.00

12.90

13.87

14.91

16.03

17.23

18.52

19.91

21.40

23.01

Bottom Man

-

8.00

8.00

8.60

9.25

9.94

10.68

11.49

12.35

13.27

14.27

15.34

Finishing Man
Factory over heads per pair:
Design & Development Cost
Electricity
Packing
Accessories
Foam Lining
Maintenance
Misc.
-

2.50

2.50

2.69

2.89

3.11

3.34

3.59

3.86

4.15

4.46

4.79

12.50

12.50
18.00
5.00
1.00
1.00
1.00

8.96
19.35
5.38
1.08
1.08
1.08

9.63
20.80
5.78
1.16
1.16
1.16

9.06
22.36
6.21
1.24
1.24
1.24

8.66
24.04
6.68
1.34
1.34
1.34

9.31
25.84
7.18
1.44
1.44
1.44

10.00
27.78
7.72
1.54
1.54
1.54

10.19
29.86
8.30
1.66
1.66
1.66

10.95
32.10
8.92
1.78
1.78
1.78

11.77
34.51
9.59
1.92
1.92
1.92

18.00
5.00
1.00
1.00
1.00

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Pre-feasibility Study

Ladies Shoes Manufacturing Unit

16.6 Year-wise Production
Year-wise Production
Year 1
Capacity (Per Day Single Shift)
No of Working Days in Month
No. of working days/year

Capacity Utilization

40%

Per Day production
Per Month production
Annual Production
W.I.P stock - opening
Shoes to be manufactured
W.I.P stock - closing
Pairs of shoes manufactured
Finished good stock - opening
Pairs of shoes available for sale
Finished good stock - closing
Pairs of shoes sold

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

600
25
300

60%

70%

80%

90%

90%

90%

95%

95%

95%

240
6,000
Days

7

15

360
9,000

420
10,500

480
12,000

540
13,500

540
13,500

540
13,500

570
14,250

570
14,250

570
14,250

72,000
72,000
1,680
70,320
70,320
3,516
66,804

108,000
1,680
109,680
2,559
107,121
3,516
110,637
5,532
105,105

126,000
2,559
128,559
3,000
125,559
5,532
131,091
6,555
124,537

144,000
3,000
147,000
3,430
143,570
6,555
150,124
7,506
142,618

162,000
3,430
165,430
3,860
161,570
7,506
169,076
8,454
160,622

162,000
3,860
165,860
3,870
161,990
8,454
170,444
8,522
161,922

162,000
3,870
165,870
3,870
162,000
8,522
170,522
8,526
161,996

171,000
3,870
174,870
4,080
170,790
8,526
179,316
8,966
170,350

171,000
4,080
175,080
4,085
170,995
8,966
179,961
8,998
170,963

171,000
4,085
175,085
4,085
171,000
8,998
179,998
9,000
170,998

16.7 Cost of Sales
Cost of Sales
Year 1

Year 2

Year 3

Year 4

Year 5

Year6

Year 7

Year 8

Year 9

Year 10

Cost of Sales
Material Cost

22,527,360

36,325,368

45,558,066

55,971,338

67,690,337

72,767,112

78,224,645

88,763,243

95,420,487

Labor Cost

1,800,000

2,902,500

3,640,219

4,472,269

5,408,650

5,814,299

6,250,371

7,092,435

7,624,368

8,196,195

Factory Over Heads

2,772,000

3,986,100

4,999,234

5,955,571

7,027,239

7,554,282

8,120,853

9,118,134

9,801,994

10,537,144

27,099,360

43,213,968

54,197,518

66,399,178

80,126,225

86,135,692

92,595,869

104,973,813

112,846,849

121,310,362

Total Manufacturing Cost
Opening W.I.P.
Cost of Goods to be Manufactured
Closing W.I.P.
Cost of Goods Manufactured
Opening Finished Goods

27,099,360

102,577,023

632,318

1,024,011

1,290,294

1,581,588

1,909,197

2,057,722

2,212,185

2,504,827

2,695,923

43,846,286

55,221,529

67,689,472

81,707,814

88,044,889

94,653,591

107,185,997

115,351,675

124,006,285

632,318

1,024,011

1,290,294

1,581,588

1,909,197

2,057,722

2,212,185

2,504,827

2,695,923

2,898,198

26,467,042

42,822,275

53,931,235

66,107,884

79,798,617

85,987,167

92,441,406

104,681,171

112,655,753

121,108,087

1,323,352

2,213,451

2,819,375

3,461,156

4,181,307

4,531,263

4,873,342

5,503,946

5,938,018

Cost of Goods to be Sold

26,467,042

-

44,145,627

56,144,686

68,927,259

83,259,773

90,168,475

96,972,669

109,554,513

118,159,698

127,046,105

Closing Finished Goods
Cost of Goods Sold

1,323,352
25,143,690

2,213,451
41,932,176

2,819,375
53,325,311

3,461,156
65,466,103

4,181,307
79,078,466

4,531,263
85,637,211

4,873,342
92,099,327

5,503,946
104,050,567

5,938,018
112,221,681

6,384,683
120,661,422

23
PREF-114/June, 2011

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

16.8 Revenue Calculation
Revenue Calculations
Year 1
Total Capacity (per day)
Local Sales
B-Pairs
Selling Price
Selling Price for B-Pair
Increase in unit price

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

600
95%
5%
Rs. 500
Rs. 300
10.0%

Capacity Utilization
No. of Pairs / day
Total Pairs Sold
Selling Price
Selling Price for B-Pairs

40%
240 Pairs
66,804
500
300

60%
360 Pairs
105,105
550
330

70%
420 Pairs
124,537
605
363

80%
480 Pairs
142,618
666
399

90%
540 Pairs
160,622
732
439

90%
540 Pairs
161,922
805
483

90%
540 Pairs
161,996
886
531

95%
570 Pairs
170,350
974
585

95%
570 Pairs
170,963
1,072
643

95%
570 Pairs
170,998
1,179
707

Local Sales
Sale of B-Pairs
Total Sales

31,731,900
1,002,060
32,733,960

54,917,342
1,734,232
56,651,573

71,577,502
2,260,342
73,837,844

90,166,711
2,847,370
93,014,081

111,704,423
3,527,508
115,231,931

123,868,758
3,911,645
127,780,403

136,318,133
4,304,783
140,622,916

157,683,146
4,979,468
162,662,614

174,075,184
5,497,111
179,572,295

191,522,100
6,048,066
197,570,166

24
PREF-114/June, 2011

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

17 KEY ASSUMPTIONS
Table 17-1 Operational Assumptions
Maximum capacity utilization
First year capacity utilization
Capacity utilization growth rate
Maximum number of pairs per day at 100% capacity
Maximum number of pairs per year
Percentage of A pair shoes
Percentage of B pair shoes
Hours operational per day
Days operational per year

95%
40%
10%
600
180,000
95%
5%
8
300

Table 17-2 Economy-Related Assumptions
Electricity cost growth rate
Water cost growth rate
Gas cost growth rate
Diesel cost growth rate
Wage growth rate

10%
10%
10%
10%
10%

Table 17-3 Cash Flow Assumptions
Accounts Receivable cycle (in days)
Accounts payable cycle (in days)
Raw material inventory (in days)
Equipment spare part inventory (in days)
Work-in-progress closing stock (in days)
Finished good closing stock (in days)

15
15
45
15
7
15

Table 17-4 Revenue Assumptions
Sales price - Pair A
Sales price – Pair B
Sales price growth rate

500
300
10%

Table 17-5 Expense Assumptions
Administration benefits expense (% of admin expense)
Communication expense ( % of admin expense)
Travelling expense ( % of admin expense)
Office expense ( % of admin expense)
Equipment and machinery insurance
Electricity utilization in hours/day
25
PREF-114/June, 2011

5%
2%
2%
2%
5%
5

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

Generator diesel utilization in hours/day
Promotional sales call expense (% of revenue)
Year 1 - 3
Year 4 - 6
Year 7 - 10
Professional fee (% of revenue)
Bad debt expense (% of revenue)

3
2.5%
1.5%
1.0%
0.5%
1.0%

Table 17-6 COGS Assumptions
Cost of raw material
Upper material cost
Sole
Rubber solution
Cement solution
Desmokol for sole
Desmoder
MEK (for cleaning)
EVA sheet
Other chemicals
Labour Cost
Cutting man
Upper man
Bottom man
Finishing man
Factory overheads cost
Design and development
Packing material
Accessories
Foam lining
Maintenance
Miscellaneous
Cost of COGS growth rate

Cost per pair
151.88
130.00
3.00
3.00
7.00
2.00
2.00
8.00
6.00
Cost per pair
2.50
12.00
8.00
2.50
Cost per pair
12.50
18.00
5.00
1.00
1.00
1.00
7.5%

Table 17-7 Financial Assumptions
Project life (Years)
Debt
Equity
Interest rate on long-term debt
Interest rate on short-term debt

10
50%
50%
17%
16%
26

PREF-114/June, 2011

Pre-feasibility Study

Ladies Shoes Manufacturing Unit

Interest on cash in bank
Debt tenure (Years)
Debt payments per year

10%
5
1

Table 17-8 Depreciation Rate Assumptions
Machinery and Equipment
Office Equipment
Furniture & Fixtures
Vehicles

10%
10%
10%
10%

18 ANNEXURE
18.1 Machinery Suppliers
Company Name:
Address:
City:
Tel:
Company Name:
Address:
City:
Tel:
Company Name:
Address:
City:
Tel:
Company Name:
Address:
City:
Tel:

New Tech Auto Mission
809 Ravi Block, Near Kharah Stop Main Multan Road
Lahore
042-37490497, 36106946
Rex Machinery
AEX Market, B, Allama Iqbal Road
Lahore
042-38376522
United Machinery
Ground Floor, West Land Trade Center, Shop no. S-3 Block 7/8,
K.C.H.S.U, Shaheed Millat Road
Karachi.
021-4392781
R. Sons Machinery
24 Allama Iqbal Road, Shop no 5-6, Near Railway Hospital
Lahore.
042-36370818, 36364965

18.2 Raw Material Suppliers
Company Name:
Address:
City:
Tel:
Company Name:
Address:
City:
Tel:
Email:
Company Name:
Address:

Ideal Rubber & Engineering Industry
17-A, SIE No. 1
Gujranwala
055-3259034, 0300-8465454
Global Enterprises
40-ST-80, Opposite Local Govt. Complex, Sanda Road
Lahore
042-37148734 gle@brain.net.pk Crescent Art Fabric.
10- Abbot Road
27

PREF-114/June, 2011

Pre-feasibility Study

City:
Tel:

Ladies Shoes Manufacturing Unit

Lahore.
042-36364208

18.3 Tax deduction income slabs
Income Slabs

Tax Rate
0.00%
0.50%
1.00%
2.00%
3.00%
4.00%
5.00%
7.50%
10.00%
12.50%
15.00%
17.50%
21.00%
25.00%

100,000 – 110,000
110,000 – 125,000
125,000 – 150,000
150,000 – 175,000
175,000 – 200,000
200,000 – 300,000
300,000 – 400,000
400,000 – 500,000
500,000 – 600,000
600,000 – 800,000
800,000 – 1,000,000
1,000,000 – 1,300,000
1,300,000 and above

28
PREF-114/June, 2011