Pre-Feasibility Study

LADIES SHOES MANUFACTURING UNIT

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 REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

PUNJAB SINDH KHYBER PAKTUNKHWA BALOCHISTAN
3rd Floor, Building No. 3,
5th Floor, Bahria Complex II, Ground Floor Bungalow No. 15-A Chamn
Aiwan-e-Iqbal Complex,
M.T. Khan Road, State Life Building The Mall, Housing Scheme Airport Road,
Egerton Road,
Karachi. Peshawar. Quetta.
Lahore.
Tel: (021) 111-111-456 Tel: (091)111 111 456,9213046-7 Tel: (081) 2831623, 2831702
Tel: (042) 111 111 456,
Fax: (021) 35610572 Fax: (091) 5286908 Fax: (081) 2831922
Fax: (042) 36304926-7
helpdesk-khi@smeda.org.pk helpdesk-pew@smeda.org.pk helpdesk-qta@smeda.org.pk
helpdesk.punjab@smeda.org.pk

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Pre-feasibility Study Ladies Shoes Manufacturing Unit

TABLE OF CONTENTS
1. DISCLAIMER ............................................................................................................ 3
2. EXECUTIVE SUMMARY .......................................................................................... 4
3. INTRODUCTION TO SMEDA................................................................................... 4
4. PURPOSE OF THE DOCUMENT ............................................................................ 5
5. BRIEF DESCRIPTION OF PROJECT & PRODUCT ................................................ 5
5.1. Production Process Flow.................................................................................... 6
5.2. Installed & Operational Capacities ..................................................................... 7
6. CRITICAL FACTORS ............................................................................................... 8
7. GEOGRAPHICAL POTENTIAL FOR INVESTMENT................................................ 8
8. POTENTIAL TARGET MARKETS ............................................................................ 8
9. PROJECT COST SUMMARY ................................................................................... 9
9.1. Project Economics ............................................................................................. 9
9.2. Project Financing ............................................................................................... 9
9.3. Project Cost........................................................................................................ 9
9.4. Machinery Requirement ................................................................................... 10
9.5. Office Equipment Requirement ........................................................................ 11
9.6. Furniture and Fixture Requirements ................................................................. 11
9.7. Space Requirement ......................................................................................... 11
9.8. Raw Material Requirements ............................................................................. 12
9.9. Human Resource Requirements ...................................................................... 12
9.10. Other Costs................................................................................................... 13
9.11. Revenue Generation ..................................................................................... 13
10. CONTACT DETAILS .............................................................................................. 14
10.1. Machinery Suppliers ..................................................................................... 14
10.2. Raw Material Suppliers ................................................................................. 15
10.3. Technical Experts / Consultants.................................................................... 15
11. USEFUL LINKS ...................................................................................................... 16
12. ANNEXURES ......................................................................................................... 17
12.1. Income Statement ......................................................................................... 17

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12.2. Balance Sheet............................................................................................... 18

12.3. Cash Flow Statement .................................................................................... 19
13. KEY ASSUMPTION ................................................................................................ 20
13.1. Operating Cost Assumptions ........................................................................ 20
13.2. Production Cost Assumptions ....................................................................... 20
13.3. Revenue Assumptions .................................................................................. 21
13.4. Financial Assumptions .................................................................................. 21

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1. DISCLAIMER

This information memorandum is to introduce the subject matter and provide a general
idea and information on the said matter. Although, the material included in this
document is based on data/information gathered from various reliable sources;
however, it is based upon certain assumptions, which may differ from case to case. The
information has been provided on as is where is basis without any warranties or
assertions as to the correctness or soundness thereof. Although, due care and diligence
has been taken to compile this document, the contained information may vary due to
any change in any of the concerned factors, and the actual results may differ
substantially from the presented information. 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

DOCUMENTCONTROL
Document No. PREF-NO. 114
Revision No. 1
Prepared by SMEDA-Punjab
Revision Date September 2014

Provincial Chief Punjab

For Information
janjua@smeda.org.pk

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Pre-feasibility Study Ladies Shoes Manufacturing Unit

2. EXECUTIVE SUMMARY

The demand for shoes is continually rising due to urbanized population and changing
life styles. Although, there are a number of local manufacturers producing good quality
shoes but still a huge demand exists for potential investment in the footwear sector in
Pakistan.
This pre-feasibility study is for setting up of a semi-mechanized shoe manufacturing unit
exclusively for ladies. The business will focus on providing good quality ladies footwear
at affordable prices; particularly including pumps, coat shoes, sandals, and sleepers of
sizes starting from number 6 to 11. The shoes will be directly sold to wholesalers and
retail outlets operating in major cities of Pakistan. The unit is assumed to be set up in
any city with already established units, such as Karachi, Lahore, Faisalabad,
Hyderabad, Sahiwal, Gujranwala and Rawalpindi.
The unit will have an installed production capacity of producing 600 pairs of shoes per
day on single shift basis. However, initial operational capacity is assumed at 50% (i.e.
300 pairs of shoes) whereas maximum operational capacity utilization is considered as
80% (i.e. 480 pair of shoes) per day. This production capacity is estimated to be
economically viable and justifies the capital as well as operational costs of the project.
However, entrepreneur’s knowledge of footwear industry, development of quality shoes,
attractive designs, competitive pricing and strong linkages with wholesale / retail
networks are vital factors for the success of this project.
Total cost of setting up this shoes manufacturing unit is estimated at Rs. 9.93 million.
The project is financed through 50% debt and 50% equity. The project NPV is around
Rs. 32.67 million, with an IRR of 55 % and payback period of 2.72 years. The legal
business status of this project is proposed as ‘Sole Proprietorship’.

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 and
institutional collaboration and networking initiatives.
Preparation and dissemination of prefeasibility studies in key areas of investment has
been a successful hallmark of SME facilitation by SMEDA.

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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. 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 Ladies Shoes

Manufacturing business by providing them a general understanding of the business
with an 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 and error and certain industrial norms that become a guiding source regarding
various aspects of business set-up and it’s successful management.

Apart from carefully studying the whole document, one must consider critical aspects
provided later on, which shall form the basis of any investment decision.

5. BRIEF DESCRIPTION OF PROJECT & PRODUCT

Footwear manufacturing industry in Pakistan can be broadly categorized into two main
segments i.e. Organized Sector (mainly including big brands e.g. Stylo Shoes, Metro
Shoes, Insignia Shoes, ECS, Console Shoes, Aerosoft Shoes, Bata, Service, etc.,) and
Unorganized Sector (mainly comprising of labor intensive units having semi-
mechanized manufacturing facilities).

This particular pre-feasibility provides basic details for setting up semi-mechanized

ladies shoes manufacturing unit. Major product line of the venture includes different
varieties of pumps, coat shoes, sandals, and sleepers with a variety of leather and other
materials. The proposed unit will manufacture ladies shoes in all sizes starting from
number 6 up to number 11. To keep the project operational throughout the year,
production of different varieties of footwear will be planned according to seasonal
trends.

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Second-hand machinery of German and UK origin is proposed to be used. Overall

installed capacity of the unit will be to produce 600 pairs of shoe per day, while
maximum capacity utilization of the unit is assumed at 80% i.e. 480 pairs per day and
144,000 pairs annually. The proposed venture will provide employment opportunity to
15 individuals including the Owner / Manager. It is assumed that the unit should be
established in a rented premise to reduce the initial capital expenditures.

5.1. Production Process Flow

Production process of shoe manufacturing starts with the development of shoe designs.
Generally 10 to 12 different designs (including both summer and winter designs) are
required for the whole year production cycle. Designs are developed either in-house by
employing a full time designer or can be outsourced. However, it is recommended to
have a full time designer for maintaining the uniqueness of designs in the market. The
proposed unit will have a full time designer to produce new and creative designs. After
finalizing the shoe designs, shoe “Last” is prepared; Last is a plastic shape that
simulates the foot shape. It is later removed from the finished shoe to be used further in
making other shoes. Shoe Last for the proposed unit will be outsourced from the
markets. The next step is preparation of press cutting dyes for uppers cutting and
synthetic material. Stitchers then perform various stitching operations to stitch together
various components of the upper. After stitching is done, the uppers are molded into a
shape of foot with the help of developed Last and sole will then be joined / attached with
the upper. Final stage of shoe manufacturing is ‘finishing’, and once the finishing has
been done, each pair of shoe will be packed in polythene bags and then finally into
boxes.

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Figure 1: Production Process Flow

Shoe Sole Shoe

Attatchment Lasting
Design

Shoe Finishing
Upper
Last & Quality
Cleaning
Making Check

Press
Upper
Cutting
Cutting Packing
Dyes

5.2. Installed & Operational Capacities

Installed and operational capacities of ‘Ladies Shoes Manufacturing’ business depends

on the installed machinery. This pre-feasibility study is based on an installed capacity of
manufacturing 600 pairs of shoe per day. At maximum capacity i.e. 80% the unit would
be able to manufacture 480 pairs of shoe per day and 144,000 pairs per annum.
However, capacity utilization during first year of operation is assumed to be at 50%,
which means 300 pairs of shoe per day (i.e. 90,000 pairs in year 1) will be
manufactured. Capacity utilization growth rate of 05% is considered for subsequently
years, while maximum capacity utilization (i.e. 80%) will be achieved during the 7th year
of operation. This production capacity is estimated to be economically viable and
justifies the capital as well as operational costs of the project.
It is pertinent to mention that, all the manufactured shoes would not meet the quality
standards and therefore will be categorized as “A Grade” and “B Grade” pairs. Out of
total production 80% will be “A Grade” while rest of 20% will be “B Grade”. The “B
Grade” pair of shoes will be sold at half the price of “A Grade” pair in the market.

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Details of operational and installed capacities are provided in the table below;
Table 1: Installed and operational capacity:
Total Production Operational Maximum
% Of Total
Item Capacity Capacity 50 % Operational Capacity
Production
(Annually) (Year 1) 80 % (Year 7)
A-Pairs 80% 144,000 72,000 115,200
B-Pairs 20% 36,000 18,000 28,800
Total 100% 180,000 90,000 144,000

6. CRITICAL FACTORS

Following are the factors critical for the success of this business;

 Development of attractive designs and good quality shoes at competitive

prices.
 Develop strong linkages with suppliers for obtaining good quality products at
competitive prices.
 Networking with shoes wholesaler / retailers for the sale of the product.
 Efficient management of stock to keep inventory cost at the minimum.
 Knowledge about the latest market trends.
 Induction of trained sales personnel for efficient customer handling.
 Quality standards should be strictly followed.
 Strong presence in the domestic market.
 Increasing competition from Chinese products and strong competition with
similar type of manufacturers.

7. GEOGRAPHICAL POTENTIAL FOR INVESTMENT

Lahore is the footwear centre of the country, followed by Karachi, Faisalabad,

Hyderabad, Sahiwal, Gujranwala and Rawalpindi. Therefore, any of the above cities
would be suitable for setting up a ladies shoe manufacturing unit. Raw material and
labour are also easily available in these cities.

8. POTENTIAL TARGET MARKETS

Target customer for the proposed project would be females of ages 14 years and
above, belonging to middle and lower middle-income family groups. The middle and
lower-middle family income groups dominate the overall population in Pakistan. This
phenomenon provides an ample opportunity for the investment in this sector.

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9. PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial viability of
Ladies Shoes Manufacturing Unit. Various costs 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 also
attached as annexure.

9.1. Project Economics

All the assumptions in this financial model are based upon total installed capacity of
180,000 pairs. Whereas, during first year production capacity utilization is targeted at
50%, i.e. 90,000 pairs of shoes to be produced while 83,505 pairs will be sold. The
balance quantity of 6,495 pairs will be finished goods inventory for next year.
The following table shows internal rate of return, payback period and Net Present Value.
Table 2: Project Economics
Description Details
Internal Rate of Return (IRR) 55%
Pay Back Period (Years) 2.72
Net Present Value (NPV) 32,665,861
Returns on the project and its profitability are highly dependent on the efficiency of the
entrepreneur in hiring skilled personnel and maintaining good quality in terms of shoes
design, quality and customer services.
9.2. Project Financing
Following table provides details of required equity and variables related to bank loan.
Table 3: Project Financing
Description Details
Total Equity (50%) 4,965,541
Bank Loan (50%) 4,965,541
Annual Markup to the Borrower– Long Term Loan 16%
Tenure of the Loan (Years) 5 Years
Annual Markup to the Borrower – Short Term Debt 16%
9.3. Project Cost
Following fixed and working capital requirements have been identified for operations of
the proposed business.

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Table 4: Project Investment

Description Amount (Rs.)
Capital Investment
Machinery & Equipment 4,177,500
Furniture & Fixtures 413,400
Office Equipment 157,000
Pre-operating Costs 693,925
Training Costs 50,000
Total Capital Cost 5,491,825
Working Capital Requirements
Raw Material Inventory 3,014,401
Upfront Building Rent 900,000
Cash 524,857
Total Working Capital 4,439,258
Total Investment 9,931,082
9.4. Machinery Requirement
Following table provides list of machinery and office equipment required for an average
sized Ladies Shoes Manufacturing Unit.
Table 5: Machinery and Equipment Required
Unit Price Total Amount
Description Quantity
(Rs.) (Rs.)
Cutting Clicking Press and Cutting Board 1 180,000 180,000
GP 4 Machine 2 60,000 120,000
Skiving Machine 2 36,000 72,000
Upper Stitching Flat Bed Machine 4 70,000 280,000
Upper Stitching Post Bed Machine 2 40,500 81,000
Cylindrical Bed / Bending Machine 1 48,000 48,000
Sole Attaching Press 1 750,000 750,000
Grinder / Scoring Machine 3 15,000 45,000
Sole Activator 1 480,000 480,000
Zigzag Machine 1 28,000 28,000
Scoring Machine 1 27,000 27,000
Finishing Machine 1 50,000 50,000
Lasts 1 600,000 600,000
Generator - 50 KVA 1 350,000 350,000
Other Machinery (Inland Freight, Electric
1,066,500 1,066,500
Wiring & Other Miscellaneous Expenses)
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Total Machinery Cost 4,177,500

9.5. Office Equipment Requirement
Office equipment requirements for proposed venture are as under.
Table 6: Office Equipment Required
Description Quantity Cost/Unit (Rs.) Total Cost (Rs.)
Computers 3 25,000 75,000
UPS 3 10,000 30,000
Printers 1 20,000 20,000
Telephone Sets 2 1,000 2,000
Fax Machine 1 30,000 30,000
Total Cost 157,000
9.6. Furniture and Fixture Requirements
Details of required furniture and fixture are provided in the following table.
Table 7: Furniture and Fixture Required
Description Qty Cost/Unit (Rs.) Total Cost (Rs.)
Executive Table 1 25,000 25,000
Tables 7 8,000 56,000
Sofa 1 25,000 25,000
Store Racks/Shelves 5 12,000 60,000
Chairs 14 2,000 28,000
Stools 3 1,200 3,600
Work Tables 2 8,000 16,000
File cabinets 3 4,000 12,000
Fans and Lights 70,000 70,000
Fire extinguishers 3 2,600 7,800
Air Conditioners 2 55,000 110,000
Total Cost 413,400
9.7. Space Requirement
In order to reduce the initial capital expenditure, the proposed Ladies Shoes
Manufacturing Unit will be established in a rental premises. Therefore, space may be
acquired in the industrial state or in outskirts of big cities where skilled workers are
available. The rent of the building will depend on the area and geographical location of
the unit. An estimated area of 1 Kanal (4,500 sq. ft.) will be required for the proposed
venture.

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The area requirement has been calculated on the basis of space required for
production, management and storage. However, the units operating in the industry do
not follow any set pattern.
Following table shows calculations for project space requirement.
Table 8: Space Requirement
Space Requirement Area in Sq. Ft.
Offices 200
Production Hall 3,000
Raw Material Store 500
Finished Goods Store 500
Washrooms 50
Loading Area 250
Total Area 4,500
9.8. Raw Material Requirements
Following are the major components of raw material required for manufacturing ladies
shoes.

Shoe Parts Material

Upper Material Natural Leather, Paramedics, Leather Fabrics, Textile Materials,
Plastic and Rubber Fall
Insole Material Leather Board, Texon, Bontex and Other Cellulose Board and Some
Special Types of Shoe Construction Textiles
Outsole Material Ethylene Vinyl Acetate (EVA), Polyvinyl Chloride (PVC),
Polyurethane (PU) and Thermoplastic Rubber (TPR)
Grinderies Shoe Laces, Threads, Tapes, Metal Fittings, Eyelets, Buckles,
Different Types of Nails/Tingles, Shanks, Rivets, Hooks Zip
Fastener
Auxiliary Material Adhesives, Finishing Chemicals like Latex, Polish, etc.
9.9. Human Resource Requirements
Following table provides details of human resource required for the project along with
monthly salaries:

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Table 9: Human Resource Requirement

Employees No. Salary Per Employee Per Month(Rs.)
Owner / Manager 1 60,000
Production Supervisor 1 25,000
Designer 1 40,000
Foreman 1 25,000
Mechanic 1 15,000
Helper 3 12,000
Marketing Executive 1 30,000
Purchaser 1 25,000
Accountant 1 18,000
Store Keeper 1 12,000
Office boy 1 12,000
Watchman 2 12,000
Total 15
It is assumed that the owner would have prior experience or knowledge about the ladies
shoes manufacturing business. Salaries of all employees are estimated to increase at
10% annually.
9.10. Other Costs
An essential cost to be borne by the business is the cost of electricity; a three-phase
commercial electricity connection is required. The annual electricity expenses are
estimated as Rs. 644,144. This project also requires heavy marketing and promotional
activities; for which approximately 2.5% of total revenues will be spent on marketing and
promotion expenses annually for the first three years. Similarly, during 1st year of
operation communication and office expenses are estimated at Rs. 217,200 and
108,600 respectively.
9.11. Revenue Generation
Revenue and cost assumptions of the proposed business venture during first year of
operation are as follows:
Table 10: Revenue Generation in First Year

% Of Sales Price Y-1 Production Y-1Sales

Description
Production (Rs./Pair) capacity (50%) Revenue (Rs)
Sale of A pairs 80% 650 66,804 43,422,600
Sales of B Pairs 20% 325 16,701 5,427,825
Total 100% 83,505 48,850,425

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10. CONTACT DETAILS

Contact details of private sector Service Providers relevant to the proposed project are
as under:

10.1. Machinery Suppliers

Name Address Phone / Fax E-mail / Website

809 Ravi Block,
New Tech Auto Near Kharah Stop 042-37490497
Mission Main Multan Road, 36106946
Lahore
Ph: +92-42-363
Rex Market, 6
REX Machinery 75525, Fax:
Allama Iqbal Road, rexmachinery@hotmail.com
(Pvt.) Ltd. +92-42-363
Lahore.
05130
24 AllamaIqbal
Road, Shop no 5-6,
R. Sons 042-36370818
Near Railway
Machinery 36364965
Hospital
Lahore
25 United Arcade,
United Apparel Rex Market, Ph: +92-42-362 lhr@unitedmachinery.com.pk
Machinery Nicolson Road, 91680 www.unitedmachinery.com.pk
Lahore

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10.2. Raw Material Suppliers

E-mail /
Name Address Phone / Fax
Website
Ideal Rubber & 17-A, SIE No. 1, 055-3259034
Engineering Industry Gujranwala 0300-8465454
40-ST-80, Opposite
Global Enterprises Local Govt. Complex, 042-37148734 gle@brain.net.pk
Sanda Road, Lahore
Crescent Art Fabric. 10- Abbot Road, Lahore 042-36364208

10.3. Technical Experts / Consultants

Name Address Phone / Fax E-mail / Website

Government
P.O Anwar Industry, Ph: +92-055-923
Institute of Leather
G.T. Road, Gujranwala 00562
Technology
Footwear Training Plot no. 24, Phase 5, Ph: +92-91-921
Institute Hyatabad, Peshawer 7244
+92-300-457
Muhammad Ashraf www.kamhank.com
5118

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11. USEFUL LINKS

Small & Medium Enterprises Development Authority

www.smeda.org.pk
(SMEDA)
Government of Pakistan www.pakistan.gov.pk
Ministry of Industries & Production www.moip.gov.pk
Ministry of Education, Training & Standards in Higher
http://moptt.gov.pk
Education
Government of Punjab www.punjab.gov.pk
Government of Sindh www.sindh.gov.pk
Government of Khyber Pakhtunkhwa www.khyberpakhtunkhwa.gov.pk
Government of Balochistan www.balochistan.gov.pk
Government of GilgitBaltistan www.gilgitbaltistan.gov.pk
Government of Azad Jamu Kashmir www.ajk.gov.pk
Trade Development Authority of Pakistan (TDAP) www.tdap.gov.pk
Security Commission of Pakistan (SECP) www.secp.gov.pk
Federation of Pakistan Chambers of Commerce and
www.fpcci.com.pk
Industry (FPCCI)
State Bank of Pakistan (SBP) www.sbp.org.pk
Punjab Small Industries Corporation www.psic.gop.pk
Sindh Small Industries Corporation www.ssic.gos.pk
Punjab Vocational Training Council (PVTC) www.pvtc.gop.pk
Technical Education and Vocational Training
www.tevta.org
Authority (TEVTA)
Punjab Industrial Estates (PIE) www.pie.com.pk
Faisalabad Industrial Estate Development and
www.fiedmc.com.pk
Management Company (FIEDMC)

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12. ANNEXURES

12.1. Income Statement

Income Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 48,850,425 63,049,615 75,947,859 90,563,346 107,328,900 126,541,166 148,522,554 164,115,239 180,573,324 198,633,367
Cost of sales
Cost of goods sold 31,220,849 39,961,390 48,188,967 57,357,760 67,855,417 79,878,584 93,627,806 103,406,229 113,773,558 125,152,469
Transportation cost 300,000 330,000 363,000 399,300 439,230 483,153 531,468 584,615 643,077 707,384
Operation costs 1 (direct labor) 1,569,894 1,842,009 2,033,931 2,238,778 2,463,716 2,711,081 2,983,145 3,296,332 3,626,900 3,989,645
Operating costs 3 (direct electricity) 476,044 523,648 576,013 633,614 696,976 766,673 843,341 927,675 1,020,442 1,122,486
Packing Material 2,087,625 2,694,428 3,245,635 3,870,228 4,586,705 5,407,742 6,347,118 7,013,472 7,716,809 8,488,605
Operating costs 5 (generator diesel) 518,400 570,240 627,264 689,990 758,989 834,888 918,377 1,010,215 1,111,236 1,222,360
Total cost of sales 36,172,812 45,921,715 55,034,811 65,189,671 76,801,033 90,082,122 105,251,255 116,238,537 127,892,022 140,682,950
Gross Profit 12,677,613 17,127,900 20,913,048 25,373,675 30,527,867 36,459,044 43,271,299 47,876,702 52,681,302 57,950,417

General administration & selling expenses

Administration expense 2,172,000 2,389,200 2,628,120 2,890,932 3,180,025 3,498,028 3,847,830 4,232,614 4,655,875 5,121,462
Administration benefits expense 108,600 119,460 131,406 144,547 159,001 174,901 192,392 211,631 232,794 256,073
Building rental 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
Electricity expense 168,100 184,910 203,401 223,741 246,115 270,726 297,799 327,579 360,337 396,370
Water expense 30,000 33,000 36,300 39,930 43,923 48,315 53,147 58,462 64,308 70,738
Gas expense 10,000 11,000 12,100 13,310 14,641 16,105 17,716 19,487 21,436 23,579
Travelling expense 108,600 119,460 131,406 144,547 159,001 174,901 192,392 211,631 232,794 256,073
Communications expense (phone, fax, mail, internet, etc.) 217,200 238,920 262,812 289,093 318,003 349,803 384,783 423,261 465,587 512,146
Office expenses (stationary, entertainment, janitorial services, etc.) 108,600 119,460 131,406 144,547 159,001 174,901 192,392 211,631 232,794 256,073
Promotional expense 1,221,261 1,576,240 1,898,696 1,358,450 1,609,934 1,898,117 1,485,226 1,641,152 1,805,733 1,986,334
Professional fees (legal, audit, consultants, etc.) 244,252 315,248 379,739 452,817 536,645 632,706 742,613 820,576 902,867 993,167
Depreciation expense 474,790 474,790 474,790 474,790 474,790 474,790 474,790 474,790 474,790 474,790
Amortization of pre-operating costs 138,785 138,785 138,785 138,785 138,785 - - - - -
Amortization of legal, licensing, and training costs 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000
Bad debt expense 488,504 630,496 759,479 905,633 1,073,289 1,265,412 1,485,226 1,641,152 1,805,733 1,986,334
Subtotal 7,295,692 8,335,969 9,371,440 9,621,921 10,753,532 11,882,624 12,560,113 13,786,656 15,118,507 16,582,446
Operating Income 5,381,921 8,791,930 11,541,608 15,751,753 19,774,335 24,576,420 30,711,186 34,090,046 37,562,795 41,367,971

Other income (interest on cash) - - - - - - - - - -

Earnings Before Interest & Taxes 5,381,921 8,791,930 11,541,608 15,751,753 19,774,335 24,576,420 30,711,186 34,090,046 37,562,795 41,367,971

Interest on short term debt 46,220 46,220 - - - - - - - -

Interest expense on long term debt (Project Loan) 439,346 375,461 301,354 215,391 115,673 - - - - -
Interest expense on long term debt (Working Capital Loan) 332,702 278,432 214,814 140,236 52,811 - - - - -
Subtotal 818,268 700,113 516,168 355,627 168,483 - - - - -
Earnings Before Tax 4,563,653 8,091,817 11,025,440 15,396,127 19,605,852 24,576,420 30,711,186 34,090,046 37,562,795 41,367,971

Tax 891,596 2,054,635 3,081,403 4,611,144 6,084,547 7,824,246 9,971,414 11,154,015 12,369,477 13,701,289
NET PROFIT/(LOSS) AFTER TAX 3,672,058 6,037,182 7,944,037 10,784,983 13,521,304 16,752,173 20,739,772 22,936,031 25,193,317 27,666,682

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Pre-feasibility Study Ladies Shoes Manufacturing Unit

12.2. Balance Sheet

Calculations SMEDA
Balance Sheet

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Assets
Current assets
Cash & Bank 524,857 - 3,262,522 8,221,712 15,358,464 24,340,109 36,860,121 53,278,417 71,511,499 91,269,676 146,828,089
Accounts receivable 2,007,552 2,299,316 2,856,112 3,421,463 4,066,279 4,805,549 5,651,994 6,424,064 7,082,642 7,791,918
Work in Process & Finished goods inventory 2,813,513 3,522,568 4,217,401 4,994,822 5,883,933 6,900,887 8,062,386 8,895,507 9,786,641 10,765,394
Raw material inventory 3,014,401 4,209,491 5,549,343 7,230,621 9,370,366 12,089,847 15,538,252 18,876,335 22,845,659 27,643,586 -
Pre-paid building rent 900,000 990,000 1,089,000 1,197,900 1,317,690 1,449,459 1,594,405 1,753,845 1,929,230 2,122,153 -
Total Current Assets 4,439,258 10,020,555 15,722,749 23,723,747 34,462,805 47,829,627 65,699,213 87,622,978 111,605,959 137,904,698 165,385,402

Fixed assets
Machinery & equipment 4,177,500 3,759,750 3,342,000 2,924,250 2,506,500 2,088,750 1,671,000 1,253,250 835,500 417,750 -
Furniture & fixtures 413,400 372,060 330,720 289,380 248,040 206,700 165,360 124,020 82,680 41,340 -
Office equipment 157,000 141,300 125,600 109,900 94,200 78,500 62,800 47,100 31,400 15,700 -
Total Fixed Assets 4,747,900 4,273,110 3,798,320 3,323,530 2,848,740 2,373,950 1,899,160 1,424,370 949,580 474,790 -

Intangible assets
Pre-operation costs 693,925 555,140 416,355 277,570 138,785 - - - - - -
Legal, licensing, & training costs 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 -
Total Intangible Assets 743,925 600,140 456,355 312,570 168,785 25,000 20,000 15,000 10,000 5,000 -
TOTAL ASSETS 9,931,082 14,893,805 19,977,424 27,359,846 37,480,330 50,228,577 67,618,373 89,062,348 112,565,539 138,384,488 165,385,402

Liabilities & Shareholders' Equity

Current liabilities
Accounts payable 1,468,370 1,883,866 2,292,435 2,758,661 3,303,472 3,941,095 4,645,299 5,212,459 5,838,091 5,172,323
Short term debt - 536,600 - - - - - - - - -
Total Current Liabilities - 2,004,970 1,883,866 2,292,435 2,758,661 3,303,472 3,941,095 4,645,299 5,212,459 5,838,091 5,172,323

Other liabilities
Long term debt (Project Loan) 2,745,912 2,346,631 1,883,465 1,346,191 722,955 - - - - - -
Long term debt (Working Capital Loan) 2,219,629 1,904,606 1,535,313 1,102,403 594,914 - - - - - -
Total Long Term Liabilities 4,965,541 4,251,237 3,418,778 2,448,594 1,317,869 - - - - - -

Shareholders' equity
Paid-up capital 4,965,541 4,965,541 4,965,541 4,965,541 4,965,541 4,965,541 4,965,541 4,965,541 4,965,541 4,965,541 4,965,541
Retained earnings 3,672,058 9,709,239 17,653,276 28,438,259 41,959,563 58,711,737 79,451,508 102,387,539 127,580,856 155,247,538
Total Equity 4,965,541 8,637,599 14,674,781 22,618,817 33,403,800 46,925,104 63,677,278 84,417,049 107,353,080 132,546,397 160,213,079
TOTAL CAPITAL AND LIABILITIES 9,931,082 14,893,805 19,977,424 27,359,846 37,480,330 50,228,577 67,618,373 89,062,348 112,565,539 138,384,488 165,385,402

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Pre-feasibility Study Ladies Shoes Manufacturing Unit

12.3. Cash Flow Statement

Cash Flow Statement

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating activities
Net profit 3,672,058 6,037,182 7,944,037 10,784,983 13,521,304 16,752,173 20,739,772 22,936,031 25,193,317 27,666,682
Add: depreciation expense 474,790 474,790 474,790 474,790 474,790 474,790 474,790 474,790 474,790 474,790
amortization of pre-operating costs 138,785 138,785 138,785 138,785 138,785 - - - - -
amortization of training costs 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000
Deferred income tax - - - - - - - - - -
Accounts receivable (2,007,552) (291,764) (556,797) (565,351) (644,816) (739,270) (846,445) (772,070) (658,577) (709,277)
Finished goods inventory (2,813,513) (709,055) (694,833) (777,421) (889,111) (1,016,954) (1,161,499) (833,121) (891,134) (978,753)
Equipment inventory - - - - - - - - - - -
Raw material inventory (3,014,401) (1,195,090) (1,339,853) (1,681,278) (2,139,745) (2,719,481) (3,448,405) (3,338,084) (3,969,324) (4,797,927) 27,643,586
Pre-paid building rent (900,000) (90,000) (99,000) (108,900) (119,790) (131,769) (144,946) (159,440) (175,385) (192,923) 2,122,153
Advance insurance premium - - - - - - - - - - -
Accounts payable 1,468,370 415,496 408,569 466,226 544,811 637,623 704,204 567,160 625,632 (665,769)
Other liabilities - - - - - - - - - -
Cash provided by operations (3,914,401) (347,152) 4,631,580 5,929,374 8,267,478 10,299,514 12,520,011 16,418,297 18,233,081 19,758,177 55,558,413

Financing activities
Project Loan - principal repayment (399,281) (463,166) (537,273) (623,237) (722,955) - - - - -
Working Capital Loan - principal repayment (315,023) (369,292) (432,911) (507,489) (594,914) - - - - -
Short term debt principal repayment - (536,600) - - - - - - - -
Additions to Project Loan 2,745,912 - - - - - - - - - -
Additions to Working Capital Loan 2,219,629 - - - - - - - - - -
Issuance of shares 4,965,541 - - - - - - - - - -
Cash provided by / (used for) financing activities 9,931,082 (714,305) (1,369,058) (970,184) (1,130,725) (1,317,869) - - - - -

Investing activities
Capital expenditure (5,491,825) - - - - - - - - - -
Cash (used for) / provided by investing activities (5,491,825) - - - - - - - - - -

NET CASH 524,857 (1,061,456) 3,262,522 4,959,190 7,136,752 8,981,645 12,520,011 16,418,297 18,233,081 19,758,177 55,558,413

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Pre-feasibility Study Ladies Shoes Manufacturing Unit

13. KEY ASSUMPTION

13.1. Operating Cost Assumptions

Description Details
Administration Benefit Expenses 05% of Administration Expenses
Travelling Expenses 05% of Administration Expenses
Communication Expenses 10% of Administration Expenses
Office Expenses 05% of Administration Expenses
Promotional Expenses (Year 1-3) 2.5% of Revenues
Professional Fee 0.5% of Revenue
Depreciation Method Straight Line
10% on Furniture & Fixtures
Depreciation Rate
10% on Office Equipment
Operating Cost Growth Rate 10%

13.2. Production Cost Assumptions

Description Amount (Rs.)

Upper Material (on average) 151.88
Sole 130.00
Rubber Solution 3.00
Cement Solution 3.00
Desmokol for Sole 7.00
Desmoder 2.00
MEK (for cleaning) 2.00
EVA Sheet 8.00
Packing 18.00
Foam Lining 1.00
Raw Material Cost per Pair 325.88
Cutting Man 2.50
Upper Man 12.00
Bottom Man 8.00
Finishing Man 2.50
Wages per Pair 25

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Pre-feasibility Study Ladies Shoes Manufacturing Unit

13.3. Revenue Assumptions

Description Details
Growth in Sales Price 10%
Days Operational / Year 300
Per Day Production Capacity 600 Pairs
Production Capacity in First Year 50%
Percentage Increase in Production Capacity every
5%
Year
Maximum Production Capacity 80%

13.4. Financial Assumptions

Description Details
Debt 50%
Equity 50%
Interest Rate on Debt 16%
Debt Tenure 5 Years
Debt Payment / Year 4

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