1 INTRODUCTION TO SMEDA

Pre-Feasibility Study Plastic Molded Furniture

Pre-Feasibility Study

PLASTIC MOLDED FURNITURE

Small and Medium Enterprise Development Authority

Government of Pakistan

www.smeda.org.pkHEAD OFFICE

6th Floor LDA Plaza Egerton Road, Lahore

Tel 111 111 456, Fax: 6304926-7 Website www.smeda.org.pk

Helpdesk@smeda.org.pk

REGIONAL OFFICE PUNJABREGIONAL OFFICE SINDHREGIONAL OFFICE

NWFPREGIONAL OFFICE BALOCHISTAN

8th Floor LDA Plaza Egerton Road, Lahore

Tel 111 111 456, Fax: 6304926-7 Website www.smeda.org.pkhelpdesk@smeda.org.pk5TH Floor, Bahria

Complex II, M.T. Khan Road, Karachi.

Tel: (021) 111-111-456

Fax: (021) 5610572

Helpdesk-khi@smeda.org.pk

Ground Floor

State Life Building

The Mall, Peshawar.

Tel: (091) 9213046-47

Fax: (091) 286908

helpdesk-pew@smeda.org.pk

Bungalow No. 15-A

Chaman Housing Scheme

Airport Road, Quetta.

Tel: (081) 831623, 831702

Fax: (081) 831922

helpdesk-qta@smeda.org.pk

June, 2008

DISCLAIMER

The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/her own due diligence and gather any information he/she considers necessary for making an informed decision.

The content of the information memorandum does not bind SMEDA in any legal or other form.DOCUMENT CONTROLDocument No.PREF-108

Prepared bySMEDA-Punjab

Approved byProvincial Chief Punjab

Issue DateJun, 2008

Issued ByLibrary Officer

TABLE OF CONTENTS 61Purpose of the document

2Crucial Factors & Steps in Decision Making for Investment62.1Key Success Factors62.2Opportunities62.3Threats63Project Profile73.1Opportunity Rationale73.2Project Brief73.3Proposed Business Legal Status73.4Project Cost74Introduction to Molded Furniture84.1International Market Scenario95Viable Economic Size105.1Proposed Capacity105.2Project Location115.3Rebate Policy116MARKET ANALYSIS116.1Target Customers116.2Market Demand116.3Market Supply116.4Regulations117Regulation Licenses and insentives128Land & Building Requirement128.1Total Land Requirement128.2Building129Machinery Details139.1Machinery and Equipment Requirement139.2Other Capital Cost:1410Working Capital Requirement / Month1510.1Raw Materials Requirements:1510.2Utilities Requirement1510.3Human Resource Requirements1510.4Total Working Capital Cost1611Financial Analysis1711.1Total Project Cost:1711.2Turnover / Month1711.3Project Returns1712Financial Analysis1812.1Projected Income Statement1812.2Projected Balance Sheet1912.3Projected Cash Flow Statement20

1 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 document also provides sectoral information, brief on government policies, which have some bearing on the project itself.

Before studying the whole document one must consider following critical aspects, which forms the basis of any investment decision.

2 Crucial Factors & Steps in Decision Making for Investment

2.1 Key Success Factors

Following factors are the key in making this project profitable:

Availability of skilled workers and cheaper labour.

Cost efficiency

Best Suitable lawn furniture

Available at warranty.

Selection of latest plant and machinery is another key for carrying out the successful operations of the proposed project.

2.2 Opportunities

The proposed project would have a number of competitive advantages:

The project will provide cheaper products to its customers compared to the wood / iron products which are already on the higher side.

Increasing preference of plastic furniture due to expensive wooden and iron rates. All brands are facing late supplies problems as demands are high in the market. Sales / sales return policies of top brands are not likely healthy for their business and industry as well thus a new brand with competitive rates and customer friendly policies may get good healthy share in market in short period.

2.3 Threats

The proposed project will be facing the following threat:

Informal business practices such as discounts / special offers by top brands.

Threat of increase in the prices of raw materials.3 Project Profile

3.1 Opportunity Rationale

Due to the very low consumption as compared to developed countries and even in India, a large gap is to be filled by introducing new and cost effective products. Customers with low purchasing power dont have any option other than plastic furniture. Middle and lower classes in Pakistan is major buyer and these classes are 65% of total population. Also there are very few players in this business

3.2 Project Brief

The business of Molded Furniture has marked its place in the country through growth during the last ten years. This growth has opened up new opportunities. The prime reason for this is awareness about the product. Along with that, companies are offering conditional warranty of plastic chairs minimizing risk of customer.3.3 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.

3.4 Project Cost

The cost of project has been estimated as Rs.106.726 million including land, civil works, plant & machinery, moulds and dies and office equipment. The plant & machinery mainly comprises of injection molding machines, cutter, crusher, mixer, hopper, chiller plant.

Table 3-5 Project Investment

DescriptionTotal Cost (Rs. in Millions)

Fixed Investment 94.173

Working Capital12.553

Total Investment 106.726

The proposed pre-feasibility is based on the assumption of 50% equity and 50% debt. The project seems to be viable with the following returns on investment.

Project Returns

IRR (Project)35%

Pay Back Period4.05

NPV 118,272,471

4 Introduction to Molded FurnitureMolded Furniture is basically produces in developed countries to be used as Lawn Furniture and outdoor restaurants. As trends are from developed countries, it was introduced in Pakistan around 1984-1985 by a Karachi based firm. Then a factory was installed in Gujranwala and then with the passage of time now there are some 7 units producing plastic chairs, tables, baby products, etc day and nights.

Due to low purchasing power people in Pakistan found this product cheap, associated with warranty covering the risk of consumers. Customer bank is increasing day by day with the penetration of companies, by introducing new and economical models, variety of colors, exports to Afghanistan, etc.

The capacity to produce is also a very important edge associated to boost the business to meet immediate demands, maintain high inventory levels, variety of models and colors, etc. Table 41 Pakistans Export 2006

Reporting CountriesTrade Value($)Trade Quantity (kgs)

World149,61335,406

Afghanistan143,31633,916

United Arab Emirates5,9921,418

Seychellies16840

Canada13632

Table 42 Pakistans Imports 2006

Reporting CountriesTrade Value($)Trade Quantity (kgs)

World219,41057,705

China163,34642,960

Italy20,2845,335

Turkey15,1213,977

United Arab Emirates11,3942,997

Rep. of Korea3,566938

Import/export of plastic furniture of Pakistan in 2007 is given below:-

Table 43 Pakistans Export 2007

Reporting CountriesTrade Value($)Trade Quantity (kgs)

World555,519127,838

Afghanistan372,49385,719

UAE109,35025,164

Mauritius65,88514,931

UK3,682847

Switzerland1,385319

Table 44 Pakistans Imports 2007

Reporting CountriesTrade Value($)Trade Quantity (kgs)

World253,11453,789

China182,53338,790

Other Asians15,7163,340

Italy14,7353,131

China, hong,kong8,9901,911

Turkey8,5091,808

4.1 International Market Scenario

In 2007 total imports of $ 1,457,716,789 has been taken place in which USA was the highest importer of plastic furniture followed by France and United Kingdom as 2nd and 3rd highest importers respectively. Details of the imports are given below:-

Table45 Top importers

Reporting CountriesTrade Value in $

USA463,465,731

France160,505,843

UK120,244,278

Germany100,412,000

Canada88,121,321

Others524,967,616

Total exports of $1,192,775,677 has been taken place in 2007.statistics shows that Italy stood first as an exporter with $306,761,748 exports followed by China and USA with $240,293,756 and $118,900,723 correspondingly.

Table 46 Top Exporters

Reporting CountriesTrade Value in $

Italy306,761,748

China240,293,756

USA118,900,723

France86,341,505

Germany83,364,000

Others357,113,945

5 Viable Economic SizeConsidering the market trends and area coverage project would be able to attract and sell at-least 66,500 units monthly at 100 % capacity.5.1 Proposed Capacity

The Plant & Machinery that has been considered for preparing this pre-feasibility Study is of Taiwan, Britain and Pakistan origin. This Plant and Machinery is relatively more efficient and effective of the all types of machineries available in the market. The chosen Plant & Machinery is capable of producing 66,500 units per month. 60% starting capacity is proposed. However capacity for tables and some other products is low due to assembling and packing process.Table 51 product mixPlastic FurnitureQuantity Produced per MonthProduct Mix

All Model Chairs48,00072%

All Model Tables4,0006%

Baby Chair8,00012%

Shell Products2,0003%

Stools4,5007%

Total 66,500 100%

5.2 Project Location

The proposed locations for the Molded Furniture is Gujranwala (preferably) and Lahore. The said project may be established in industrial estate area or any other area of above said city.

5.3 Rebate PolicyThe Government of Pakistan has offering Rs.3.5 per kg rebate on exports. However Government has offered D.T.R.E. (duties and taxes remission exemption) for the materials to be imported for export purpose only.

6 MARKET ANALYSISThe Armed forces, educational institutions, different private and public sector firms now form considerable sales share in annual turnover of the companies.6.1 Target CustomersThe target customers for the proposed project would be the middle upper, middle middle, middle lower, lower upper income groups 6.2 Market DemandDue to the increasing prices of wood / iron furniture, the trend of molded furniture has been on a rise. However, there exist a large number of people who were reluctant to buy plastic furniture. Penetration in the markets, availability in small towns and cheaper models by all brands has led to enhancing the confidence in the minds of the general public and now, more people are inclined towards purchasing molded furniture.

6.3 Market SupplyTotal numbers of molded furniture units in Pakistan are 7, which are quite low to meet the growing demand. Apart from these 7 companies, few are being considering to start this business 6.4 Regulations

There has been a tremendous growth in the Molded Furniture sector over the yeas. The total numbers of units sold during the year 2006 are estimated 750,000. The growth in terms of percentage is given in the following table:

Table 4-4 Growth Percentage of Factories in PakistanYear 20032007%age Increase

No. of Factories4775%

The above growth rates present an opportunity for the new entrants to earn profits by setting up factories to meet the growing demand7 Regulation Licenses and insentivesAs such there is no pre-requisite of license, certificate & NOCs for setting up the Molded Furniture. However, NTN, Sales Tax registration, membership of Chamber of Commerce & Industry is necessary which costs maximum. Rs.10, 000/-8 Land & Building Requirement

8.1 Total Land Requirement

A minimum of forty thousand five hundred (40,500) square feet of land is required for the project. An amount of Rs. 22.50 million allocated for the acquisition of land.

Table 81: Land Cost

DescriptionNo. of KanalRate per Kanal (Rs.)Total Cost (Rs.)

Total Land92,500,000 22,500,000

8.2 Building

There are certain civil works required to be carried out at the proposed location. The civil works would be carried out on an area of 36,450 square feet. Civil work includes following:

Management Block

Offices for staff

Generator Room

Shed for Production Hall

Underground Water Piping and Power Cables

Mosque

Guest Rooms

Security Guard Room

Kitchen

Toilet/washrooms

Flooring

The total cost of construction is estimated at Rs.24.840 million. Details for the said cost are as follows: Table 82 Construction CostDescriptionSq. FeetCost / Sq. feetTotal Cost (Rs.)

Management Block, Offices5,000 1,000 5,000,000

Shed on Production hall17,000 800 13,600,000

Mosque + Guest Room1,450 700 1,015,000

Flooring3,000 75 225,000

Godown10,000 500 5,000,000

Total covered area in sq. ft. 36,450

Total Infrastructure Cost 24,840,000

Table 83 Total Land and Building CostDescriptionTotal Cost (Rs. in Millions)

Land 22.50

Building24.84

Total Land & Building Cost 47.34

9 Machinery Details

9.1 Machinery and Equipment Requirement

The major cost involved in establishing a well-equipped Molded Furniture Unit is the cost involved in machinery, equipment and furnishing.

Table 91: Machinery and Equipment Requirement

DescriptionCapacityNoUnit Cost (Rs)Total Cost(Rs)

Injection Moulding1000 tons15,500,0005,500,000

Injection Moulding800 tons24,000,000 8,000,000

Injection Moulding650 tons12,000,000 2,000,000

Injection Moulding250 tons11,000,000 1,000,000

Crane10 tons11,000,000 1,000,000

Cutter & Crusher 18 Inches1150,000 150,000

Mixes6 Bags185,000 85,000

Mixes4 Bags165,000 65,000

Hopper18 Bags1100,000 100,000

Chiller Plant11,000,000 1,000,000

Electric Panel1300,000 300,000

Shrink Warp1150,000 150,000

Generator650 KVA13,000,000 3,000,000

Sub Total22,350,000

MOULDS

Chair (4 arm + 1 w/o arm+2 baby chair)6 12,800,000

Tables(2x3inch rect, 32 in, 39 in square)3 1,600,000

Chairs Inserts6125,000 750,000

Stool1500,000 500,000

Shell chairs3 1,000,000

Sub Total16,650,000

DIE SHOP

Mould Lifter1100,000 100,000

Laith Machine8 ft1300,000 300,000

Laith Machine5 ft1200,000 200,000

Grinder17000 7,000

Welding Plant125,000 25,000

Lifter230,000 60,000

Trolleys37,000 21,000

Loose Tools (Different Tools, Instruments)1400,000 400,000

Sub Total1,113,000

Total Machinery and Equipment 40,113,000

9.2 Other Capital Cost:

The cost associated with obtaining the utilities charges is including electricity, telephone, Gas and water connections. Other cost of furniture & fixture and office equipments are as follows:Table 92: Other Capital CostDescriptionQuantity / AreaCost / RateAmount / Other

Table & Chair for CEO12200022,000

Table & Chair for Managers41600064,000

Table & Chair for Officers & Supervisors1210000120,000

Visitor Chairs20460092,000

File Racks4800032,000

Small Cabinets710,00070,000

Stool12200024,000

Bench12300036,000

Miscellaneous14000040,000

Total Furniture & Fixtures 500,000

Table 93: Offices Equipment Cost

DescriptionQuantity / AreaCost / RateAmount / Other

Computer P41025000250,000

UPS10700070,000

Air Conditioners540000200,000

Printer23000060,000

Scanner11200012,000

Fax Machine11500015,000

Telephone Sets20150030,000

Photocopying Machine1100000100,000

Miscellaneous1263,000263,000

Total Office Equipment 1,000,000

Table 94: Total Capital Cost.

DescriptionTotal Cost

Land 22,500,000

Building/Infrastructure 24,840,000

Machinery & equipment 40,113,000

Furniture & fixtures 500,000

Office vehicles 757,500

Office equipment 1,000,000

Pre-operating costs 4,262,857

Training costs 200,000

Total Capital Costs 94,173,357

10 Working Capital Requirement / Month10.1 Raw Materials Requirements:Cost of raw materials including Battery, teeka, uvtax, titanium, masterbatch and steel frame for study & visitor sofas etc are Rs. 12,000,000.There are two main inputs recycled Co-PP and Homo-PP. There are also requirements of master batches/pigments for coloring the products with some chemical for brightening and cleaning. 10.2 Utilities Requirement

The assumed cost associated with utilities and overheads are as follows:

Table 101: Total Cost of Goods Sold / AnnumDescriptionTotal Cost (Rs.)

Raw Material Cost 100,660,570

Direct Labor (Production Staff) 4,356,000

Direct Electricity 4,140,000

Electricity from the Generator 4,914,000

10.3 Human Resource Requirements

Manpower requirement for the Molded Furniture includes the staff as follows and there salaries will also be given as under

Table 83: Human Resource RequirementDescriptionNo. of Emp.2 ShiftsSalary /Month(Rs.)Total Salary / month (Rs)

Production Staff

Manager Production135,000420,000

Shift In charge112,000144,000

Color Master110,000120,000

Crush man17,00084,000

Machine Operators127,0001,008,000

Helpers 206,0001,440,000

Dispatcher16,00072,000

Loaders46,000288,000

Die Shop In charge115,000180,000

Maintenance Supervisor115,000180,000

Fitter37,000252,000

Technical Store Keeper17,00084,000

Raw Material Store keeper17,00084,000

Total Production Fixed Costs484,356,000

Admin. Staff

CEO175,000900,000

Manager Sales & Mkt150,000600,000

Manager Sales135,000420,000

Sales Admin Officer119,000228,000

Sales Executives310,000360,000

Chief Accountant125,000300,000

Assistant Accountant210,000240,000

Cashier18,00096,000

Electrician212,000288,000

Security Supervisor28,000192,000

Receptionist 17,00084,000

Cook17,00084,000

Office Boy16,00072,000

Driver17,00084,000

Sweeper26,000144,000

Overtime 100,000 1,200,000

Incentives 100,000 1,200,000

Total Admin. Cost206,492,000

Total HR. Cost 10,848,000

10.4 Total Working Capital Cost

Total Working capital cost per month is as follows:

Table 84: Total Working CapitalDescriptionTotal (Rs. In million)

Raw materials12.00

Upfront insurance payment0.053

Cash0.50

Total12.553

11 Financial Analysis

11.1 Total Project Cost:Following is the breakdown of the total project cost for the proposed plastic furniture project. Table 111: Total Project Cost

Project CostsCosts (Rs in Million)

Total Capital Costs94.173

Total Working Capital12.553

Total Project Costs106.726

11.2 Turnover / MonthTable 112: Total Sales per month

ItemsQuantitySale Price / PieceTotal Sales

All Model Chairs48000350 16,800,000

All Model Tables40001000 4,000,000

Baby Chair8000125 1,000,000

Shell Products2000775 1,550,000

Stools4500140 630,000

Total 6,500 23,980,000

Table 93: Depreciation Rates

ItemsDepreciation Rate

Plant & Machinery10%

Building 5%

Furniture & Fixture10%

Vehicles10%

Office Equipments25%

11.3 Project Returns

Table 9113: Project ReturnsProjectEquity

IRR35%42%

NPV 118,272,471 64,454,609

Payback Period (Years) 4.05 4.19

12 Financial Analysis

12.1 Projected Income Statement

12.2 Projected Balance Sheet

12.3 Projected Cash Flow Statement

Universal Resources & Traders. H/No.. 1117, St. # 2, Islamia College Road, Near Crown Cinema, Garden Colony, Gujranwala

Contact Person: Mr. Aleem Shahid, Cell No: 0301-8745080, 0322-5568590

4PREF-108/June, 2008

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