feasibility report-leather

CHAPTER ONE

INTRODUCTION TO THE PROJECT

ROLAND LEATHER MANUFACTURING

PROJECT BRIEF

The subject document provides details about a mechanized LEATHER manufacturing and leather footwear-manufacturing unit. Leather will be manufactured, tanned and then this leather will be used in manufacturing different leather products. Major product is Leather footwear. However, the unit is also capable of extending its product range to manufacture leather garments.

OPPORTUNITY RATIONALE

The size of the total global export market of leather shoes is estimated to be around $4.92 billion. This makes the business an attractive export opportunity. Pakistan has an inherent advantage due to local availability of quality hides & skins. The country has also developed a large tanning base. As a result, good quality leather for leather shoes and garments is easily available.In addition to easy availability of primary raw material, Pakistan is also well recognized in the international market as a manufacturer of quality leather garments and is ranked third amongst the top three exporters of leather garments in the world. Moreover, because of the presence of large number of leather garments manufacturing units in the country, a pool of trained skilled workers is also available.There is a huge international market for leather footwear. A total of $21 billion worth of leather footwear was exported worldwide in 1998. Moreover, because of rising costs of manufacturing units in the developed countries, footwear manufacturing base has shifted to low cost regions and Asia has become a major footwear-manufacturing center. Footwear is the sub-sector that has the maximum potential for value addition in finished leather. The value obtained per square foot of leather is the highest in case of footwear and may be as high as $5, compared to $1.5 for finished leather and leather garments.Pakistan’s performance in leather footwear is very low compared to other leather sub-sectors. Pakistan’s market share for leather was only about 0.1% in 1999. It ranked 38th in the row of exporters. There is a complete mismatch between the international trade product mix and Pakistan’s export product mix in the leather sector. Internationally, footwear is the largest market accounting for 47% of total trade, whereas Pakistan’s footwear exports constitute only 6% of the total leather sector exports. Keeping this scenario in view, there is an immediate need to concentrate on the footwear sector. Pakistan has an inherent advantage due to local availability of high quality hides & skins and a developed tanning industry. As a result, good quality leather for footwear is easily available with minimum lead times. In spite of this, Pakistan has not been able to gain a sizable share in exports. In addition to huge export market, the domestic market also offers much potential with an annual consumption of more than 16 million pairs of leather shoes.

LOCATION

We established our plant in Karachi at SITE area because raw material is easily purchased and transportation cost is less.

2

EXPLANATION OF PLANT

We have established our plant at Karachi. We manufacture leather then we make shoes from it. The leather manufacturing process is divided into three sub-processes: preparatory stages, tanning and crusting. All true leathers will undergo these sub-processes. A further sub-process, surface coating may be added into the sequence. The list of operations that leathers undergo varies with the type of leather.

SPONSORS AND MANAGEMENT

Syed Yawar AliChairmanIan J. DonaldManaging DirectorFritz Van Dijk DirectorAlexandre CantacuzeneDirectorRaymond FrankeDirectorSyed Babar AliDirectorSyed Hyder AliDirector

OFFICERS

Ian J. DonaldChief ExecutiveRaymond FrankeChief Financial OfficerAli SadozaiCompany Secretary

OPERATIONAL CAPACITY BASED ON NUMBER OF SHIFTS

Our Plant has 24 Hours Working Process and we are going to divide our working process in two shifts so the listed man power will be use in two shifts. Shift (A): Timings 8:00Am To 8:00Pm, Shift (B): Timings 8:00Pm To 8:00Am

3

COST OF PROJECT INCLUDED IMPORTED MACHINERY

Total project cost of this Milk Pasteurizing Unit is Rs. 250,000,000. The highest machinery and equipment cost will be Rs. 24,158,000.

PROPOSED CAPACITY AND IMPLEMENTATION TIME

This feasibility is based on production of 1000 pairs of leather footwear per day. However, due to the time required in installation and running of the unit, it is expected that the plant would achieve 100% efficiency in sixth year of operations.

PROCESS FLOW CHART

For leather manufacturing

4

For foot manufacturing:

MANUFACTURER OF MACHINERY AND EQUIPMENT

Hohenforst Machinery Co.: Hohenforst Machinery Co., is a United States Based Company Specializing in the Business of Leather Processing Machinery in a New, Reconditioned as New, or Used Stage

China suppliers directory: They have a broad range of Leather Processing Machinery manufacturers, exporters and suppliers source and trade services, which can be searched by this comprehensive vertical web portal.

Trade key: offers a broad category of machinery in agriculture, industry and others.

6

CHAPTER TWOMANAGEMENT AND THE SPONSORS

7

MANAGEMENT

Syed Yawar AliChairmanIan J. DonaldManaging DirectorFritz Van Dijk DirectorAlexandre CantacuzeneDirectorRaymond FrankeDirectorSyed Babar AliDirectorSyed Hyder AliDirector

OFFICERS

Ian J. DonaldChief ExecutiveRaymond FrankeChief Financial OfficerAli SadozaiCompany Secretary

8

CHAPTER THREELOCATION OF THE PROJECT

9

LOCATION AND SITE

Location for the Roland Leather Manufacturing is near Karachi at site area. It is abbreviation of Sindh Industrial Trading Estate. This place in Karachi is famous for industry and trade. The location is specially designated as an Industrial Area in 1963; S.I.T.E is the oldest and the largest designated Industrial Area of Pakistan, encompassing 4700 acres (19 km²) of land. It contains approximately 2,400 factories.

AVAILBILITY OF MANPOWER

Lahore is the footwear center of the country, followed by Karachi, Faisalabad, Hyderabad, Sahiwal and Rawalpindi. All the shoe manufacturing units are established in these cities. Therefore, any of the above cities would be suitable for setting up a children shoe manufacturing unit. Raw material and labor is also easily accessible in these cities. Persons can handle the operations of a leather manufacturing unit easily. The unit will be working on two shift basis. Technical staff with a level of secondary education is sufficient to look after specific tasks at the plant except for qualified laboratory staff.

DEPART INCHARGEDEPARTDEPART INCHARGEINCHARGE MONTHLY PAYMONTHLY PAY

PROCESSING DEPARTPROCESSING DEPART 11 1000010000

MANUFACTURING DEPARTMANUFACTURING DEPART 11 1000010000

FINISHING DEPARTFINISHING DEPART 11 1000010000

Total 33 3000030000

PROCESSING DEPART

MACHINES SUPERISORMONTHLY PAY

LABOUR

MONTHLY PAY

BLADE 1 80008000 10 60000DRUMS 1 80008000 8 48000

SAVER BLADE 1 80008000 10 60000SOUP FORMATION MACHINE 1 80008000 4 24000

Total 4 32000 32 192000

10

MANUFACTURING DEPART

MACHINES SUPERVISORMONTHLY PAY

LABOUR

MONTHLY PAY

PADDLE 1 80008000 15 90000FRESHING SHOWER 1 80008000 6 36000

BEET MACHINE 1 80008000 3 18000GANDLE BLADE 1 80008000 10 60000

ACID PROCESSING 1 80008000 4 24000BOW METER 1 80008000 4 24000

SHAMING MACHNE 1 80008000 6 36000DRAIN PROCESSING 1 80008000 5 30000

HANGING PROCESSING 1 80008000 6 36000TAGGLE MACHINE 1 80008000 15 90000

TOAP MACHINE 1 80008000 15 90000Total 11 88000 89 534000

FINISHING DEPART

MACHINES SUPERISORMONTHLY PAY

LABOUR

MONTHLY PAY

OILING MACHINE 1 80008000 6 36000POWDER PROCESSING 1 80008000 6 36000

STOCK AQUARIUMS 1 80008000 6 36000DYE MACHINE 1 80008000 8 48000

SPRAY CODE MACHINE 1 80008000 4 24000ACID MIXING MACHINE 1 80008000 4 24000

Total 6 48000 34 204000

SECURITY GUARD

SHIFTSHIFT SECURITY SECURITY GUARDGUARD Monthly SalaryMonthly Salary

SHIFT (A)SHIFT (A) 55 25000SHIFT (B)SHIFT (B) 55 25000

Total 10 50000

Total Direct Labor 1,860,0

00

Total Indirect Labor 446,0

00

NOTE:

11

Our Plant has 12 Hours Working Process and we are going to divide our working process in two shifts so the listed man power will be use in one shift. Shift (A): Timings 8:00Am To 8:00Pm

TYPES OF SKILLS REQUIRED

Pattern-making, designing, cutting & stitching are the primary skills required for running the unit. Moreover, matching of leather from different skins also requires an experienced matching expert. Development of leathers and its timely procurements is an important skill also. Similarly knowledge about international trends in fashion and prices is also comes as a handy skill.

RAW MATERIAL

RAW LEATHER

The basic raw material required for manufacturing a pair of leather shoes is raw form of leather. After manufacturing leather we require the following:

INFRASTRUCTURE REQUIREMENTS

Road Electricity Water Diesel fuel Drainage Gas Telephone and Fax Production Hall Raw Material Store Finished Goods Store Office Washrooms

The following infrastructure requirements will be available in Karachi SITE area.

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CURRENT INDUSTRY STRUCTURE

Major Players

Lahore is the footwear-manufacturing center of the country, followed by Karachi, Rawalpindi, Faisalabad and Hyderabad. Service Industries is the leading manufacturer and exporter of footwear, especially the leather footwear. Bata is the other large manufacturer.There are a large number of smaller leather footwear manufacturing units in the country. These units cater to the domestic market as well as act as subcontractors for the bigger exporters. The existing capacity of the installed units in Pakistan is 224 million pairs per annum out of which leather footwear accounts for 41 million pairs per annum.In addition to these big players, there are some mechanized units and a large number of other smaller leather footwear manufacturing units in the country. These units supply in the regional domestic markets and also manufacture for the large exporters.Majority of the Pakistani industry is concentrated in the informal sector and the numbers of mechanized units in the formal sector are very small. This informal sector is faced with number of limitations.In the first place, the production capacity available in any of these units is very small. Since the production is done either completely manually or in some cases, with very limited use of machines, these units are unable to produce footwear in large volumes.Second limitation of this segment of the industry is producing quality. Due to low level of mechanization and carrying out most of the operations manually leads to improper quality. This handicap in technology is further coupled with the lack of proper training that is required for making good shoes.In Pakistan, the link between the local footwear manufacturer and the international footwear buyer is missing. Pakistan Footwear Industry does not move as an industry. It is only the individual efforts of any entrepreneur that gets him any order. There is no help or information source available to them for telling them about the requirements of the international markets.

CONCESSIONS BY GOVERNMENT

Government has also offered a variety of incentives to encourage the leather-related exports, which include:

Duty free imports of hide and skins Duty drawback on exports of leather goods. No duty no draw back facility under duty and tax remission system (the DTRE

system allows exporters to make duty free import of accessories or make sale tax free purchases form the local market on a permit issued by export collectorate)

Technical and marketing assistance for the private sector to promote the exports. Participation in international fairs and exhibitions at subsidized rates through

EPB.

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Total duty exemption on import of machinery plant and equipment

CREDIT AND BANKING FACILITY

Bankers

Habib Bank Limited MCB Bank Limited Standard Chartered Bank (Pakistan) Limited United Bank Limited National Bank of Pakistan Limited Allied Bank Limited Barclays Bank P LC, Pakistan Bank Al Habib Limited

NEARNESS TO THE MARKET

Karachi is the most suitable location for establishing a unit of leather goods manufacturing, followed by Sialkot & Lahore. Availability of markets, skilled labor and commercial splitting6 facility are important while selecting a location.

AVALIBALITY OF UTILITIES (POWER, FUEL, WATER, GAS, OIL)

Karachi is the biggest city of Pakistan. Its advantage is to attract business for being the least expensive global city. Sufficient availability of utilities like power, fuel, water, gas, oil is in Karachi.

TRANSPORT FACILITY (Seaport, airport, railway)

Transport facility is the movement of people and goods from one location to another. Transport is performed by modes, such as air, rail, road, water, cable, pipeline and space. The field can be divided into infrastructure, vehicles, and operations. The city of Karachi is a major Transport hub of Pakistan. The Karachi port and airport are major gateways in Pakistan. The Karachi Railway stations transports the major part of Pakistan's trade with other countries. Therefore Karachi city is good for doing business.

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RESIDENTIAL ACCOMODATION

Following are the measures that will be taken for residential accommodation:

Ensure all means of escape are properly maintained and kept free from obstruction, unlocked and easy to open.

Internal door locks on residents rooms should be designed to allow staff immediate access.

Ensure alarms, fire extinguishers, smoke detectors etc. are properly maintained. Consider special alarm provision for people with impaired hearing e.g. flashing

lights. Develop a system for assisting disabled or elderly residents to evacuate the

building. If possible, devise a smoking policy which limits smoking to designated areas. Do not overfill deep fat fryers or leave cooking appliances unattended. Ensure that electrical systems are checked regularly and faults reported and

repaired immediately.

WORKING ENVIRONMENT

Safe working environment Sufficient wages Good Sanitary conditions in factory Compensation and benefits to workers Free Medical facilities to workers and their families Two shifts and over time gives double salary.

DISPOSAL OF EFFLUENT/WASTE

Leather tanneries in Pakistan produce all three categories of waste: wastewater, solid waste and air emissions. However, wastewater is by far the most important environmental challenge being faced by Pakistan's tanneries. Therefore in our project, Roland Leather Manufacturing we will be considering all the environmental problems which will be discuss in chapter Nine.

LABOR UNION

There will be no labor union in our industry that is Milcon Private Limited.

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CHAPTER FOURMARKET AND MARKETING

16

MARKETING

Total Market Size and Growth

Footwear market is the biggest market amongst all the leather sub-sectors. Total production of footwear in 1997 was 11 billion pairs and the total international trade of footwear was $47 billion, of which $25 billion trade was of leather footwear, which is the highest amongst all the leather sub-sectors. According to an estimate, local consumption of leather footwear is estimated around a 16 million pairs per annum. Growth of 3% has been projected for this local market.

Major Markets:

Major importer of Leather Footwear:

Major Exporter of Leather Footwear:

17

TARGET CUSTOMER

Export market is the primary market, given the size and production capacity of the unit. In the export market, major customers include leading chain stores in Europe and America. Orders can be procured directly by contacting buyers during international trade fairs or indirectly through middlemen.As far as the domestic market is concerned, retail selling to the big players in the market with an expansive network of retail shoe stores is an extremely lucrative opportunity. Moreover, institutional sales to the Armed and Police force with little modification are also viable options.

COMPATIBILITY WITH EXISTING PRODUCT

Currently the Roland Leather Manufacturer will have these major competitors among many more in not only in Pakistan but all over the world.

P.K. Sports Urban sole Nike Ansari Enterprises J & S CORPORATION Umer Trading Company RM Export Items (Pvt) Ltd silverstone shoes company

COST AND QUALITY COMPARISON OF COMPETITIVE PRODUCTThe organization will keep a bull eye on the activities of competitors and tries to off set all the possible threats, which they can encounter in the future. Roland Leather Manufacturer will continuously measure and monitor the market trends and competitor

18

moves. We will be getting feed back from our sales teams and dealers about what is happening in the market.

ADVERTISING AND PROMOTION

CHANNELS MONTHLY PAYMENT YEARLY PAYMENTGEO 1,000,000 12,000,000

INDUS 1,000,000 12,000,000METRO 800,000 9,600,000

ADVERTISING EXPENSE 2,800,000 33,600,000

SIGN BOARD AND BUS SHELTERS ADVERTISING COST:

City names No. of advertisement

Expense Yearly Expense

Karachi 10 Rs.50,00,000 60,000,000Hyderabad 5 Rs.15,00,000 18,00,000

Lahore 10 Rs.60,00,000 72,000,000Islamabad 10 Rs.60,00,000 72,000,000Rawalpindi 7 Rs.40,00,000 48,000,000

Total 253,800,000

VISUALIZERS AND STANDS:

Distribution of Visualizers; Big Visualizers Rs. 18,000 Small Visualizers Rs. 10,000

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MARKET AND MARKETING CHANNELS

Bringing the consumer and shopper at the heart of all decision making is the vision of the Generating Demand team at Roland Leather Manufacturer. We will continue our efforts to better understand our consumers and shoppers with the intent to not only make deep local consumer understanding the base of all Marketing and Communication Strategy but to also make it the foundation of all innovation and renovation efforts

Area No, of Shops

Price of Visualizers

Total Amount

KarachiBig Visualizers

Small Visualizers20050

1800010000

41,00,000

HyderabadBig Visualizers


1800010000

700,000

LahoreBig Visualizes 100 18000

1800,000

RawalpindiBig Visualizers


1800010000

1150,000

IslamabadBig Visualizers

Total

100

575

18000 1800,000

95,50,000

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CHAPTER FIVEMACHINERY AND EQUIPMENT

21

The sponsors have chosen the state of the art machinery. The total cost of the machinery and equipment is calculated is Rs.24158000. The machinery will be imported from United States of America and China. Similarly the machinery manufactured by the supplier is successfully working in leather processing and shoes manufacturing. The supplier of machinery has agreed to pass on the benefits of research and development. They will also train engineers and workers to operate, maintain the machinery. The cost of training is included in the cost of the machinery and equipment. The spare parts will be available with the suppliers at reasonable rates. List of the major components of machinery is enclosed in annexure. The contracted production, quality of the would-be produce is guaranteed by the machinery suppliers. No adverse environmental effects are envisaged.

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CHAPTER SIXCOST OF THE PROJECT AND MEANS OF

FINANCING

23

The project is expected to cost Rs. 250,000,000 including the 11,540,546 for two months. Summary of the cost of the project and its financing plan is given below while the details are provided in annexure:

FINANCIAL PLANS

COST OF PROJECT

Land & Building

20,000,000

Plant And Machinery 16,255,000

Lifter Machine 4,000,000

Fire Alarm 150,000

Transportation 200,000

Generator 200,000

Total Salaries 4,118,000

Purchases 160,000,000

Preliminary Expenses

Automobiles 4,000,000

Furniture Fixture 500,000

Computer, Fax & etc. 267,000

Selling Expenses 1,000,000

Miscellaneous Expenses 500,000

Refreshment Expenses 400,000

6,667,000

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Reserved For Operational Work 38,410,000

Projected Total Project Cost 250,000,000

WORKING CAPITAL

Description Amount

Cash In Hand 2,981,712

Inventories 7,872,501

Salaries Expenses 686,333

Total For Two Months 11,540,5

46

25

CHAPTER SEVENOPERATIONAL PERFORMANCES AND

FINANCIAL ASPECTS

26

PROJECTED INCOME STATEMENT

Income Statement (Eff.) Fist Year

2010 2nd Year2011 3rd Year

20124th Year

20135th Year

2014

Sales 204,080,825

260,182,644

306,365,063

349,531,900

366,833,729

Less: Rebate (@ 7.34% of Sale Value)

(14,979,533)

(19,097,406)

(22,487,196)

(25,655,641)

(26,925,596)

Less: Export Surcharge (0.25% of Sale)

(510,202) (650,457)

(765,913) (873,830)

(917,084)

Less: Shipment Charges (3% of Sale)

(6,122,425) (7,805,479)

(9,190,952)

(10,485,957)

(11,005,012)

Net Sale 182,468,665

232,629,302

273,921,003

312,516,472

327,986,037

Less: Cost Of Goods Sold (131,665,048) (190,993,36

4) (216,572,682)

(235,004,105) (247,167,026)

Gross Profit 50,803,617

41,635,938 57,348,321

77,512,367

80,819,011

Less: Operating Expenses (11,082,908) (11,553,152

) (11,765,672)

(11,983,298) (12,206,091)

Income Before Interest and Tax

39,720,709 30,082,786

45,582,649 65,529,069

68,612,920

Less: Interest Expenses (25%) (37,184,674)

(37,184,674)

(37,184,674)

(37,184,674)

(37,184,674)

Income Before Tax 2,536,035

(7,101,888) 8,397,975

28,344,395

31,428,246

Less: Tax 25% (634,009)

(1,775,472) (2,099,494)

(7,086,099)

(7,857,062)

Income After Tax 1,902,026

(8,877,360)

6,298,481

21,258,296

23,571,185

Raw material, labor, manufacturing overhead, capacity utilization, debt payment, selling and administration expenses, total expenses are attached as annexure.

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CASH FLOW

Sr.# Description 2010

1st Year 20112nd Year

20123rd Year 2013

4th Year2014

5th Year

1 Fixed Assets 45,372,00

0

2 Net Working Capital 11,540,54

6

3 Revenue 182,468,66

5 232,629,302

273,921,003 312,516,4

72 327,986,0

37

4Less: Cost Of Goods Sold (131,665,04

8) (190,993,364)

(216,572,682) (235,004,1

05) (247,167,0

26)

5Gross Profit

50,803,61

7 41,635,938

57,348,321 77,512,3

67 80,819,0

11

6Less: Operating Expenses (11,082,90

8) (11,553,152)

(11,765,672) (11,983,2

98) (12,206,0

91)

7Income Before Interest and Tax

39,720,709 30,082,7

86 45,582,6

49 65,529,069

68,612,920

8Less: Interest Expenses (22%)

(34,920,593) (34,920,5

93) (34,920,5

93) (34,920,593)

(34,920,593)

9Income Before Tax

4,800,11

5 (4,837,807)

10,662,056 30,608,4

75 33,692,3

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10Less: Tax 22%

(1,056,02

5) (1,064,318)

(2,345,652) (6,733,8

65) (7,412,3

12)

11Net Income

3,744,09

0 (5,902,125)

8,316,403 23,874,6

11 26,280,0

15

28

BALANCE SHEET

29

SENSITIVITY ANALYSIS

2nd Aspect:

Sales DeclineYear

Unit Price

Total Unite Total Sales

Year 1 510.2 400,000

204,080,825

Year 2 622.4 360,000

224,064,000

Year 3 685.0 324,000

221,940,000

Year 4 717.0 291,600

209,077,200

Year 5 723.5 262,440

189,875,340

Sales Decline By 10% as per year due to uncertainties.

1st Aspect:

Material Price Decline

YearUnit Cost

Total UnitTotal

Purchase

Year 1 250 400,000

100,000,000

Year 2 250 418,000

104,500,000

Year 3 250 447,260

111,815,000

Year 4 250 487,513

121,878,250

Year 5 250 507,014

126,753,500

The Price Of Raw Material Decrease by Rs.150/= Per Piece

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CHAPTER EIGHTEVALUATION OF FEASIBILITY REPORT

31

Evaluation for accepting and rejecting the project on the basis of financial statements can be performed by employing the following criteria:

1. non discounting criteria2. discounting criteria

NONDISCOUNTING CRITERIA

PAY BACK PERIOD

0 1 2 3 4 5

(45,105,000)

31,104,621

21,708,305

35,914,602

51,461,190

53,855,556

(14,000,379)

7,707,926

= 1 + 14,000,379 21,708,305

= 1 + 0.65

= 1.65 Years

DISCOUNTING PAY BACK PERIOD

0 1 2 3 4 5

32

Outflo

Pay Back Period = Years Before Full Recovery + Unrecovered Amount Of Beg Of The Year

Cash Flow Of The Year

(45,105,000)

25,084,372

14,118,305

18,836,751

21,766,725

18,370,547

(20,020,628)

(5,902,324)

12,934,428

= 2 + 5,902,324 18,836,751

= 2 + 0.32

= 2.32 Years

DISCOUNTING CRITERIA

COST OF EQUITY

WACC = Cost of Equity (E/A) + Cost Of Debt (D/A) (1 - Tax)

Calculation:

= (22% + 7%) (150,000,000 / 250,000,000) + 22% (100,000,000 / 250,000,000) (1 - 22%)

Step 1 29.00% 0.6 + 22% 0.088 0.78

Step 2 0.1740 + 0.0686

WACC = 0.2426

NET PRESENT VALUE

PV Inflow:

Year 1 Year 2 Year 3 Year 4 Year 5

59,845,671 88,914,4 61

85,446,9 28

105,976,4 95

111,619,3 15

(1.24)1 (1.24)2 (1.24)3 (1.24)4

(1.24)5

48,262,638 57,826,782

44,815,825

44,825,259

38,074,212

33

Outflo

Pay Back Period = Years Before Fill Recovery + Unrecovered Amount Of Beg Of The Year

Cash Flow Of The Year

NPV = Pv Inflow - Pv Outflow

233,804,717 - 145,105,000

88,699,717

INTERNAL RATE OF RETURN

NPV = 0

Pv Inflow = Pv Outflow

Pv Outflow = Pv Inflow

45,105,000

31,104,621 +

21,708,305 +

35,914,602 +

51,461,190 +

53,855,556

( 1+i )^ 1 ( 1+i )^ 2 ( 1+i )^ 3 ( 1+i )^ 4 ( 1+i )^ 5

186143750.6

7 77745100.6

7 76973580.6

7 66004570.6

7 41337890.6

7

If i = 67.1% then;

Pv Outflow

= Pv Inflow

45,105,000

44,820,489

EVALUATION:

After calculating net present value, internal rate of return, pay back period, cost of equity we can conclude the following project is to be accepted.

34

CHAPTER NINEENVIRONMENT AND ECOLOGICAL ASPECT

35

The chrome tanning method is the most widely used process in Pakistan's leather sector. However, the vegetable tanning method and a combination of chrome and vegetable tanning is also applied. The process includes a number of different steps during which large quantities of water and chemicals are applied to the skins. About 130 different chemicals are used in leather processing, depending on the type of raw material used and finished product. These may be divided into four major classes: pre tanning chemicals, tanning chemicals, wet finishing chemicals and finishing chemicals. Groundwater is used as the major source of water in Pakistan's leather industry.

THE ENVIRONMENTAL CHALLENGE

Leather tanneries in Pakistan produce all three categories of waste: wastewater, solid waste and air emissions. However, wastewater is by far the most important environmental challenge being faced by Pakistan's tanneries.

Wastewater: Although the exact quantity varies widely between tanneries, a normal requirement of around 50-60 liters of water per kilogram of hide is suggested. ETPI's sample audits of tanneries in Pakistan show that in some cases the consumption of water is as high as three times the suggested requirement. The overall water discharge also demonstrates a high degree of seasonal and daily fluctuation. For most part, the current practice is to discharge this water into the local environment without any treatment.

Solid Waste: Two types of solid wastes (tanned and untanned) are generated from leather production processes. Solid waste include dusted curing salts, raw trimmings, wet trimmings, dry trimmings, wet shavings, dry shavings, buffing, and packaging material. It is estimated that for a tannery averaging 10,000 kilograms of skins per day, a total of some 5,500 kilograms of solid waste would be produced per day.

36

Air Emissions: There are two sources of air pollution from tanneries in Pakistan. The first relates to emissions from generators (diesel-based and operated only during power breakdowns) and from boilers. Emissions were found to be well below the NEQS level. Ammonia emission during processing and washing of drums, though intermittent but important has adverse effects on workers health. Hydrogen sulphide emission during mixing of acid and alkaline wastewater in drain is also a serious health hazardous. Segregated discharge of acidic and alkaline effluent can help to avoid the hydrogen sulphide gas emission.

POLLUTION CONTROL

Roland Leather Manufacturer will take a number of steps to move towards more environment friendly production. A number of technological approaches exist which could also be a source of net economic saving for Roland. However, the applicability of these solutions varies depending on the nature of raw material, processing conditions, and type of finished product.

Water Conservation: Converting from continuous to sequential washing can lead to significant water saving and to a much reduced hydraulic load for the effluent treatment plant.

Use of Environment Friendly Chemicals: Enzymatic products can replace sulfides; surfactants, if used, should be biodegradable; use of Penta Chloro Phenol (PCP) should be avoided; weak organic acids can replace ammonium sulfate in deliming process; trivalent chromium should be used for tanning instead of hexavalent chromium which is toxic; metal complex dyes should be replaced; halogen containing hydrocarbons should be replaced by water finishers.

Green Fleshing of Hides: Green fleshing, just after deep soaking, results in pH close to neutral. This will result in savings on liming and unhairing chemicals and improve the penetration of chemicals into skins.

Hair Savings Methods: These require smaller quantities of sulfide and allow an easy separation of the protein constituted by the undissolved hair. This results in significant reductions in the COD, BOD5, Nitrogen, Sulfide, and Total Suspended Solids, thereby reducing the organic load for the treatment plant.

Recycling Liming and Unhairing Liquors: Improved liming and unhairing techniques permit a direct reuse of the spent liquors. This leads to savings in water, sulfide, and lime.

Lime Splitting and Trimming: Splitting and trimming is usually carried out after tanning by which time chromium has been introduced into the by-products. Savings in the amount of chemicals used for deliming, pickling, tanning, and consequently reduction

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in the pollutant load can be achieved if these procedures are carried out with the pelt. The non-tanned by-product will be good raw material for the manufacture of gelatine or animal feedstock.

Oxidation of Sulfide: Oxidizing the sulfide in the liquor through the use of hydrogen peroxide or sodium hydrogen sulfite will avoid the formation of hydrogen sulfide during the acidification of the deliming float.

Finishing Process: Conventional spray equipment wastes between 30-50% of the finish whereas a roll coating machine reduces the loss to about 5%. The conventional spray equipment should be equipped with proper scrubbing systems to reduce emissions.

Chrome Reuse Options

The Direct Recycling of Chrome Tanning Float is the easiest method to reuse the chromium in the process. After collecting and sufficiently fine screening, the float is recycled with the addition of fresh chromium. However, this technology has limitations related to quality and the need to control residual float. This solution is suitable for small tanneries.

The Recycling of Chrome through Precipitation enables the recovery of tanning float, and the effluent from various post-tanning stages. After collection, screening and storage, the floats are precipitated with different types of alkalies and bases and the sludge is reused after simple settling and acidification. Large plants have operated under this scheme for many years in Germany, Italy, South America and France. Four such plants for chrome recovery have also been installed in Pakistan.

For the past few years Tanning Products that Improve the Exhaustion Rate have been available which enable a tanning cycle with very small quantities of chrome wastage. These products aim for the complete fixation of the chrome onto the protein fibers and leaving small quantity of unused chromium in the float.

EFFLUENT EFFECT

End-of-pipe effluent treatment in tanneries at least requires two levels of treatment, primary and secondary. The primary treatment system includes mechanical screening, pH equalization and physiochemical processes. During this stage, coarse particulate flesh and hair is removed by means of perforated screens which also reduces the BOD load; the amplitude of pH fluctuation is reduced to a manageable and consistent range; and coagulation and flocculation are applied to remove suspended solids. During secondary treatment, biological processes are used to remove most of the organic matter from the wastewater by converting it into different gasses and into cell tissues. The most widely used processes for secondary treatment tend to be aerobic. However, anaerobic process is also utilized to some extent. The major technologies available for secondary treatment and their relative characteristics are presented in Table

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Solution Technical Characteristics Operational Characteristics

lagoons Anerobic lagoons are deep earthen basins used for high strength organic wastewater with high solid concentration. Facultative lagoons are earthen basins filled with screened or primary effluent in which stabilization of waste is brought about by a combination of aerobic, anaerobic and facultative bacteria. Aerobic lagoons are large, shallow earthen basins used for treatment of wastewater by natural processes involving both algae and bacteria.Maturation ponds are low rate stabilization ponds usually designed to provide for secondary effluent polishing and seasonal nitrification.

BOD5 loading kg/m 3/d –least efficient· BOD5 removal efficiency – 85 -90 %· Energy requirement for aeration kwh/kg BOD treated – moderatelyefficient· Hydraulic detention time-very high· mechanical complexity – low· Reactor resilience for power failureand shock loads – moderate to high· By-product – nil· On-site environmental impacts - soilinfiltration and aerosoles dispersion· Land requirement --- large· Man power requirement – skilled· Frequency of repair & maintenance -medium

Trickling Filters Wastewater flows from top to bottom, dispersed over filter material (stones, lava or plastic) during which soluble compounds are removed and, to a lesser extent, solids are taken up into the biofilm adhered to the carrier material.

. BOD5 loading kg/m 3/d –least efficient· BOD5 removal efficiency – 85 -90 %· Energy requirement for aerationkwh/kg BOD treated – most efficient(natural ventilation)· Hydraulic detention time—mostefficient (recirculation is required)· mechanical complexity – low

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· Reactor resilience for power failureand shock loads – moderate· By-product – nil· On-site environmental impacts -insects· Land requirement --- small· Man power requirement – skilled· Frequency of repair & maintenance -low

Up flow Anaerobic Sludge Blanket (UASB) Reactor

The basic idea of this system is that the flocs of anaerobic bacteria will tend to settle under gravity, when applying a moderate up-flow velocity of wastewater. In this way noseparate sedimentation tank is necessaryThe wastewater passes the reactor from bottom to top. To guarantee sufficient contact between the incoming wastewater and the bacteria in the sludge layer the, the wastewater is fed evenly over the bottom of the reactor. Further mixing is brought about by the production of the gas. The organic compounds are consumed by anaerobic bacteria during passage of wastewater through sludge layer.

BOD5 loading kg/m 3/d –very efficient· BOD5 removal efficiency – 80 -90 %· Energy requirement for aerationKwh /kg BOD treated – most efficient(only for pumping)· Hydraulic detention time—mostefficient· mechanical complexity – low· Reactor resilience for power failureand shock loads – moderate· By-product – bio-gas· On-site environmental impacts - nil· Land requirement --- small· Man power requirement – highlyskilled· Frequency of repair & maintenance -low

Activated Sludge Treatment

Many variations of activated sludge treatment exist, depending on load characteristics and local climatic conditions; the low loaded activated sludge system is the most relevant

. BOD5 loading kg/m 3/d –very efficient. BOD5 removal efficiency – 85 - 95 %· Energy requirement for aerationkwh/kg BOD treated – least

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option. In this system, secondary sludge is digested in the same reactor. Wastewater to be treated is introduced into the reactor but mechanical stirring or by compressed air, where it is mixed with the mass of basterial flocs maintained constantly in suspension. After sufficient contact time, the mixture is clarified in the sttling tank and sludge is recycled in the aeriation tank.

efficient· Hydraulic detention time moderately efficient· mechanical complexity – high· Reactor resilience for power failure – low and for shock loads – moderate· By-product – nil· On-site environmental impacts -aerosol dispersion and noise· Land requirement --- moderate· Man power requirement – highly skilled· Frequency of repair & maintenance -very high

STRATEGY FOR ENVIRONMENTAL MANAGEMENT

Short-term training on occupational health and safety, modern practices of handling chemicals, etc. will be conducted for Roland staff and operators. Information about safety, health and environment will be visibly displayed in the workspace. The provision and use of safety items such as face protective shields, acid resistant gloves, aprons, masks, etc. will be strictly enforced. Careful monitoring of water use needs to be implanted. Appropriate water conservation measures such as placing automatic stop valves on water supply pipes, converting from running water washing to batch washing, etc. will be adopted as appropriate. The appropriate environment friendly technologies will be adopted according to the particular needs and conditions of particular tanneries. Improvement in drainage system to avoid the formation of hydrogen sulfide gas inside the tanneries is suggested. Proper arrangements will be made to stop the use of tanned solid waste in the preparation of poultry feed. Chemical re-cycling will be practiced.

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CHAPTER TENECONOMIC APPRAISAL

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NUMBER OF PERSONNEL EMPLOYED

INCHARGE 3SUPERVISOR 21

SECURITY GAURD 10

VALUE ADDITION

In economics, the difference between the sale price of a product and the cost of materials to produce it is the value added. In national accounts used in macroeconomics, it refers to the contribution of the factors of production, i.e., land, labor, and capital goods, to raising the value of a product and corresponds to the incomes received by the owners of these factors. The factors of production provide "services" which raise the unit price of a product (X) relative to the cost per unit of intermediate goods used up in the production of X.It is in fact, the enhancement added to a product or service by a company before the product is offered to customers. In Roland Leather Manufacturing, we will add value to our costumers by giving them extra service and superior quality of product.

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CHAPTER ELEVENCONCLUSION AND RECOMMENDATION

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KEY SUCCESS FACTORS

The commercial viability of this venture depends upon the regular and continuous flow of export orders. There is a need for strong linkage with the progressive footwear exporters. This requires aggressive marketing efforts. Another important aspect is the availability of skilled labor force as higher degree of precision and accuracy is required in footwear manufacturing. The key for the successful running of the project in making this project profitable is the manufacturing of good quality OF Leather and manufacturing shoes.

THREATS FOR THE BUSINESS

The lack of volume production capability is one of the reasons that Pakistan is not recognized internationally as a footwear manufacturer. The international buyers do not consider it worthwhile to visit Pakistan for buying shoes. There is a need to align the Pakistani industry in a manner so that it can tap the opportunity in the growing export market.

CRUCIAL FACTORS & STEPS IN DECISION MAKING FORINVESTMENT

Before making the decision, whether to invest in this project or not, one should carefully analyze the associated risk factors. A SWOT analysis can help in analyzing these factors which can play important role in making the decision.

Strengths

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Large domestic population of cattle resulting in excess supply of hides and skins. Meat eating habits of population Availability of skilled workforce Access to international markets Well established repute of country in international markets

Weaknesses

Shortage created in local market due to exports of raw and finished leather Requirement of high working capital Tendency of skilled labor to shift towards textile sector High cost of electricity High cost of raw material inventory and obsolescence Exports mostly in low to medium end segment Quality hides and skins are abundantly and cheaply available immediately after

religious festival (Bakar Eid). Rest of the year prices are very high.

Opportunities

World export trade market of leather goods is growing at an average rate of 8% during 1998-2003

Better policies by government in livestock sector resulting in higher availability of hides and skins

Low to medium end garments stitching being shifted from China to Pakistan Conducive policies of government for encouraging leather garment exports by

providing export and freight rebates.

Threats

Exponential increase in prices of finished leather due to exports. Non availability of leather during peak production season Impact of environment regulations under WTO on tanning industry resulting in

shortages of finished leather. Abrupt change in international fashion trend can result in increase inventory of

finished leather and accessories Increasing prices of POL Animal protection rights issue in western hemisphere markets. Stakes concentrated in few traditional international markets. Hot local climate not conducive for local leather garments consumption

REVENUE ASSUMPTIONS

Capacity Utilization

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The capacity utilization for first year has been estimated at 40%. At 40% capacity utilization, the management would be able to manufacture 240 pairs of children shoes daily. The capacity utilization and daily number of pair of shoes manufactured for the remaining years are given below:

Years Capacity Utilization No. of Pairs Manufactured Daily1................................ 40%................................................2402................................ 60%................................................3603................................ 70%................................................4204................................ 80%................................................4805................................ 90%................................................5406................................ 90%................................................5407................................ 90%................................................5408................................ 95%................................................5709................................ 95%................................................57010.............................. 95%................................................570

Selling PriceThe average selling price of one pair of shoes has been estimated at Rs.145 per pair. This is the ex-factory price. The working for the calculation of this selling price is as follows:

Type ofThe selling price per pair of shoe is increased by 7.5% every year keeping in view the inflation.

Depreciation on AssetsDepreciation on the assets has been charged and the depreciation on assets is enclosed in Annexure.

Working Capital

Working capital is calculated on the basis of following assumptions:

Accounts receivablesThe local sales of footwear/shoes are made on credit basis. For this purpose, it is assumed that all the sales will be realized on average after sixty days. Therefore, this figure has been considered for calculating the working capital requirements.

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Raw Material StockSynthetic material, chemicals, EVA sheet and sole are the main components for shoe manufacturing. As most of these items are imported, there could be a possibility of shortage of these items in the market. In order to avoid such circumstances, it is necessary to maintain some stock of these items for the smooth and continuous flow of production. In this project, 30 days stock has been recommended and included in the working capital requirements.

Work in ProcessSeven (7) days work in process has been taken into account for working capital calculation.

Finished GoodsUsually, all the finished goods stock is not sold at once. It has been estimated that 15 days stock of finished goods will be maintained all the time. Therefore, 15 days finished goods inventory is also included in the working capital.

Accessories and Packing Material StockAccessories and packing material is easily available in the market. Therefore, only 15 days stock of accessories and packing materials has been considered in calculating out the working capital.

Advances to EmployeesAdvances to employees are calculated on the basis of 25 days of both payroll and staff benefits.

Tool and Spares StockCertain tools and spare parts are required in order to have the smooth flow of production. A stock of tools and spare parts equivalent to 5% of the machinery cost has been taken into account for computing the working capital.

Accounts PayableCost of sales for 30 days has been considered in calculating accounts payable.

RECOMMENDATION

This document provides a detailed description of the leather manufacturing business environment in Pakistan as well as documentation and analysis of a leather processing and shoe manufacturing in Pakistan. The analysis of this feasibility report shows that

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while there are some areas for improvement, on the whole the business will performed extremely well in its ability to sale the leather in local as well as in international market. Therefore, It is recommended that the following project is feasible to work on.

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feasibility report-leather

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