188859622-wooden-furniture-manufacturing-unit.pdf

Pre-Feasibility Study Prime Minister’s Small Business Loan Scheme (Wooden Furniture 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, Egerton Road, Lahore Tel 92 42 111 111 456, Fax 92 42 36304926-7 [email protected] REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE KPK

REGIONAL OFFICE BALOCHISTAN

3rd Floor, Building No. 3, Aiwan e Iqbal, Egerton Road Lahore, Tel: (042) 111-111-456 Fax: (042)6304926-7 [email protected]

5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 [email protected]

Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908 [email protected]

Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 831623, 831702 Fax: (081) 831922 [email protected]

September 2013

Pre-Feasibility Study

Wooden Furniture Manufacturing Unit

Table of Contents 1. DISCLAIMER .......................................................................................................................................... 3 2. PURPOSE OF THE DOCUMENT ......................................................................................................... 4 3. INTRODUCTION TO SMEDA .............................................................................................................. 4 4. INTRODUCTION TO SCHEME ........................................................................................................... 5 5. EXECUTIVE SUMMARY ...................................................................................................................... 5 6. BRIEF DESCRIPTION OF PROJECT & PRODUCT ........................................................................ 5 7. CRITICAL FACTORS ............................................................................................................................ 6 8. INSTALLED & OPERATIONAL CAPACITIES ................................................................................. 7 9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ..................................................................... 7 10.

POTENTIAL TARGET MARKETS ............................................................................................... 7

11.

PRODUCTION PROCESS FLOW .................................................................................................. 8

12.

PROJECT COST SUMMARY ......................................................................................................... 8

12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10 12.11 13. 13.1 13.2 13.3 13.4 14.

PROJECT ECONOMICS ................................................................................................................ 8 PROJECT FINANCING..................................................................................................................10 PROJECT COST ..........................................................................................................................10 SPACE REQUIREMENT................................................................................................................10 MACHINERY & EQUIPMENT ........................................................................................................11 MACHINE MAINTENANCE ............................................................................................................11 FURNITURE .................................................................................................................................12 OFFICE EQUIPMENT ...................................................................................................................12 RAW MATERIAL REQUIREMENTS ...............................................................................................13 HUMAN RESOURCE REQUIREMENT ...........................................................................................16 REVENUE GENERATION AND PRODUCTION MIX ........................................................................16 ANNEXURE 1 .................................................................................................................................. 18 INCOME STATEMENT ..................................................................................................................18 BALANCE SHEET ........................................................................................................................19 CASH FLOW STATEMENT ...........................................................................................................20 USEFUL LINKS ............................................................................................................................21 KEY ASSUMPTIONS ..................................................................................................................... 22

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Wooden Furniture Manufacturing Unit

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

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Wooden Furniture Manufacturing Unit

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, and production, marketing, finance and business management. The purpose of this document is to facilitate potential investors in Wooden Furniture Manufacturing Unit by providing them with a general understanding of the business with the intention of supporting potential investors in crucial investment decisions. The need to come up with pre-feasibility reports for undocumented or minimally documented sectors attains greater imminence as the research that precedes such reports reveal certain thumb rules; best practices developed by existing enterprises by trial 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 form basis of any Investment Decision.

3.

INTRODUCTION TO SMEDA

The Small and Medium Enterprises Development Authority (SMEDA) was established in October 1998 with an objective to provide fresh impetus to the economy through development of Small and Medium Enterprises (SMEs). With a mission "to assist in employment generation and value addition to the national income, through development of the SME sector, by helping increase the number, scale and competitiveness of SMEs" , SMEDA has carried out ‘sectoral research’ to identify policy, access to finance, business development services, strategic initiatives 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. 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

Pre-Feasibility Study

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Wooden Furniture Manufacturing Unit

INTRODUCTION TO SCHEME

Prime Minister’s ‘Small Business Loans Scheme’, for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidised financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially through National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL). Small business loans with tenure upto 7 years, and a debt : equity of 90 : 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).

5.

EXECUTIVE SUMMARY

The proposed project is for setting up a Wooden Furniture Manufacturing Unit. This unit will be capable of integrated wooden furniture manufacturing, from sourcing and cutting of wood to retailing of product to the end customer. The project will focus and cater to the growing needs of domestic wooden furniture market. Housing and construction industry has seen a steady growth over the last many years due to a number of factors. These include; development of new housing schemes, introduction of house financing schemes/loans by different banks, increased urbanization, a growing middle class and enhanced purchasing power of the public. All these factors have contributed directly and indirectly towards an increased demand for wooden furniture. The wooden furniture business venture entails a total investment of about Rs. 2.12 million. This includes a capital investment of Rs.1.09 million and a sum of Rs. 1.02 million as initial working capital. The project is financed through 90% debt and 10% equity. The Net Present Value (NPV) of the project is around Rs. 12.29 million with an Internal Rate of Return (IRR) of 61% and a payback period of 2.90 years. Higher return on investment and a steady growth of business is expected with the entrepreneur having some prior experience/education in the related field of business. The project will generate direct employment opportunity for 21 persons.

6.

BRIEF DESCRIPTION OF PROJECT & PRODUCT

This unit is capable of producing different sort of wooden furniture i.e. bed sets, dinning sets, sofa sets, misc. furniture (centre table & end tables for sofa set) and office furniture. Wood being the main raw material; the entire finished product predominantly depends on the acquired quality of wood. Detailed technical know-how about the 5

Pre-Feasibility Study

Wooden Furniture Manufacturing Unit

quality of wood and the use of seasoned (dry) plays a vital role in the manufacturing of quality furniture. Wood obtained from the forest is of prime quality. Therefore, it is recommended to use dry wood from the forests for manufacturing of quality wooden furniture which is available from the forest reserves like Changa manga, Pakhowal, Kundian, Chicha watni, Bahawalpur and other social forests. Changa manga forest is the major source of wood for furniture. Furniture manufacturing units in Pakistan mostly use Sheesham wood. Other types of woods used in manufacturing furniture are; Teak wood, Walnut wood and Keekar wood. Besides this, substitute material like lasani, winboard are also used in the manufacturing of furniture. Other materials used in the furniture manufacturing process are nails, screws, glue/solution, spirit, lakh, thiner, lacquer, sealer, hardener, etc. These raw materials are easily available in the market. The demand for wooden furniture in domestic market is consistent throughout the year however, it significantly increases during the period of October to March because of the wedding season. The demand for the furniture almost doubles during this period, hence a good time to enter the market. Since strong competition already exists in the domestic market, manufacturing of high quality trendy designs and aggressive marketing is essential to get a prominent place in the market. Wooden furniture is preferred in the domestic market as well as in the international market due to its traditional appeal and durability despite the introduction of new/alternative materials in furniture manufacturing. Over the years entry into the global market has also become more competitive due to demanding factors like green furniture, multi-functionality, simplicity and neutral colors, Ready-to-assemble (RTA) and Do-it-yourself (DIY) furniture. Malaysia, Philippines, Indonesia and China have established strong brand names and have emerged as key market players.

7.

CRITICAL FACTORS

•

Ensuring availability of seasoned (dry) wood for high quality furniture manufacturing. Seasoned (dry) wood minimizes deforming that may occur due to dampness in wood.

•

Selection of skilled and responsible labor is an important factor as it can improve quality of finished product by better craftsmanship & lower wastage. Specialized labor is recommended.

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Wooden Furniture Manufacturing Unit

•

New designs and styles can build brand equity for the business. Creation of new designs and styles is vital for setting new trends as the market is quite competitive.

•

Aggressive virtual marketing needs to be undertaken in the absence of a physical showroom.

•

Though skilled labor is available in the market, additional manufacturing workload can be sub-contracted to save time and resources.

•

The manufacturing unit will require selling directly to showrooms and direct clients, for which the owner would need to develop extensive knowledge of the market.

•

Higher return on investment and a steady growth of business is expected with the entrepreneur having some prior experience/education in the related field of business.

•

Easy access to raw material should be ensured.

8.

INSTALLED & OPERATIONAL CAPACITIES

The proposed project is capable of manufacturing complete range of wooden furniture and other allied products to meet the demand of domestic market. Factory will work on 8 hours shift for 300 days. This unit is capable of producing different sort of wooden furniture i.e. bed sets, dinning sets, sofa sets, misc. furniture (centre table & end tables for sofa set) and office furniture. Total number of furniture items produced in year 1 would be 206 that is 60% of total production capacity. However, maximum production capacity of 341 furniture items will be achieved in year 10.

9.

GEOGRAPHICAL POTENTIAL FOR INVESTMENT

The demand for wooden furniture is higher in densely populated cities of Pakistan i.e. Lahore, Multan, Karachi, Peshawar, Rawalpindi, Islamabad. Establishment of factory in the vicinity of established wooden furniture clusters i.e. Lahore, Chiniot or Gujrat gives the added advantage of easy availability of skilled labor.

10. POTENTIAL TARGET MARKETS Wooden furniture can be categorized into following; for newly built house, gift on weddings, for renovations, institutional buyers, for offices (public & private sector). Majority of customers in the domestic market belong to first and second category. These customers require furniture for their newly built houses and usually buy a range of products like bed sets, dining sets and sofa sets with other decorative material for their entire house. Initially entrepreneurs should target 7

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Wooden Furniture Manufacturing Unit

these customers to establish the business and increase the customer base. Flourishing hotel and tourism industry can considerably increase the demand for wooden furniture. Large orders can be secured to supply wooden furniture to hotels and resorts. Wooden furniture retail clusters are found in most areas of almost all big cities of Pakistan where the manufactured furniture could be sold.

11. PRODUCTION PROCESS FLOW Purchase of Wood (Timber Market)

Wood Cutting at Trolley (Big Saw)

Wood comes in Factory

Wood comes to Machine Man

Wood comes at Shaper Machine

Carpenter shapes the wood into Furniture

Furniture goes to Store or for Polishing

Furniture comes to Spindle / Molding Machine

Furniture comes to Inspection before finishing

Wood Seasoning

Furniture Designing on CAD

Furniture comes to Carver for Carving

Carpenter assembles the Furniture

12. PROJECT COST SUMMARY A detailed financial model has been developed to analyze the commercial viability of Wooden Furniture Manufacturing Unit under the Prime Minister’s Small Business Loan Scheme. Various cost and revenue related assumptions along with results of the analysis are outlined in this section. The projected Income Statement, Cash Flow Statement and Balance Sheet are attached as annexure. 12.1

Project Economics

The unit is capable of producing different sort of wooden furniture. As this project predominantly involves craftsmanship of skilled labor, different type of products can be manufactured. However this particular pre-feasibility focuses on manufacturing of; bed sets, dinning sets, sofa sets, miscellaneous furniture (centre table & end tables for sofa set) and office furniture.

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Wooden Furniture Manufacturing Unit

Details of proposed production mix offered by the project are provided in table below:

Description Bed Set Dinning Set Sofa Set Misc. Furniture Office Furniture Total

Superior Fine Normal Total

Table 1 - Proposed Production Mix Percentage 40% 10% 25% 15% 10% 100% Table 2 - Proposed Production Mix Details Bed Set Dinning Sofa Set Misc. Set Furniture 20% 20% 20% 20% 30% 30% 30% 30% 50% 50% 50% 50% 100% 100% 100% 100%

Office Furniture 20% 30% 50% 100%

The following table shows internal rate of return, payback period and net present value: Table 3 - Project Economics Description Internal Rate of Return (IRR) Payback Period (Yrs) Net Present Value (NPV)

Details 61% 2.90 12,291,614

Returns on the project and its profitability are closely linked with; entrepreneur having some practical knowledge about furniture manufacturing, proper selection of wood, hiring of skilled labor and selecting new designs & styles for successful operation of this business.

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Wooden Furniture Manufacturing Unit

Project Financing

Following table provides details of the equity required and variables related to bank loan; Table 4 - Project Financing Description Total Equity (10%) Bank Loan (90%.) Markup to the Borrower (%age/annum) Tenure of the Loan (Years) 12.3

Details Rs. 212,313 Rs. 1,910,819 8% 7

Project Cost

Following requirements have been identified for operations of the proposed business. Table 5 - Capital Investment for the Project Capital Investment Amount (Rs.) Land Building/Infrastructure Furniture & fixtures 69,000 Machinery & Equipment 827,000 Office Equipment 168,000 Pre-operating Cost 35,878 Total Capital Costs 1,099,878 Initial Working Capital 1,023,254 Total Project Cost 2,123,132 12.4

Space Requirement

The land sufficient for setting up the proposed wooden furniture manufacturing unit is approximately 2 kanals (7,200 sq. ft). The land would be acquired on lease preferably in the outskirts of the city. Covered area details of the factory are as follows; Table 6 - Factory Covered Area Details Description Factory Main Hall Carving Room Polish Room Store for un-finished products Store for finished product

Area (Sq. ft) 2,000 750 1,000 1,000 1,500 10

Pre-Feasibility Study

Wooden Furniture Manufacturing Unit

Office for factory admin officer & CAD operator Rooms for Labour Kitchen & Washrooms Total

300 500 150 7,200

It is recommended to start the proposed business on rent, this will ensure savings from the high capital cost. Such an area could be acquired for approximately Rs. 50,000 per month, hence total factory rent during year 1 would be approximately Rs. 600,000. 12.5

Machinery & Equipment

Machinery & equipment required for Wooden Furniture Manufacturing Unit can easily be purchased locally. Following table provides list of machinery required for the factory: Table 7 - Factory Machinery Details Machinery Description Unit Unit Price Total Cost Saw 18" 1 42,000 42,000 Saw 27" 1 70,000 70,000 Saw 30" 1 80,000 80,000 Cutter sliding 1 20,000 20,000 Cutter round 1 15,000 15,000 Gauge 14" 1 60,000 60,000 Gauge 18" 1 110,000 110,000 Planer / Shaper 12" 2 70,000 140,000 Spindle Moulder Machine 2 50,000 100,000 Chapaka 2 15,000 30,000 Hand Chapaka (jug saw) 2 15,000 30,000 Grinder 2 6,500 13,000 Drill machine 10 3,500 35,000 Compressor 2 16,000 32,000 Miscellaneous Tools (Hand Tools, Paint 1 20,000 20,000 Gun etc.) Installation costs for machines 1 30,000 30,000 Total Machinery and Equipment 827,000 12.6

Machine Maintenance

As technically advanced machines are not required in the manufacturing process, therefore, machine maintenance cost is low. The major maintenance cost is oiling and greasing of machines.

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Wooden Furniture Manufacturing Unit

Furniture

Following furniture will be required at the factory;

Description

Table 8 - Furniture Costs Unit

Office Table Set for CAD Operator Visitors Chairs Table & Chair set for admin, store & production Fire Extinguishers Total Furniture & Fixtures 12.8

1 4 3

Cost/Unit (Rs) 10,000 3,500 12,000

Total Cost (Rs) 10,000 14,000 36,000

2

4,500

9,000 69,000

Office Equipment

Details for office equipment are as follows; Table 9 – Office Equipment Costs Description Unit Cost/Unit (Rs) Computer with LCD 1 40,000 Printer 1 15,000 UPS 1.5 KW 1 30,000 Telephone Sets 2 1,500 Fax Machine 1 10,000 Generator 6 KVA 1 70,000 Total Office Equipment

12

Total Cost (Rs) 40,000 15,000 30,000 3,000 10,000 70,000 168,000

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Wooden Furniture Manufacturing Unit

Raw Material Requirements

As variety of material is used for the manufacturing of each type of furniture. Following table shows raw material requirement for each type of furniture: Table 10 – Bed Set Cost Costing Bed Set Superior Quality Raw Material Cost Description Wood (Cubic ft) Nails/Screws Glue/Solution Spirit (in Ltr.) Lakh (in kgs) Thinner (in Ltr.) Lacquer (in Ltr.) Wooden Frame for Matress Sealer (in Ltr.) Dressing Set Glass Tapestry Dressing St. (in Meters) Foam Channels, Handles Thinner (Butyl) Thinner (imported) Total

No. of Unit 15 1 1 20 1.5 8 2 1 3 16 0.5 1 1 1 1

Costing Bed Set Fine Quality

Rate / Total Unit Amount 2,000 30,000 350 350 300 300 60 1,200 350 525 120 960 300 600 5,000 5,000 285 855 200 3,200 250 125 150 2,500 160 240

150 2,500 160 240 46,165

Raw Material Cost Description

No. of Unit

Wood (Cubic ft) Nails/Screws Glue/Solution Spirit (in Ltr.) Lakh (in kgs) Thinner (in Ltr.) Lacquer (in Ltr.) Sealer (in Ltr.) Wooden Frame for Matress Dressing Set Glass Tapestry Dressing St. (in Meters) Foam Channels, Handles Thinner (Butyl) Thinner (imported)

12 1 1 15 1 4 2 2 1 16 0.5 1 1 1 1

Total

Costing Bed Set Normal Quality Rate / Total Unit Amount 1,500 18,000 350 350 300 300 60 900 350 350 120 480 300 600 285 570 4,000 4,000 200 3,200 250 125 150 2,000 160 240

150 2,000 160 240 31,425

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Raw Material Cost Description Wood (Cubic ft) Lasani Nails/Screws Glue/Solution Paint (in Ltr.) Thinner (in Ltr.) Lacquer (in Ltr.) Wooden Frame for Matress Dressing Set Glass Tapestry Dressing St. (in Meters) Foam COB (alternate for Hardner) Thinner (Butyl) Thinner (imported) Channels, Handles Total

No. of Unit 3 5 1 1 1 10 1 1 16 0.5 1 1 1 1 1

Rate / Total Unit Amount 1,500 4,500 2,250 11,250 350 350 300 300 1,500 1,500 120 1,200 300 300 4,000 4,000 150 2,400 250 125 150 150 450 160 240 2,000

450 160 240 2,000 28,925

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Wooden Furniture Manufacturing Unit

Table 11 – Dining Set Cost Costing Dinning Set Superior Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount 2,000 16,000 8 Wood (Cubic ft) 3,000 8 375 Poshish/Seat 400 1 400 Nails/Screws 1 400 400 Glue/Solution 60 1,080 Spirit (in Ltrs.) 18 2 350 700 Lakh (in Kgs) 8 120 960 Thinner (in Ltrs.) 600 Lacquer (in Ltrs.) 2 300 2 285 570 Sealer (in Ltrs.) 200 6,400 Glass Top (12 mm) in sq.ft 32 Foam 1 2,000 2,000 5 250 1,250 Tapestry (in Meters) 1,000 1,000 Misc. 1 Total

34,360

Costing Dinning Set Fine Quality Raw Material Cost Description

No. of Unit 8 8 1 1 1 1 15 2 32 1 3 1

Wood (Cubic ft) Poshish/seat Nails/Screws Glue/Solution COB Paint Thinner (in Ltrs.) Lacquer Glass Top 12mm in (Sq.ft) Foam Tapestry (in Meters) Misc.

Total

Rate / Total Unit Amount 1,500 12,000 3,000 375 400 400 400 400 450 450 2,000 2,000 1,800 120 600 300 6,400 200 1,500 1,500 250 750 1,000 1,000

30,300

Costing Dinning Set Normal Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount 6,000 Wood (Cubic ft) 4 1,500 250 2,000 8 Poshish/seat 400 400 1 Nails/Screws 400 400 1 Glue/Solution 450 450 COB 1 2,200 2,200 1 Lasani 2,000 2,000 Paint 1 1,200 120 Thinner (in Ltrs.) 10 600 300 2 Lacquer 4,960 155 Glass Top 12mm in (Sq.ft) 32 1,200 1 1,200 Foam 750 250 Tapestry (in Meters) 3 1,000 1 1,000 Misc. Total

23,160

Table 12 – Sofa Set Cost Costing Sofa Set Superior Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount Wood (Cubic ft) 6 700 4,200 Poshish/per seat 6 1,200 7,200 Nails/Screws 1 200 200 Glue/Solution 1 300 300 Springs (Dozs) 7 200 1,400 Tat (in Meters) 10 75 750 Rubber Pati 25 22 550 Dori (in Kgs) 0.5 180 90 Foam "A" 1 3,500 3,500 Tapestry (in Meters) 30 400 12,000 Total

30,190

Costing Sofa Set Fine Quality Raw Material Cost Description

No. of Unit

Wood (Cubic ft) Poshish/Seat Nails/Screws Glue/Solution Spring (Doz) Tat (in Meters) Rubber Patti Dori (in Kgs) Foam Tapestry

6 6 1 1 7 10 25 0.5 1 25

Total

Rate / Total Unit Amount 700 4,200 1,200 7,200 200 200 300 300 200 1,400 75 750 22 550 180 90 3,000 3,000 250 6,250 23,940

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Costing Sofa Set Normal Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount Wood (Cubic ft) 6 700 4,200 Poshish/Seat 6 1,200 7,200 Nails/Screws 1 200 200 Glue/Solution 1 300 300 Spring (Doz) 7 200 1,400 Tat (in Meters) 10 75 750 Rubber Patti 22 22 484 Dori (in Kgs) 0.5 180 90 Foam 1 3,000 3,000 Tapestry (in Meters) 20 200 4,000 Total

21,624

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Wooden Furniture Manufacturing Unit

Table 13 – Misc. Furniture Cost Costing Misc. Funiture Superior Quality Raw Material Cost Description No. of Rate / Total Amount Unit Unit Wood (Cubic ft) 6 2,000 12,000 Nails/Screws 1 200 200 Glue/Solution 1 300 300 Spirit (in Ltrs.) 8 60 480 Lakh (in Kgs) 1 350 350 Thinner (in Ltrs.) 3 120 360 Lacquer (in Ltrs.) 1 300 300 Sealer (in Ltrs.) 1 185 185 Glass Top (12 mm) in sq.ft 17 200 3,400 Misc. 1 750 750

Costing Misc. Furniture Fine Quality Raw Material Cost Description Rate / Total No. of Unit Amount Unit Wood (Cubic ft) 6 1,500 9,000 Nails/Screws 1 200 200 Glue/Solution 1 300 300 COB 1 450 450 Paint 1 2,000 2,000 Thinner (in Ltrs.) 8 120 960 Lacquer 1 300 300 Glass Top 12mm in (Sq.ft) 17 200 3,400 Misc. 1 750 750

Costing Misc. Furniture Normal Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount Wood (Cubic ft) 3 1,500 4,500 Nails/Screws 1 200 200 Glue/Solution 1 300 300 COB 1 450 450 Lasani 1 2,200 2,200 Paint 1 1,800 1,800 Thinner (in Ltrs.) 8 300 2,400 Lacquer (in Ltrs.) 1 200 200 Glass Top 12mm in (Sq.ft) 17 200 3,400 Misc. 1 750 750

Total

Total

Total

18,325

17,360

16,200

Table 14 – Office Furniture Cost Costing Office Furniture Superior Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount 20,000 Wood (Cubic ft) 10 2,000 1 400 400 Nails/Screws 300 Glue/Solution 1 300 600 Spirit (in Ltrs.) 10 60 525 Lakh (in Kgs) 1.5 350 600 Thinner (in Ltrs.) 5 120 Lacquer (in Ltrs.) 2 300 600 285 570 Sealer (in Ltrs.) 2 Channels, Handles 1 2,500 2,500 Thinner (Butyl) 1 160 160 Thinner (imported) 1 240 240 Executive Chair 1 12,000 12,000 9,000 Visitors Chair 2 4,500 Misc. 1 1,000 1,000

Costing Office Furniture Fine Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount Wood (Cubic ft) 6 1,500 9,000 200 200 Nails/Screws 1 300 300 Glue/Solution 1 COB 1 450 450 Paint 1 1,500 1,500 960 Thinner (in Ltrs.) 8 120 Lacquer 1 300 300 Glass Top 12mm in (Sq.ft) 21 200 4,200 1 2,000 2,000 Channels, Handles 7,500 7,500 Executive Chair 1 Visitors Chair 2 3,500 7,000 Misc. 1 1,000 1,000

Costing Office Furniture Normal Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount Wood (Cubic ft) 2 1,500 3,000 200 200 Nails/Screws 1 1 300 300 Glue/Solution COB 1 450 450 2 2,200 4,400 Lasani 1,500 Paint 1 1,500 60 600 Thinner (in Ltrs.) 10 2 300 600 Lacquer (in Ltrs.) Channels, Handles 1 1,500 1,500 6,000 6,000 Executive Chair 1 Visitors Chair 2 3,000 6,000 1,000 Misc. 1 1,000

Total

Total

Total

48,495

34,410

15

25,550

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Wooden Furniture Manufacturing Unit

Human Resource Requirement

The labor required for manufacturing process is easily available on daily wages, per unit basis and on permanent employment. It is recommended that only selective skilled labor be employed permanently while others should be hired on temporary basis or as and when required. Following permanent human resource is required at the factory. Table 15 - Factory Staff requirement details No. Monthly Salary Total Annual (Rs) Salary (Rs) Production supervisor 1 30,000 360,000 Carpenter 8 16,000 1,536,000 Machine man 1 16,000 192,000 Polish man 3 16,000 576,000 Carving 2 18,000 432,000 Helpers 2 10,000 240,000 Factory admin officer 1 15,000 180,000 Draftsman / CAD Operator 1 15,000 180,000 Purchaser/Store Officer 1 15,000 180,000 Gate Keeper 1 10,000 120,000 Total Production Staff 21 3,996,000 Description

One production supervisor is sufficient for 30 laborers. Salaries of all employees are estimated to increase at 10% annually. 12.11

Revenue Generation and Production Mix

Expected production figures of proposed product mix during year 1 are given in table below: Table 16 – Number of Furniture Sale during Year 1 Description Product Mix Total Units Sold Bed Set Superior 20% 8 Fine 30% 18 Normal 50% 36 Dinning Set Superior 20% 2 Fine 30% 5 Normal 50% 9 Sofa Set

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Superior Fine Normal Misc. Furniture Superior Fine Normal Office Furniture Superior Fine Normal Total Furniture Units

20% 30% 50%

5 11 23

20% 30% 50%

6 14 30

20% 30% 50%

5 11 23 206

Table 17 - Revenue from Sale of Furniture during Year 1 Revenue from selling to other Showrooms in (Rs) Bed Sets Dinning Sets Sofa Sets Misc. furniture Office furniture Total Revenue from selling to other Showrooms

25% 3,292,753 761,869 1,754,664 1,326,553 1,493,095 8,628,935

Revenue from selling to own Customers in (Rs) Bed Sets Dinning Sets Sofa Sets Misc. furniture Office furniture Total Revenue from selling to own Customers

40% 1,229,295 284,431 655,075 495,247 557,422 3,221,469

Total Revenue in (Rs) Bed Sets Dinning Sets Sofa Sets Misc. furniture Office furniture Total Revenue from selling to own Customers and other Showrooms

17

4,522,048 1,046,300 2,409,739 1,821,800 2,050,518 11,850,404

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Wooden Furniture Manufacturing Unit

ANNEXURE 1 Income Statement Year 1 11,850,404

Year 2 15,451,801

Year 3 19,291,783

Year 4 24,022,142

Year 5 30,412,906

Year 6 39,186,588

Year 7 51,406,169

Year 8 68,639,336

Year 9 93,202,377

Year 10 128,522,393

Cost of sales Procurement Cost Direct Labor (Production Staff) Direct Electricity

5,364,197 3,336,000 504,000

6,912,109 4,365,600 547,800

8,994,817 5,114,160 595,485

11,835,075 5,625,576 647,406

15,755,243 6,188,134 703,948

21,222,297 6,806,947 765,529

28,913,036 7,487,642 832,606

39,808,460 8,236,406 905,681

55,330,221 9,060,046 985,299

77,537,758 9,966,051 1,072,058

Total cost of sales Gross Profit

9,204,197 2,646,207

11,825,509 3,626,292

14,704,462 4,587,321

18,108,057 5,914,085

22,647,325 7,765,581

28,794,773 10,391,815

37,233,284 14,172,885

48,950,547 19,688,790

65,375,567 27,826,810

88,575,867 39,946,526

General administration & selling expenses Administration expense Building rental expense for Factory Communications expense (phone, fax, mail, internet, etc.) Transportation cost Office expenses (stationary, entertainment, janitorial services, etc.) Marketing expense Professional fees (legal, audit, consultants, etc.) Depreciation expense Amortization of pre-operating costs Subtotal Operating Income

660,000 600,000 66,000 53,642 3,300 59,252 25,000 145,600 7,176 1,619,970 1,026,237

726,000 660,000 72,600 69,121 3,630 77,259 26,250 145,600 7,176 1,787,636 1,838,657

798,600 726,000 79,860 89,948 3,993 96,459 27,563 145,600 7,176 1,975,198 2,612,123

878,460 798,600 87,846 118,351 4,392 120,111 28,941 154,427 7,176 2,198,303 3,715,782

966,306 878,460 96,631 157,552 4,832 152,065 30,388 154,427 7,176 2,447,835 5,317,746

1,062,937 966,306 106,294 212,223 5,315 195,933 31,907 154,427 2,735,341 7,656,474

1,169,230 1,062,937 116,923 289,130 5,846 257,031 33,502 164,645 3,099,245 11,073,640

1,286,153 1,169,230 128,615 398,085 6,431 343,197 35,178 164,645 3,531,534 16,157,256

1,414,769 1,286,153 141,477 553,302 7,074 466,012 36,936 164,645 4,070,368 23,756,442

1,556,245 1,414,769 155,625 775,378 7,781 642,612 38,783 176,474 4,767,667 35,178,859

Other income (interest on cash) Earnings Before Interest & Taxes

1,026,237

1,838,657

2,712,923

3,715,782

5,317,746

7,823,563

11,073,640

16,157,256

23,975,068

35,178,859

Interest on short term debt Interest expense on long term debt (Debt facility : Bank 1) Subtotal Earnings Before Tax

145,197 145,197 881,040

127,585 127,585 1,711,071

108,512 108,512 2,604,412

87,855 87,855 3,627,927

65,484 65,484 5,252,262

41,256 41,256 7,782,307

15,017 15,017 11,058,623

16,157,256

23,975,068

35,178,859

Tax NET PROFIT/(LOSS) AFTER TAX

54,656 826,384

189,714 1,521,357

373,603 2,230,809

629,482 2,998,446

1,098,178 4,154,084

1,946,307 5,836,000

3,093,017 7,965,606

4,877,539 11,279,717

7,613,773 16,361,295

11,535,100 23,643,759

Revenue

18

Pre-Feasibility Study

13.2

Wooden Furniture Manufacturing Unit

Balance Sheet

Projected Balance Sheet Year 0 Assets Current assets Cash & Bank Accounts receivable Finished goods inventory Raw material inventory Pre-paid building rent Total Current Assets

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

623,254 150,000 1,023,254

264,092 138,255 191,754 975,046 181,500 1,750,647

797,484 318,526 246,365 1,523,398 219,615 3,105,388

1,689,123 405,342 306,343 2,376,574 265,734 5,043,116

2,849,251 505,329 377,251 3,701,467 321,538 7,754,836

4,444,987 635,076 471,819 5,754,867 389,061 11,695,810

6,742,711 811,994 599,891 8,931,165 470,764 17,556,526

9,699,916 1,056,916 775,693 13,835,055 569,625 25,937,204

14,098,534 1,400,531 1,019,803 21,392,208 689,246 38,600,321

20,196,726 1,888,153 1,361,991 33,017,531 833,988 57,298,389

29,362,380 2,586,789 1,845,331 50,870,719 84,665,219

Fixed assets Land Building/Infrastructure Machinery & equipment Furniture & fixtures Office vehicles Office equipment Total Fixed Assets

827,000 69,000 168,000 1,064,000

744,300 62,100 112,000 918,400

661,600 55,200 56,000 772,800

578,900 48,300 194,481 821,681

496,200 41,400 129,654 667,254

413,500 34,500 64,827 512,827

330,800 27,600 225,136 583,536

248,100 20,700 150,091 418,891

165,400 13,800 75,045 254,245

82,700 6,900 260,623 350,223

173,749 173,749

Intangible assets Pre-operation costs Training costs Total Intangible Assets TOTAL ASSETS

35,878 35,878 2,123,132

28,702 28,702 2,697,749

21,527 21,527 3,899,715

14,351 14,351 5,879,148

7,176 7,176 8,429,266

12,208,637

18,140,062

26,356,095

38,854,567

57,648,613

84,838,968

-

126,029 -

274,495 -

355,016 -

453,723 -

585,803 -

771,495 -

1,035,933 -

1,416,463 -

1,968,585 -

2,774,796 -

-

126,029

274,495

355,016

453,723

585,803

771,495

1,035,933

1,416,463

1,968,585

2,774,796

(165,604) 1,698,627 1,533,023

(403,658) 1,468,823 1,065,165

(681,158) 1,219,945 538,787

(958,658) 950,411 (8,247)

1,613,777 1,613,777

4,354,162 4,354,162

212,313 826,384 1,038,697 2,697,749

212,313 2,347,741 2,560,054 3,899,715

406,794 4,578,550 4,985,344 5,879,148

892,553 53,173,697 54,066,251 57,648,613

892,553 76,817,456 77,710,009 84,838,968

Liabilities & Shareholders' Equity Current liabilities Accounts payable Short term debt Other liabilities Total Current Liabilities Other liabilities Deferred tax Long term debt (Debt facility : Bank 1) Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES

250,000

1,910,819 1,910,819

212,313 212,313 2,123,132

19

406,794 7,576,996 7,983,790 8,429,266

(1,173,546) 658,506 (515,040)

(1,172,816) 342,372 (830,443)

406,794 11,731,079 12,137,874 12,208,637

631,930 17,567,080 18,199,010 18,140,062

(844,454) (844,454)

631,930 25,532,686 26,164,616 26,356,095

(6,229) (6,229)

631,930 36,812,403 37,444,333 38,854,567

Pre-Feasibility Study

13.3

(Wooden Furniture Manufacturing Unit)

Cash Flow Statement

Projected Cash Flow Statement Year 0 Operating activities Net profit Add: depreciation expense amortization of pre-operating costs Deferred income tax Accounts receivable Finished goods inventory Equipment inventory Raw material inventory Pre-paid building rent Accounts payable Other liabilities Cash provided by operations Financing activities Debt facility : Bank 1 - principal repayment Additions to Debt facility : Bank 1 Issuance of shares Cash provided by / (used for) financing activities Investing activities Capital expenditure Acquisitions Cash (used for) / provided by investing activities NET CASH

Year 1

(623,254) (150,000)

(773,254)

1,910,819 212,313 2,123,132

Year 2

Year 3

Year 5

Year 6

Year 7

Year 8

826,384 145,600 7,176 (165,604) (138,255) (191,754) (351,791) (31,500) 126,029 226,284

1,521,357 145,600 7,176 (238,054) (180,271) (54,611) (548,353) (38,115) 148,466 763,196

2,230,809 145,600 7,176 (277,500) (86,816) (59,978) (853,175) (46,119) 80,521 1,140,516

2,998,446 154,427 7,176 (277,500) (99,987) (70,908) (1,324,893) (55,804) 98,707 1,429,662

4,154,084 154,427 7,176 (214,887) (129,746) (94,568) (2,053,400) (67,523) 132,080 1,887,641

5,836,000 154,427 730 (176,919) (128,072) (3,176,297) (81,703) 185,691 2,613,858

7,965,606 164,645 328,362 (244,921) (175,802) (4,903,890) (98,860) 264,438 3,299,577

(212,192) (212,192)

(229,804) (229,804)

(248,877) 194,481 (54,396)

(269,534) (269,534)

(291,905) (291,905)

(316,133) 225,136 (90,997)

(342,372) (342,372)

Year 9

11,279,717 164,645 838,225 (343,615) (244,110) (7,557,153) (119,621) 380,530 4,398,618

16,361,295 164,645 1,620,006 (487,622) (342,188) (11,625,324) (144,742) 552,122 6,098,192

Year 10 23,643,759 176,474 2,740,385 (698,636) (483,340) (17,853,188) 833,988 806,211 9,165,654

-

260,623 260,623

-

(1,099,878)

-

-

(194,481)

-

-

(225,136)

-

-

(260,623)

-

(1,099,878)

-

-

(194,481)

-

-

(225,136)

-

-

(260,623)

-

250,000

14,092

533,392

891,639

20 September 2013

Year 4

1,160,128

1,595,736

2,297,725

2,957,205

4,398,618

6,098,192

9,165,654

Pre-Feasibility Study

13.4

(Wooden Furniture Manufacturing Unit)

Useful Links

Prime Minister’s Office, www.pmo.gov.pk Small and Medium Enterprise Development Authority, www.smeda.org.pk National Bank of Pakistan (NBP), www.nbp.com.pk First Women Bank Limited (FWBL), www.fwbl.com.pk Government of Pakistan, www.pakistan.gov.pk Ministry of Industries & Production, www.moip.gov.pk Ministry of Education, Training & Standards in Higher Education, http://moptt.gov.pk Government of Punjab, www.punjab.gov.pk Government of Sindh, www.sindh.gov.pk Government of Khyber Pakhtoonkhwa, www.khyberpakhtunkhwa.gov.pk Government of Balochistan, www.balochistan.gov.pk Government of Gilgit Baltistan, 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 Industry (FPCCI) www.fpcci.com.pk State Bank of Pakistan (SBP), www.sbp.org.pk Furniture Pakistan, www.furniturepakistan.org Pakistan Institute of Fashion Design (PIFD), www.pifd.edu.pk

21 September 2013

Pre-Feasibility Study

14.

(Wooden Furniture Manufacturing Unit)

KEY ASSUMPTIONS Table 18 Operating Assumptions

Factory Hours Operational per day Days operational per month Days operational per year

8 25 300

Table 19 - Economy Related Assumptions Annual Electricity Price Growth Annual Salary Growth Rate Rent Growth Rate Annual Sale Price Growth Rate for own Customers Annual Raw Material Price Growth Rate for Wood Annual Raw Material Price Growth Rate other than Wood

10% 10% 10% 4% 40% 10%

Table 20 - Expense Assumptions Communication Expense 10% of Administrative Costs Transportation Expense 1% of Material Procurement Marketing Expense 0.50% of Revenues Table 21 - Cash flow Assumptions Initial Cash in Bank Accounts Payable Cycle in (Days) Accounts Receivable Cycle in (Days) Finished Goods Inventory in (Days) Raw Material Inventory of Wood in (Days) Raw Material Inventory other than Wood in (Days) Table 22 - Depreciation Expense Depreciation Rate for Machinery & Equipment (Annual) Depreciation Rate for Furniture & Fixture (Annual) Depreciation Rate for Office Equipments (Annual)

Rs. 200,000 7 7 7 120 7

10% 10% 33%

Table 23 - Financial Assumptions Project Life (Years) 10 Debt Equity Ratio 90 : 10 Interest Rate on Long Term Debt 8% Long Term Debt Tenure (Years) 7 Number of Payment/Year 12 Income Tax Rates Sole Proprietorship Tax Slabs

22 September 2013