PROJECT REPORT DENIM JEANS STITCHING UNIT

Transcription

1 PROJECT REPORT DENIM JEANS STITCHING UNIT PURPOSE OF THE DOCUMENT The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs to facilitate investment and provide an overview about Garment Stitching Unit. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document covers various aspects of the business concept development, start-up, production, marketing, and finance and business management. This particular pre-feasibility is regarding Garment Stitching Unit which comes under Textile sector. Prepared By: Samadhan Associates Pvt Ltd 22, Greenwood apartments Gokhle Marg Lucknow

2 1. EXECUTIVE SUMMARY The proposed Denim Jeans Stitching unit is a project of the Textile Sector, producing standard five pocket jeans trouser. The unit will cater to the local as well as export denim market. The jeans produced will be of export, high quality fabric. Through the use of high-tech equipment and modern techniques the company can produce jeans of latest trends without compromising on quality. The process flow includes purchase of raw material, cutting, stitching, washing, finishing, pressing and packing. Quality control checks will be taken care of through out the process. Indian denim market is on a high growth path with a rate of growth in the range of 8-12%. However, the market is dominated by the non-branded players who take away the major share of the denim market. The branded denim market is estimated to be around $450- $500 million, and is dominated by some international labels though the local brands are also getting prominent. India has become denim hub in the region in less than a decade and is considered as one of the leading supplier of quality denim fabric to the world's known brands. India's denim is second to none. There has been a phenomenal increase in the production capacity of denim mills in India and at present numerous denim mills are in operation. The denim industry is contributing substantially towards exports creating job opportunities and has invested billions in the denim sector. The denim industry is not only fully catering to the needs of the local apparel industry but is also catering to the foreign market and earning valuable foreign exchange for the country. This particular stitching unit is proposed to have an installed capacity for producing 1000 denim jeans per day. The unit s initial capacity utilization is kept at 70%, which eventually goes up to 90% in the fifth year. A Denim Garment Stitching Unit with an installed capacity to produce 1,000 pieces per day needs an investment estimated at Rs Lacs The project is financed through 50% debt and 50% equity. Projected IRR and Payback of this project are 71.11%, and 3.71 years respectively. The legal business status of this project is proposed as Sole Proprietorship.

3 2. CRUCIAL FACTORS AND STEPS IN DECISION MAKING 2.1. Strengths There is a ready made market for this product. Relatively low labour costs Ample available work force. Well-situated industrial estate with all major facilities available. 2.2.Weaknesses The requirement of credit and/or delay of payments from customer side might cause disturbance in the cash cycles. Very small base of available skilled machinists. Lack of trained technicians and line / middle management. Uncertain investment climate 2.3.Opportunities SEB/IndustrialEstates/clusters will provide uninterrupted electricity for industrial consumers to lower the electricity cost of manufacturing. Manufacturers-cum-exporters are allowed to import samples of each kind or quality at zero duty rates. 2.4.Threats Skilled operators in the denim garments are quite unorganized. Stitching expertise is not available at the best possible level. This restricts the industry to the basic garments and only limits the entry into the manufacturing of high quality garments. Cost of doing business may increase as the energy, raw material prices, wages and mark up rates may rise. 3. PROJECT PROFILE 3.1Opportunity Rationale During the last decade, the usage of denim garments, especially denim jeans, has been on a rise in the international as well as the local markets. This has led to a rise in the demand of denim garments. The competitive edge of India in this field stems from the ready availability of cotton yarn required to weave denim fabric i.e.

4 During the past few years, the denim fabric manufacturing capacity has also been enhanced that has provided the opportunity to industry to strengthen. The export of denim garments from India has also been on a rise. 3.2.Project Brief The proposed project presents an investment opportunity in manufacturing of denim jeans. The project profile has been prepared for a standard five pocket jeans trouser. The proposed stitching unit will be having the potential for its own manufacturing and supply for the local market as well as for the export market. However washing will be outsourced. 3.3Proposed Capacity The proposed capacity of the unit is 1000 garments per day. 3.4.Total Project Cost The cost of project has been estimated as Rs Lacs including machinery and office equipment. Project Investment Capital Investment Rs. 5,981,220 Working Capital Rs. 8,169,111 Total Investment Rs. 14,150,331 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. The project seems to be viable with the following returns on investment. Project Returns Internal rate of return (project) 71.11% Net Present 20% Rs. 165,680,748 Payback period based on cash inflows 3.71 years 3.4.Proposed Business Legal Status The proposed legal structure of the business entity is either sole proprietorship or partnership. Although selection totally depends upon the choice of the entrepreneur but this financial feasibility is based on a Sole Proprietorship.

5 3.5Proposed Location The proposed locations for a garment manufacturing unit will be suitable in a Textile cluster or textile Park developed by the state Government where necessary infrastructure facilities are available. 3.6.Key Success Factors The total commercial viability of this proposed stitching unit depends on the regular orders for the purchase of the finished product. This requires aggressive marketing efforts at the entrepreneur's end. Following are other key points that are important for the successful operation of the proposed stitching unit. Surety of high consistent quality Surety of on time delivery Competitive rates Cost efficiency Better services to the customer. Better communication development with customers 4. MARKET ANALYSIS Major concentration of the denim garment stitching industry is in Mumbai,Ahemdabad,Chennai, Newdelhi,Kolkata etc The average production capacity of majority of small and medium sized jeans manufacturing units is about 1,000 jeans per day. However, large size manufacturers are producing as much as 30,000 jean trousers per day. 4.1.Domestic Market Almost all the established manufacturers are catering solely to the export market. Only the B-Class products are sold in the domestic market. The size of the manufacturers, whose primary market is domestic, is quite small. 4.2.Target Customers In case of direct exports, the customers are retail chain stores, direct distributors and wholesalers. The export can either be through buying houses and/or through direct customers. 5. PRODUCTION PROCESS FLOW The proposed business is stitching denim jeans. The process will involve purchasing of raw material from the market i.e. denim fabric, which will be put through the process. Washing of the fabric will be outsourced as washing in house requires a plant which is expensive and will greatly increase the project cost. Therefore, it is

6 recommended that the proposed project should outsource washing. Washing cost per piece is taken as Rs. 30. The production process flow is given in figure 8-1. Process Flow Chart for Denim Garments Stitching Unit: Denim Fabric Inspection Cutting Stitching Raw Material Pressing Buttoning/ Riveting Threading Stone Washing (To be outsourced) Final Inspection/ Packing Raw Material The proposed business will be using the raw material listed in the Table 8-1. Table 8-1: Raw Material Rate Raw Material Consumption/ Piece (Rs.) Fabric (Metre) / m Pocket Lining (Metre) / m Stitching thread (Metre) 350 / 10 piece Imported buttons 1 3 / unit 4.5 YG Zip 1 15 / unit Main label 1 5 / unit Care and size label 1 2 / unit Rewet per unit 6 9 / unit Packing cost 1 / 15 piece 5.2.Packing Cost Packing cost includes one poly bag and one small carton for the packing of each finished garment. Total cost of packing for one piece is taken as Rs. 15.

7 6. HUMAN RESOURCE REQUIREMENTS For a garment-stitching unit of 32 stitching machines, following manpower is required: Table : Manpower Required Production Staff Number Salary/Month Annual Salary Production Manager 1 50, ,000 Production Planning Officer 1 25, ,000 Pattern Master 1 25, ,000 Cutting Master 1 15, ,000 Cutting Helper 2 8, ,000 Final Table inspector 2 12, ,000 Finishing Supervisor 1 15, ,000 Rowing Inspector 1 12, ,000 Machine Operator 40 9,000 4,320,000 Helper (machine operator) 2 7, ,000 Clippers 2 7, ,000 Iron Presser 1 10, ,000 Packing Staff 2 7, ,000 Store keeper 1 10, ,000 Total 58 7,296,000 Administration Staff Number Salary/Month Annual Salary Chief executive 1 75, ,000 Finance & Admin. Manager 1 50, ,000 Accounts officer 2 15, ,000 Marketing Manager 1 40, ,000 Merchandiser 1 25, ,000 Export Officer 1 25, ,000 Purchase Officer 1 20, ,000 Technician/Electrician 1 15, ,000 Security Guards 2 8, ,000 Total 11 3,564,000

8 7.MACHINERY AND EQUIPMENT DETAILS 7.1. Machinery List Following combination of stitching machines is required for manufacturing 1,000 denim jeans per day. Approximate prices for Japanese origin machinery are given below: Table : Stitching Machinery and Equipment Machinery Quantity Unit cost (Rs.) Total cost (Rs.) Cutting Machine 2 108, ,000 Lock Stitch (Single Needle) 15 28, ,500 Lock Stitch (Double Needle) 3 133, ,000 Safety Stitching Over lock 1 46,500 46,500 Safety Stitching Over lock 1 50,000 50,000 Feed Off Arm 2 40,500 81,000 Bar Tracking 3 318, ,000 Waist Belt Machine 1 136, ,000 Eyelet Machine 1 1,055,000 1,055,000 Button Stitching Machine 1 320, ,000 Loop Making Machine 1 156, ,500 Snap Fastener 1 50,000 50,000 Total machinery cost 32 3,892,500 Other Equipment Steam Boiler 1 138, ,320 Other tools Lumpsum 25,000 25,000 Machine Installation and wiring 32 4, ,000 Total other equipment cost 291,320 Total Cost 4,183, Furniture and Equipment List Furniture and Equipment requirement for the Administration and Factory building is given in the table below: Table : Furniture and Office Equipment Furniture Quantity Cost/Unit (Rs.) Total Cost (Rs.) Table 9 10,000 90,000 Chairs 18 3,000 54,000 Shelves 6 10,000 60,000 Stools ,400

9 Machine Table 40 5, ,000 Lay Table 12 10, ,000 Total ,400 Equipment Computers 9 25, ,000 Printer 1 15,000 15,000 UPS 9 7,500 67,500 Networking 1 25,000 25,000 Air conditioner 4 40, ,000 Tele/Fax 1 15,000 15,000 Total ,500 Total Cost 1,041,900 8.LAND & BUILDING 8.1. Land/Building Requirement Approximately, 4,900 square feet of total covered area is required to establish the proposed stitching unit with a management building. The allocation of the space requirement is as follows: Table: Space Requirements Space Requirement Required area (sq. ft) Fabric & Accessories inventory Store 1,000 Cutting Room 400 Stitching Room 1,250 Inspection Room 850 Packing Room 750 Finished Garment Store 850 Total factory area 5,100 Management Building 650 Total Area Required (sq. ft.) 5, Recommended Mode It is recommended that this project should be started in a rented building. As the initial capital cost of the project will be less. An appropriate premise is normally available in many commercial/industrial areas/ clusters. Table: Building Rent Rent cost Monthly rent (Rs.) Annual rent (Rs.) Estimated Building rent 150,000 1,800,000

10 8.3.. Utilities Requirements It is assumed that the following utilities will already be available at the proposed building to be rented out: Electricity Water Gas Telephone Fax 9.PROJECT ECONOMICS Table : Project Costs Project Costs Machinery & equipment Furniture & fixtures/equipment Pre-operating costs Total Capital Costs Stocks- Raw Material Equipment spare part inventory Upfront for building rental Upfront insurance payment Cash Total Working Capital Total Investment in the Project Total (Rs.) 4,183,820 1,041, ,500 5,981,220 3,951,360 2,092 1,800, ,286 2,154,373 8,169,111 14,150,331 Table : Financing Plan Equity 50% 7,075,165 Debt 50% 7,075,165 Total 14,150,330

11 10.FINANCIAL ANALYSIS Projected Income Statement PROJECTED INCOME STATEMENT Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Sales 107,054, ,510, ,040, ,022, ,520, ,672, ,839, ,223, ,045, ,550,459 Cost of goods sold Raw Material Washing Cost (OUTSOURCED) 79,027,200 6,174,000 88,905,600 6,945,750 99,574,272 7,779, ,087,547 8,678, ,384,320 9,648, ,322,752 10,131, ,555,027 10,637, ,210,529 11,169, ,431,582 11,728, ,374,741 12,314,443 Freight Charges 790, , ,743 1,110,875 1,293,843 1,423,228 1,565,550 1,722,105 1,894,316 2,083,747 Payroll (Production Staff) 7,296,000 8,025,600 8,828,160 9,710,976 10,682,074 11,750,281 12,925,309 14,217,840 15,639,624 17,203,586 Machine Maintenance 209, , , , , , , , , ,524 Direct Electricity 1,641,543 1,805,697 1,986,267 2,184,893 2,403,383 2,643,721 2,908,093 3,198,902 3,518,793 3,870,672 Total 95,138, ,791, ,394, ,015, ,666, ,538, ,871, ,813, ,521, ,171,714 Gross Profit 11,915,965 18,718,965 28,646,310 40,007,308 47,853,719 53,134,239 58,967,569 65,410,226 72,524,445 80,378,745 Operating Expenses Payroll (Admin) 3,564,000 3,920,400 4,312,440 4,743,684 5,218,052 5,739,858 6,313,843 6,945,228 7,639,751 8,403,726 Fixed electricity 882, ,200 1,067,220 1,173,942 1,291,336 1,420,470 1,562,517 1,718,768 1,890,645 2,079,710 Insurance expense 261, , , , , , ,514 78,386 52,257 26,129 Office Expense (Stationary,Entertainment, etc) 712, , , ,737 1,043,610 1,147,972 1,262,769 1,389,046 1,527,950 1,680,745 Administrative & Factory Overheads 802, ,705 1,188,026 1,440,845 1,745,216 2,000,875 2,299,139 2,647,847 3,056,372 3,535,935 Other expenses 60,000 66,000 72,600 79,860 87,846 96, , , , ,477 Amortization (Preoperational Expenses) 151, , , , ,100 Depreciation 522, , , , , , , , , ,572 Total 6,956,664 7,622,214 8,385,475 9,243,640 10,216,505 11,059,020 12,171,648 13,418,770 14,818,162 16,390,293 Operating Profit 4,959,301 11,096,751 20,260,835 30,763,669 37,637,214 42,075,219 46,795,920 51,991,457 57,706,282 63,988,452 Non-operating Expenses Financial Charges on Long-term Loan 1,132, , , , , Year 10

12 Financial Charges on Short-Term Loan 0 1,013, , Building Rentel 1,800,000 1,980,000 2,178,000 2,395,800 2,635,380 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306 Total 2,932,026 3,961,416 3,633,148 2,950,779 2,933,424 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306 Profit Before Tax 2,027,274 7,135,335 16,627,687 27,812,890 34,703,790 39,176,301 43,607,111 48,483,766 53,847,823 59,744,146 Tax 506,819 1,783,834 4,156,922 6,953,222 8,675,948 9,794,075 10,901,778 12,120,941 13,461,956 14,936,037 Profit After Tax 1,520,456 5,351,501 12,470,765 20,859,667 26,027,843 29,382,226 32,705,333 36,362,824 40,385,867 44,808,110

13 10.2. Projected Balance Sheet PROJECTED BALANCE SHEET Const. Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Current Assets Cash 2,154,373 2,154,373 2,154,373 6,040,009 22,300,710 43,901,477 71,166, ,488, ,173, ,560, ,474,392 Stocks and Inventory 3,951,360 4,445,280 4,978,714 5,554,377 6,469,216 7,116,138 7,827,751 8,610,526 9,471,579 10,418,737 0 Receivable 0 16,058,126 18,826,548 22,206,094 25,953,372 30,228,045 33,250,850 36,575,934 40,233,528 44,256,881 48,682,569 Equipment and spare part inventory 2,092 2,197 2,306 2,422 2,543 2,670 2,803 2,944 3,091 3,245 3,408 Pre-paid insurnace payment 261, , , , , , ,514 78,386 52,257 26,129 0 Pre-paid building rent 1,800,000 1,980,000 2,178,000 2,395,800 2,635,380 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306 4,668,736 Total 8,169,111 24,875,132 28,348,969 36,381,602 57,517,993 84,277, ,541, ,263, ,792, ,509, ,829,105 Gross Fixed Assets 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 Less: Accumulated depreciation 0 522,572 1,045,144 1,567,716 2,090,288 2,612,860 3,135,432 3,658,004 4,180,576 4,703,148 5,225,720 Net Fixed Assets 5,225,720 4,703,148 4,180,576 3,658,004 3,135,432 2,612,860 2,090,288 1,567,716 1,045, ,572 0 Intangible Assets Pre-operational Expenses 755, , , , ,100 0 Total 755, , , , , Total Assets 14,150,331 30,182,680 32,982,845 40,341,806 60,804,525 86,890, ,631, ,831, ,837, ,031, ,829,105 Current Liabilities Running Finance 0 7,242,833 4,847, Accounts payable 8,297,856 9,335,088 10,455,299 11,664,192 13,585,354 14,943,889 16,438,278 18,082,106 19,890,316 21,879,348 Total 0 15,540,689 14,182,756 10,455,299 11,664,192 13,585,354 14,943,889 16,438,278 18,082,106 19,890,316 21,879,348 Long-term liabilities Long-term Loan 7,075,165 6,046,370 4,852,967 3,468,620 1,862, Total 7,075,165 6,046,370 4,852,967 3,468,620 1,862, Equity Paid-up Capital 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 Retained Earnings 0 1,520,456 6,871,957 19,342,722 40,202,389 66,230,232 95,612, ,317, ,680, ,066, ,874,592 Total 7,075,165 8,595,621 13,947,122 26,417,887 47,277,555 73,305, ,687, ,392, ,755, ,141, ,949,757 Total Liabilities And Equity 14,150,331 30,182,680 32,982,845 40,341,806 60,804,525 86,890, ,631, ,831, ,837, ,031, ,829,105 Year 10

14 10.3. Projected Cash Flow Statement PROJECTED CASH FLOW STATEMENT Rs `000' Const. Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Operating activities Net profit 1,520,456 5,351,501 12,470,765 20,859,667 26,027,843 29,382,226 32,705,333 36,362,824 40,385,867 44,808,110 Amortization (Preoperational Expenses) 151, , , , , Depreciation 522, , , , , , , , , ,572 Up-front insurance payment (261,286) 26,129 26,129 26,129 26,129 26,129 26,129 26,129 26,129 26,129 26,129 Equipment and spare part inventory (2,092) (105) (110) (115) (121) (127) (133) (140) (147) (155) (162) Accounts receivable (16,058,126) (2,768,422) (3,379,546) (3,747,278) (4,274,673) (3,022,805) (3,325,085) (3,657,593) (4,023,353) (4,425,688) Stocks-RM (3,951,360) (493,920) (533,434) (575,664) (914,839) (646,922) (711,614) (782,775) (861,053) (947,158) 10,418,737 Accounts payable 8,297,856 1,037,232 1,120,211 1,208,894 1,921,161 1,358,535 1,494,389 1,643,828 1,808,211 1,989,032 Cash provided by operations (4,214,738) (6,034,038) 3,786,568 10,335,451 18,106,124 23,727,082 27,554,910 30,640,422 34,036,560 37,772,113 53,338,729 Financing acivities Long term debt principal repayment (1,028,795) (1,193,403) (1,384,347) (1,605,843) (1,862,777) Add: buliding rent expense 1,800,000 1,980,000 2,178,000 2,395,800 2,635,380 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306 Building rent payment (1,800,000) (1,980,000) (2,178,000) (2,395,800) (2,635,380) (2,898,918) (3,188,810) (3,507,691) (3,858,460) (4,244,306) (4,668,736) Adition to debt 7,075,165 Issuance of share 7,075,165 Running Finance Repayment (7,242,833) (4,847,668) Cash provided by/ (used for) financin 12,350,331 (1,208,795) (8,634,236) (6,449,815) (1,845,423) (2,126,315) (289,892) (318,881) (350,769) (385,846) (424,431) Total 8,135,593 (7,242,833) (4,847,668) 3,885,637 16,260,701 21,600,767 27,265,018 30,321,541 33,685,791 37,386,267 52,914,298 Investing activities Capital expenditure (5,981,220) Cash (used for)/ provided by invetsin (5,981,220) Cash balance brought forward 0 2,154,373 2,154,373 2,154,373 6,040,009 22,300,710 43,901,477 71,166, ,488, ,173, ,560,094 Net Cash 2,154,373 (5,088,461) (2,693,295) 6,040,009 22,300,710 43,901,477 71,166, ,488, ,173, ,560, ,474,392

15 11.KEY ASSUMPTIONS Machinery Assumptions Number of Machines Installed Installed capacity Initial year capacity utilization Maximum capacity utilization Capacity utilization growth rate Defective garment rate (of total finished garments) Total Production per day % 70% 90% 5% 2% 1000 Operating Assumptions Shifts operational per day 1 Hours operational per shift 8 Days operational per year 300 Economy-Related Assumptions Electricity growth rate 10% Wage growth rate 10% Cash Flow Assumptions Accounts Receivable cycle (in days) 45 Accounts payable cycle (in days) 30 Raw material inventory (in days) 15 Equipment spare part inventory (in days) 30 Raw Material Assumptions Raw material cost growth rate (Year 1-4) 5% Raw material cost growth rate (Year 5-10) 10% Washing cost Rs. 30 Washing cost growth rate 5% Revenue Assumptions Defected garment sales price Rs. 150 Sales Price growth rate 10%

16 Expense Assumptions Administrative overhead (% of Sales) 1% Office expenses (stationery, entertainment etc) 20% of admin expense Freight expense 1% of raw material Machine maintenance (per month) 5% of machinery cost Machine maintenance growth rate 5% Pre-paid building Rent (months) 12 Pre-paid insurance (months) 12 Admin and Factory overhead 0.75% of revenue Insurance rate (% of net fixed assets) 5% Spare part inventory 0.05% of machine cost Rent growth rate 10% Tax rate 30.90% Financial Assumptions Project life (years) 10 Debt 50% Equity 50% Interest rate on long-term debt 14.50% Interest rate on short term debt 14.00% Debt tenure (years) 5 Debt payments per year 1 Discount rate (weighted avg. cost of capital for NPV) 20% ANNEXURE 1: RAW MATERIAL & MACHINERY SUPPLIERS MACHINERY SUPPLIERS 1Om Sai Suneet Overseas Mr. Suneet Kumar (Business Director) B-167, Ground Floor, Karampura, New Moti Nagar Delhi , India 2.Nido Machineries Pvt. Ltd. 311, Wadala Udyog Bhavan Naigaum Cross Road, Wadala, Mumbai , Maharashtra 3.Gabbar Industries Private Limited Plot No. 3606, 1, Krishna Industrial Estate, Vatva G.I.D.C., Phase- 4, Ahmedabad , Gujarat

17 4.Macro Agencies Private Limited No A 2, Doddanakundi, Industrial Area, Whitefield Road, Mahadevapura, Bengaluru , Karnatakawww.macroagencies.in 5.M/s. Erhardt Leimer India Ltd. 43, Dr. V. B Gandhi Road, Mumbai-23 6.M/s. Eastern Engineering Co. Jeevan Udyog, II Floor, 278, Dr. D. N. Road, Fort, Mumbai 9. M/s. Srirang Equipment RAW MATERIAL SUPPLIERS M/s. Rajeswari Textiles Limited Raja Street, NH Road, Kalbadevi Market, Mumbai 2. M/s. Mettur Beardsell Limited Bombay Mutual Building, III Floor, NSC, Bose Road, Chennai M/s. Vardhaman Threads Mahavir Spg. Mills Ltd., Chandigarh Road, Ludhiana M/s. K. G. Denims Limited Narsihamaicken Palayam, MTP Road, Coimbatore 5. M/s. Aravind Clothing Mills Ltd. Ahmedabad.