shah jee carpet final report

Shah Jee Carpets Manufacturing Unit

Dedicated to the memory of my Parents & Teachaers who instilled in me the importance of education and hardwork

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PREFACEBy the grace of Almighty Allah, I am able to make a project of Shah Jee Carpets. I faces many problems in preparing this project but Almighty Allah help me and now I stand this point with His help. I am sure it will satisfy the demand of the teachers as well as the students who insisted upon its inclusion. I am thankful to the teachers of the subject, the Project Management and his practitioners and the students community wo appreciated my efforts and informed me that all the maket information and all the sulutions of the problems solved it and all the requirments and obligations fullfilled by me and my team.

Waqas Inayat Roll # 02 # 0300-5903198 [email protected]

Amjad Bilal Roll # 38 # 0345-7043800

M.com Final Semester (2007-09)

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Executive SummaryThe Commission has determined that it should report on the findings of its inquiry. It has found a failure to disclose material changes to the banking facility in October 2008, a failure to disclose the breach of banking covenants, and a failure to properly classify the company's debt in the December 2008 half-year financial statements. Shah Jee Carpets demand will reach 22 billion square feet in 2009. Gains will be supported by accelerating nonresidential construction, expanding distribution channels, product innovations and improved materials. Shah Jee Carpets will benefit from consumer preference for hard surface flooring, over which scatter and area rugs are often placed. This study analyzes the Rs. 14 Million Shah Jee Carpets industry. It presents historical demand data for 1994, 1999 and 2004 and forecasts to 2009 and 2014 by Shah Jee Carpets material (e.g., face fibers, backing, adhesives); by product (e.g., tufted broadloom, scatter rugs and bath mats, carpet tile, vehicular carpet, artificial grass, woven, needle-punched); and by market (e.g., residential building, nonresidential building, transportation equipment). The study also considers market environment indicators, details industry structure, evaluates company market share and profiles 39 major players including Mohawk, Shaw, Beaulieu, Interface, C&A Floor coverings, Dixie Group, and Collins & Aikman.

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ContentsSr. No. 1 2 3 3 4 5 6 7 8 Chapter # 01 Introduction

Discription Project Discription Project Capacity And Rationale Value Chain, Production ProcessFibers Used In Carpet Manufacturing

Page # 05 06 07 10 13 14 16

Chapter # 2 Production Process

Markete Information

Land and Building Requirement

17 18 19 20 21 22 23 24 28 29

10 11 12 13 14 15 16

Chapter # 3 Financial Statements Projected Cost Statement Cost Reveneu Sheet Income Statement Balance Sheet Statement of Changes in Equity & Chapter # 4 Notes to the Accounts Conclusion Recommendation Ratio Analysis Cash Flow Statement

VisionWe are here with a vision to provide exclusive range of carpets;4 [email protected]


woven to highest limits of perfection. We are the company that assumes carpet manufacturing as the way of its life.

Mission"To constantly create distinctive masterpieces for our eminent buyers that are as individualistic as their own personalities".

Team and ResponsibilitiesThe contact directory of the project of imports the vehicles from the other multi national companies.

Those Responsible for their Project Project Manager Waqas Inayat

Their ResponsibilitiesFacilitating or executing the project lifecycle. This lifecycle may result in changes to the scope, schedule, Budget, and/or quality plans. Writing and Maintaining a log of all meetings review, support the project manager in daily tasks. [email protected]

Project Assistant

Amjad Billal

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Marketing Manager Technical lead Cost Controler Production Team Production Team Production Team Production Team

Farzana Sattar Ch. Attique

Shah Jee Carpets Manufacturing Unit In charge of the business requirements of the project. In charge of the technical issues of the project In charge of managing costs of the project. In charge of managing costs of the project In charge of managing costs of the project In charge of managing costs of the project In charge of managing costs of the project

Muhammad Kashif Zafar Abdul Rehman Hafiz Uzair Arshad Moen Ahmad Shamaila Shehzadi

Chapter 1

IntroductionThe 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, 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 6 [email protected]

Shah Jee Carpets Manufacturing Unit informed decision.

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Project DescriptionThe Carpet HistoryThe carpet is the one of finest and most exquisite form of expression and has more then 2,500 years old history. The Iranians were amongst the first carpet weaver of the ancient civilizations and, through centuries of creativity and ingenuity building upon the talents of the past, achieved a unique degree of excellence. The element of luxury with which the Persian carpet is associated today provides a marked contrast with its humble beginning among the nomadic tribes that at one time wandered the great expanse of Persia in search of their livelihood. Then it was an article of necessity to protect the tribes from the bitterly cold winters of the country.

Opportunity Rationale

Significant PotentialThe importance of the carpet sector is well understood by the government, NGOs and international actors, particularly since it is an important source of income for the rural population, particularly for women, and has a large potential for employment creation and poverty alleviation. Governments policy and international support are increasingly directed to the benefit of the industry. Carpets have been one of Pakistans significant export products, but currently their export growth is not satisfactory. It has therefore been decided to give specific attention to this sector and develop an appropriate strategy to remedy this situation. Consequently the Ministry of Commerce has been tasked to undertake planning for setting up of carpet cities in Lahore and Karachi. These cities will help to make our carpets more competitive in terms of price as well as quality and other standards. Further, in order to strengthen the export sector and boost exports of the country, the Trade Development Authority (formerly Export Promotion Bureau) has extended assistance for establishment of a number of institutions for training and development of human resources for export-oriented industries. Assistance has also been provided for strengthening of infrastructure for the exporting industries. Institutions under the scheme have been established in the private sector on the principle of public-private collaboration to ensure that the institutions are managed on professional lines while remaining responsive to the needs of the trade and industry, specially the export sector.

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Project BriefCarpets are the most important and best known handicraft item from Pakistan and a major export article. Traditionally carpets were made from purely natural raw materials such as hand-spun wool and dyes that were extracted from plants. The high quality and uniqueness of carpets established the international reputation of this craft. Although carpets are still produced in the traditional fashion today, increasing demand has led to large-scale production requiring industrially manufactured ingredients. The proposed project envisaged the manufacturing around a single warp.

Market Entry TimingHand made carpet is considered to be more of an article than a commodity and treated delicately and carefully. Therefore, demand for carpet remains almost consistent throughout the year, largely depending on the conduct of exhibitions and trade shows where traders display their products particularly in the foreign markets i.e. Europe and USA. As Hand made carpet is considered to be a costly item, its demand generally increases during seasonal, cultural and religious occasions i.e. Eid, Christmas, New Year arrival etc.

Proposed Business Legal StatusThe legal status of business tends to play an important role in any setup; the proposed hand made carpet manufacturing Unit is assumed to operate on Sole Proprietorship basis.

Project Capacity And RationaleRaw Material Sourcing The basic (natural) raw material for carpet manufacturing is wool. Around 200 sheep breeds in the world are the source of this material. As far as quality is concerned, wool from different sheep breeds varies, immensely. Due to its superior strength, flexibility, elasticity, durability, waviness, luster and natural beauty, the wool of Asian sheep is most ideal for weaving carpets. Another important attribute of this wool is that it is superbly colour absorbent. Moreover, colour will never run or bleed.

Project InvestmentA total of Rs. 8 million (approximately) is estimated to be the cost of the project. The working capital requirement is estimated around Rs 3.8 million while Rs. 4.3 million would be the fixed investment. This would include cost of machinery, infrastructure development cost, advance rent, vehicle and purchasing of 50 carpets for the initial stages as it would not be wise to waste time in waiting until display and exhibition purpose carpets are ready.

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Proposed Product MixFor the purpose of proposed pre-feasibility, following carpet sizes have been proposed. All of the carpets will be single knotted. As more than 95% of the total production would be exported, choice of sizes have been made after referring to the most common hand made carpets demanded by the foreign markets i.e. Japan, USA and European Union.Size no 1 Size no 2 Size no 3 Size no 4 1.9 Capacity 70% capacity utilization (based on available no. of looms) 3x2 8x8 10 x 6 12 x 9 4x2 7x4 10 x 7 10 x 14 5x3 9x6 10 x 8 6x4 8x5 11 x 8

Recommended Project Parameters Human Resource21 Technology/Machin Local Sindh Financial Summary IRR NPV 38% 9,984,5 98 Location

Project Cost Rs. 8.1 million

Payback Period3 years 5 months

Capital (WACC) 17.50%

Proposed LocationProposed location for setting up a hand-made carpet unit would largely depend on the availability of raw material and skilled labor. The proposed project would be based on interior Sindh including cities i.e. Thar, Mirpurkhas, Umer Kot, Islam Kot and Chachro etc., where both the skilled manpower and raw material are easily available. Precise location for the proposed project is assumed to be Mirpurkhas which is comparatively a bigger city in the interior Sindh, while trading and marketing office may be located at Karachi or Hyderabad.

Order And Delivery Procedure:Product order depends on the process adapted by the manufacturer regarding delivery. While going in export markets, there may be two types of clients: (1) Local traders who procure orders from foreign country and contact the manufacturer for the supply. In such cases, trader provides detailed product specification and order detail to the manufacturer with the delivery time and place

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Sector & Industry AnalysisCarpet weaving is basically a cottage industry with small setups spread largely in the rural areas of the country. Interior Sindh, Punjab and NWFP are the main sources of carpets for the traders who export this luxury product. Some of the large scale manufacturers also have their manufacturing setups working in Karachi, Hyderabad, Lahore, Gujranwala and Peshawar; however, after discussions with the industry stakeholders, once or twice in a year these exporters purchase hand made carpets from rural manufacturers.

Export Growth RateAnnual growth in export value of hand-knotted carpets on global level increased by 9% between 2009-2010. During 2009-10 and 2010-11 Pakistan achieved a growth of 5%, and 20% respectively. However, a negative growth of 8% during 2011-12 has been noticed.

DemandDemand for Pakistani carpet against Afghani carpet has been rising in the international markets over the last few years and is the evidence of the better quality of the Pakistani carpets. According to Carpet Manufactures and Exporters Association, Pakistani carpet traders would succeed in getting increased orders for Pakistani carpets in the international carpet exhibition held in Germany in January 2009. With the expected outstanding level of the carpet export, it is hoped that this year (2009-2010) Rs 203.5 million export target would be achieved. Wool scouring and spinning Quality carpets require quality wool and yarn. Some producers of quality carpets try to exclusively use local wool, but the supply of local wool is insufficient to meet demand. With the number of livestock increasing again, investment in more wool scouring facilities are necessary. Spinning of high quality yarn, either from local or imported wool, offers substantial opportunities or is not dependent on an increasing local sheep population. As demand for high quality carpets is increasing, the demand for hand spun wool will also be increasing.

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More efficient production using modern information technologyCurrently, most designs are sketched and plotted by hand. Investment in computer aided design (CAD) technology and associated training has substantial potential for efficiency gains. This also facilitates the interaction with overseas customers who can interact in the production process.

Value Chain, Production ProcessIn a formal carpet-manufacturing unit the operations generally undertaken are described below: Carding Carding is the process of combing and cleaning the wool. Since wool is the basic raw material for carpet making, it should be fine and clean. In an effective carding, no fiber is intermingled with another and all foreign particles and dirt are removed. This helps in spinning, blending and wool mixing if necessary. Carding is done by hand and is also done using machines.

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Spinning After carding, the wool fibers are drawn and twisted to make yarns of desired thickness. This process is called spinning. The yarn of soft 5-7 twist per inch is said to be ideal for carpets. Spinning is a traditional skill and generally wool is spun by hands. Though handspun yarns have uneven structure, they provide a special look in a carpet. The wool should be well carded to obtain even yarns of desired thickness. Increasingly, machines are also being used for spinning as it is more efficient. Dyeing Dyeing of wool can be a complicated process. It needs a lot of attention and experience to obtain wool of desired color. The wool can be dyed either using natural dyes or synthetic dyes, and both have good and adverse effects.

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Weaving The real making of carpets begins with weaving. A loom is a wooden frame which holds the carpet while it is being woven. There are two major kinds. One is the vertical loom and the other is the horizontal loom. A vertical loom consists of four bars. Two are horizontalone at the top and one at the bottom. The other two go vertically from side to side so that it looks like a standing frame. The warp yarns are fixed between the top and bottom bars. A horizontal loom is simpler in structure. It is framed by four bars, looking like a quadrangle lying on the ground. The length of a carpet is determined by the distance between the top and bottom bars and the width by the two side bars and carpets woven on it are generally smaller. As on a vertical loom, the warp yarns are fixed between the top and bottom bars. Washing After a carpet is woven, it is washed to remove dirt and to restore the original shine of the wool. Washing brings sheen and luster, and therefore, it is as important a step as coloring, designing and weaving. This is the final stage of carpet weaving and hence requires a lot of careful handling. Before washing, the carpet may go through the stage of burning the back of the carpet, rubbing with wired brush etc. to make it even.

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Fibers Used In Carpet ManufacturingFibers are the basic components from which the strands are made. There are a variety of carpet fibers available and used including nylon, acrylic, polyester, wool, polypropylene, cotton and silk. Each of them has advantages and disadvantages; however, natural fibers are generally used and preferred by the buyers world over. Color When choosing a carpet, color will be one of the most important elements considered by the buyer. It is the first impression a carpet gives and, the contrast of various colors creates the difference in designs. This is just the same in all other art fields, where the same rule applies. The colors of a carpet are mainly identified by the background color and the border color. Foundation In referring to ' foundation' we describe the basic components of a carpet. These are two in number, namely warp yarns and weft yarns. Usually the same fiber is used for both the warp and the weft and this can be either cotton or wool. In handmade carpets, cotton is most commonly used but wool is used mostly in places where it is readily available. Silk is used for silk carpets and generally for those with silk piles. Though expensive, silk is highly favored as a foundation material because it is very strong.

Environmental & Protection AspectsSmall carpet manufacturing units have no significant environmental impacts. There is no noise and gaseous emissions involved. Environmental impacts usually caused by a carpet manufacturing unit are: Discharge of effluent Dust and wool emissions Smell Solid wastes Discharge of Effluent During dying and washing processes, liquid waste is generated. This waste has high Biological Oxygen Demand (BOD) and is colored in appearance. BOD and color is due to use of dyes, chemicals and soaps during the dying and washing processes. Smell and Solid Wastes Use of dyes and chemicals brings about smell. This smell is only limited to the carpet manufacturing units internal atmosphere and does not cause nuisance to the surrounding communities. Finishing leads to the generation of solid wastes which is usually discarded in open area. It is proposed for the prospective entrepreneur to ensure proper arrangements for the disposal of the health hazardous waste. 15 [email protected]


Market InformationThere are thousands of small and large scale manufacturing setups working in the industry. Although industry is scattered all over the country, yet, handmade carpet manufacturing industry in Sindh is largely settled in interior. Thar, Mipurkhas, Umerkot, IslamKot and Chachko are the main locations. Precise statistics on number of units and their classification is not available because of small home based setups.

Market PotentialBased on our discussions with the industry stakeholders, overall market of handmade carpet is growing rapidly and if proper marketing strategy is formulated along with participation in foreign fairs and exhibitions, it could prove to be a major foreign exchange earning sector of the economy. Although there are a number of small scale exporters of Handmade carpets, some of the most well know traders of carpets include Afghan Carpet, Zainab Carpet, Princess Rug Palace and Samar Carpets.

Strategy For DevelopmentThe most important factors that determine the price of a hand-knotted carpet are the number of knots per sq. inch., complexity of design and the quality of wool. A carpet with an intricate design, more knots per sq. inch., and made with high quality wool fetches a higher price. The major markets for such carpets are USA, Europe, and Japan. Many carpet exporters also display their products on the web. According to carpet wholesalers, there is a limited domestic market for carpets due to its high prices. Most of the local buyers of hand made carpets are the expatriate Pakistanis.

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Target MarketsBased on our discussions with the carpet exporters, following sizes with respect to export regions have been identified: Europe 100 Meters 3x2 4x2 Europe 5x3 6x4 7x4 8x5 7x5 8x6 America 100 Meters 3x2 4x2 America 5x3 6x4 8x5 9x6 10 x 8 12 x 9 Japan 100 Meters 3x2 4x2 Japan 6x4 8x5 8x6 6x6 12 x 9 12 x 9

Leading importers of handmade carpets from Pakistan are listed below. Leading Five Importers Of Carpet From Pakistan Million Rs. Country 2008-09 2009-10 2010-11 2011-12 2012-13 109.78 USA 88.89 89.4 95.64 112.16 Germany 29.97 29.97 22.68 31.63 54.65 Italy 25.65 24.25 20.31 28.35 50.69 France 60.68 35.98 30.55 40.22 60.68 UK 70.46 50.55 40.11 45.98 80.98Exports Of Carpets Global exports of hand-knotted carpets and other textile floor covering stood at 1.68 billion Rs. in 2009. Pakistan occupies 3rd position among hand-knotted carpet exporting countries in the world. Amount in million Rs.2006 254 2005 277.8 2004 231.4 2003 220.9 2002 249.5 2001 288

Exports

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Chapter 2

Production ProcessProduction process flow:Carpet design (the basic drawing or chart) and the material is provided to the carpet weaver who than devises the process of weaving. Carpets are made in two different ways. The knotted weave and the flat weave. Knotted weave is the more widely used method.

Raw Material RequirementWool being the major raw material used for hand made carpet manufacturing, understanding of different kinds of wools available and used in Pakistan is necessary. Following wools are generally used by carpet manufacturers in Pakistan: Wool Description New Zealand Local Iraq Sanchia Afghanistan Color

White Yellow Pure Yellow Grayish

In order to produce 3 sq. ft of carpet, one kg of wool is required. For the proposed project, during initial stages, a total of around 300 sq. ft. of carpet with different sizes will be produced during a year. This would draw a sufficient volume of wool to be used as basic raw material. It has been estimated that a total of 84 kg wool/fiber will be required for one month production.

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Machinery RequirementTools which are used to produce handmade carpets are not completely the same in the various carpet producing areas. The most commonly used tools are listed below: 1. The Design Picture Before weaving a carpet, the weavers will first have a colored drawing of it, which will guide them in both designs and colors. The picture is drawn on squared paper, usually by famous artists and designers. The weaver must follow every intricate detail. times, are used to spin fibers into strands, playing the same role as a spinning wheel. Equipments and their respective costs required for the proposed carpet manufacturing unit have been provided in the following table:

S. No.

Machine

Required No. of Units

Size (feet)

Total Cost (in Rupees) Imported

1 2

Loom Support Structure Total Machinery Cost

104

147

350,000 Imported 50,000 Imported 400,000

Land & Building RequirementLand & Building Requirements For Shah Jee Hand made Carpet Unit After the discussion with market players, around 200 sq. yards area in Mirpurkhas will be sufficient for installation of 10 looms. An amount of Rs. 800,000/- has been estimated to be utilized for purchase of premises in the suburban area of the city. A small office would also be needed in Hyderabad or Karachi. This space will be used for clients meetings and necessary marketing and promotion activities and will be procured on rent.

Human Resource RequirementCarpet industry is a highly specialized and labor intensive. A total 21 persons will be 19 [email protected]

Shah Jee Carpets Manufacturing Unit required to handle the production operations of the proposed hand made carpet manufacturing unit. The business unit will work on shift basis (12 hours daily as is the norm of the industry). Technical staff with relevant experience will be required for operating looms. Total approximate manpower requirement for the business operations along with their respective salaries has been provided in the table below:

Staff Title

1. Business Unit Manager/Owner Production Staff Supervisor / Manager Loom Operators Total Production Staff General Administration/ Selling Staff Accountant Packaging Department Staff Office Assistant Guard Driver Total G A /S Staff TOTAL

No of Persons 7 1 14 15 1 2 1 1 1 6 21

Individual Monthly Salary Salary 150,000 910,000 12,000 5,000 12,000 70,000 82,000 10,000 8,000 6,000 4,000 4,000 32,000 114,000

Annual Salary 1380000 144,000 840,000 984,000 120,000 96,000 72,000 48,000 48,000 384,000 1,368,00 0

10,000 4,000 6,000 4,000 4,000

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Chapter 3 Financial StatementsShah Jee Carpets Manufacturing Unit Projected Cost Statement For the period onwardSr No. Particulars Total Cost Rs

Fixed capital Machinery Vehicle Cost of land & Building Construction Factory & Office Furniture Advance Deposit 6 month Preliminary Exp Total Fixed Capital Working Capital Utilities 3 months Office & Factory Electricity bills / month Petrol/ Diesel exp Office Rent Telephone Bill Salaries Production staff Promotion Budget Raw material Inventory 3 month Misc. exp. 3 month Total Working Capital Total Projected Cost Loan Finance Equity Finance Debt Equity Ratio Projected Returns & other Finance IRR NPV Pay back period Debt equity Ratio Cost of finance wacc Other assumptions Depreciation Machinery & Repair charges Selling and Distribution Exp Factory Operations & Capacity Utilities Increase in production 21

400,000 700,000 800,000 150,000 210,000 1,933,969 4,293,969 162,000 16200 5000 4000 10000 35000 4000 246000 30,000,000 373,332 15,000 3,796,332 8,090,301 4,045,151 4,045,151 50:50 38% 9,984,598 3year 2month 50:50 15% 17.50% 10% 3.00 2.00 10% [email protected]

Over time pay roll Annual sale price increase Operational hour /day

Shah Jee Carpets Manufacturing Unit 5% 5% 12

Shah Jee Carpets Manufacturing Unit Cost and Revenue sheetRevenue CalculationsMaximum capacity Capacity utilities Total production Gross Annual Sale Provision for Carpets Estimated finish goods at the end year Total Annual sale 2- Cost Calculation Carpets production Annual Cost of Production Raw Material Cost Labor Cost Misc.Material Cost Annual Cost of Production 110 carpets 70% Opening Unit Produced W. Avg Price Amount 77 118974 9,161,026 9,161,026 50 carpets 1,758,154 9,161,026 Unit Produced W. Avg Price Amount 77 3516308 2,707,557 1493326 1214231 50000 2,757,557

Loan Amortization Schedule End of year1 2 3 4 5

Beginning year principle4045151 3444416 2753570 1959097 1045454

Loan Payment1207508 1207508 1207508 1207508 1207508

Interest606773 516662 413035 293865 156818

Principle600735 794473 913643 1050690

End of year Principle3444416 1959097 1045454 -5236

690846 2753570

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Shah jee Carpets Manufacturing Unit Projected Comprehensive Income Statement For the period ended 2009-132009 2010 2011 2012 2013 Particulars Net Sales 7,358,454 10,405,169 12,027,640 13,902,561 16,069,159 Cost of sales 3,679,227 5,202,585 6,013,820 6,951,281 8,034,580 Gross profit 3,679,227 5,202,585 6,013,820 6,951,281 8,034,580 General Admin and selling expenses Salaries 384,000 422,400 464,640 511,104 562,214 Factory expenses 66,000 72,600 79,860 87,846 60,000 Depreciation 10% 40,000 40,000 40,000 40,000 40,000 Amortization expenses 386,794 386,794 386,794 386,794 386,794 Maintenance expenses 12,000 12,500 13,000 13,500 14,000 international promotion exp 300,000 330,000 363,000 399,300 439,230 Installment of Loan 600,735 690,846 794,473 913,643 -5,236 Selling & Distributes 208,103 240,553 278,051 231,383 147,169 Subtotal 1,930,698 2,156,643 2,375,060 2,622,252 1,756,231 Operating Income 1,748,529 3,045,942 3,638,760 4,329,028 6,278,348 Financial Charges 15% 262,279 456,891 545,814 649,354 941,752 Net profit Before Tax 1,486,249 2,589,051 3,092,946 3,679,674 5,336,596 Tax 13% 193,212 336,577 402,083 478,358 693,757 Net profit 1,486,249 2,589,051 3,092,946 3,679,674 5,336,596 *:Shah Jee Carpets Cost of Goods Sold Statement For the year ended Cost of Sales 2009 Opening Inventory wool Raw material Purchase Raw material Available for use year end the Inventories Cost of sales 2010 79,000 2011 150,000 2012 373,979 2013 558,149

375,837 4,973,585 5,489,841 6,019,153 6,859,885 375,837 5,052,585 5,639,841 6,393,132 79,000 150,000 373,979 558,149 3,679,227 5,202,585 6,013,820 6,951,281 7,418,034 616,546 8,034,580

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Shah Jee Carpets Projected Statement of Financial Position For the period ended 2009-13Discription Assets Current Assets Cash and Bank balance Raw material wool Finish goods carpets Accounts receivable Advance rent Total current assets Fixed Assets Plant and machinery Factory building Land Furniture 400,000 150,000 800,000 1,700,000 700,000 3,750,000 360,000 135,000 800,000 900,000 630,000 2,825,000 324,000 121,500 850,000 687,000 689,350 2,671,850 291,600 109,350 800,000 72,900 510,300 1,784,150 262,440 98,415 820,000 165,610 459,270 1,805,735 639,594 373,332 210,000 1,222,926 3,094,499 128,611 1,758,154 370,144 210,000 5,561,408 13,523,277 141,472 1,933,969 520,258 210,000 16,328,976 14,294,808 156,619 2,127,367 601,382 210,000 17,390,176 22,813,525 171,181 2,340,103 695,128 210,000 26,229,937 2009 2010 2011 2012 2013

VehicleTotal fixed assets Intangible Assets Preliminary expenses Total Assets Owners Equity Long term loan Interest on loan 15% Long term Depts Total equity

1,640,970 13,903,235 8,000,000 3,444,416 1,207,508 1,251,311 13,903,235

1,547,176 9,231,879 3,745,151 2,753,570 1,207,508 1,525,650 9,231,879

1,160,382 8,929,475 4,109,350 1,959,097 1,207,508 1,653,520 8,929,475

773,588 8,250,347 4,342,085 1,045,454 1,207,508 1,655,300 8,250,347

386,794 8,271,418 5,338,780 (5,236 ) 1,207,508 1,730,366 8,271,418

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Shah jee Carpets Statement Of Changes in Equity For the period ended 2009-13Description

2,00 9 01,486,24 9 1,486,24 9

2,01 11,236,24 92,589,05 1 3,825,30 0

2,01 23,560,30 03,092,94 6 6,653,24 6

2,01 36,375,24 63,679,67 4 10,054,92 0

2,019,764,92 05,336,59 6 15,101,51 6

Retained Earnings beginning of year Add: Net profit after tax Total Drawings Retained Earning

250,00 0 1,236,249

265,00 0 3,560,300

278,00 0 6,375,246

290,00 0 9,764,920

310,00 0 14,791,516

Shah Jee Carpets Ratio Analysis For the period ended 2009-13Ratio Analysis Gross Profit Ratio Operating profit Non Financial Analysis Return on Assets Return on Equity Current Ratio Debt Ratio 2009 0.50 0.48 0.13 0.190.326

2010 0.50 0.59 0.33 0.69 1.969 0.50

2011 0.50 0.61 0.41 0.75 6.11 0.50

2012 2013 0.50 0.50 0.62 0.78 0.52 0.76 0.85 1.00 9.74 14.526 0.50 0.50

0.50

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Shah Jee Carpets Manufacturing Unit Cash Flow Statement For the Period EndedYear Statement Summaries Cash flow from Operations Activities Net profit Add: Depreciation expenses Amortization Less: Drawings (Increase)/decrease in Receivable (Increase)/decrease in Raw Material (Increase)/decrease in Finish GoodsNet cash flow from Operation activities

2009

2010

2011

2012

2013

2,589,051 135000 -500000386,794 -650,000

3,092,946 5,888,066386,794 -780,000

3,679,674 1,635,507 986,764 -900,000 4,005

5,336,596 3,725,076 890,289 -100,000 64,000

-370,144 244721 -1,758,15 4 -500,000 577,268

164,000

1,150,710 1,054,289 967,698 9,719,504 2,786,217 9,342,877 4,779,365 15,749,61 5

Cash flow from Financing activities Receipt of long term Dept. Payment of long term dept Owners equity Net cash flow from Financing Activities Cash flow from Investing Activities Capital expenditures Office / Factory Furniture Preliminary Exp Purchase of raw Material Advanec Rent. Purchase of Land Net cash flow from investing activities Net Cash flow

1251311 -3444415.6 5 8000000 5806895 (1,100,00 0) (100,00 0) (1,933,96 9) (373,33 2) (210,00 0) (950,00 0) (4,667,30 1) 639,59 4

1525650 -2753570 3745151 2517231

1653520 -1959097. 5 4109350 3803773

1655300 1730366 -1045454.1 -5235.760 2 1 5338780 4342085 4951931 7063910

3,094,49 9

13,523,27 7

14,294,8 08

22,813,52 5

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Chapter 4


Notes to the AccountsThe project cost estimates for the proposed Handmade Carpet manufacturing unit have been formulated on the basis of discussions with industry stakeholders and experts. The projections cover the cost of land, machinery and equipment including office equipment, fixtures etc. Assumptions regarding machinery have been provided, however, the specific assumptions relating to individual cost components are given as under.

Land & BuildingLand for setting up the proposed hand made carpet Manufacturing unit would be purchased and which will cost around Rs. 0.8 million for a 200 yards area at the surrounding location of Mirpurkhas city. It has been assumed that it would be a preconstructed place; however, for installation of looms, renovation and necessary customization of the premises will be required. For this purpose approximately Rs. 1.5 million will be required, which has been assumed to be depreciating at 10% per annum using diminishing balance method.

Overall Factory & Office RenovationTo renovate the factory / office premises in Year 5 and Year 10, a cost would incur for which an amount equivalent to 5% of the total factory/office construction cost is estimated.

Factory / Office FurnitureA lump sum provision of Rs. 100,000 for procurement of office/factory furniture is assumed. This would include table, desk, chairs, and office stationery. The breakup of Factory Office Furniture & Fixtures is as follows: Item Table & Chair for Owner Tables & Chairs for Admin. Staff Chairs at factory Curtains & Interior Decoration for office Chairs for Workers/Labor Electrical Fittings & Lights Others Total Number Total Cost 1 5,000 1 3,000 10 6,000 5,000 6 5,000 60,000 16,000 100,000

Depreciation Treatment27 [email protected]

Shah Jee Carpets Manufacturing Unit The treatment of depreciation would be on a diminishing balance method at the rate of 10% per annum on the following. 1. 2. 3. 4. Machinery Land & Building Construction and formation Vehicles Furniture and Fixtures etc.

UtilitiesNecessary expenses in account of utilities for factory and office will cost around Rs. 19,000 per month. This would include electricity, telephone and fuel expenses for the day to day business activities. Breakup of expenses has been provided under:Total Annual Total Monthly Cost Cost (Rs.) (Rs.) Annual %age Increase

Utility

1 . 3 . 4 .

Electricity Telephone Fuel for Vehicle

5,000 4,000 10,000 19,000

60,000 48,000 120,000 228,000

5% 5% 5%

Total

Working Capital RequirementsIt is estimated that an additional amount of 3.8 million rupees (approximately) will be required as cash in hand to meet the working capital requirements. These provisions have been estimated based on the following assumptions for the proposed business.DescriptionFirst Three Months Salaries (Production staff) First Three Months Utilities Charges First Three Months Rent Office First Three Months Misc. Expenses Raw Material Inventory for Three Months Advertisement Expense Conferences & Exhibitions

Amount in Rs.250,000 55,000 105,000 15,000 375,000 3,000,000

Total

3,800,000

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Shah Jee Carpets Manufacturing Unit As the business will be export oriented, participation in the foreign exhibitions and trade shows would be essential and will account for a major expenditure. For this purpose a provision of Rs. 3,000,000/- has been made.

Vehicle For Support And Maintenance ServicesA loading vehicle would be required for providing services for the transportation of material, finished carpet from factory (Mirpurkhas) to trade and marketing office located at Karachi and labor etc. For this purpose a transportation vehicle has been proposed which will cost around Rs. 700,000 (Shehzor 2200 CC).

Selling & Distribution ExpensesFor the purpose of this pre-feasibility, it has been assumed that the Hand made carpet manufacturer would mainly be engaged in exports, however, to cover the printing cost of promotion material and selling expenses a provision of selling and distribution expenses has been assumed which will cost around 2% of the annual sales.

Miscellaneous ExpensesMiscellaneous expenses of running the business are assumed to be Rs. 5,000 per month. These expenses include various items like office stationery, daily consumables, traveling allowances etc. and are assumed to increase at a nominal rate of 10% per annum.

Foreign Promotion And Advertisement BudgetAs the business will be export oriented, participation in the foreign trade shows and exhibitions would be necessary to draw demand for the products. For this purpose a lump sum provision of Rs. 3 million has been assumed.

Raw Material InventoryThe proposed setup is assumed to maintain finished goods inventory to meet urgent Based on our assumptions for the production facility, orders and availability of desired material, it would be necessary to maintain 3 months raw material inventor for production of carpets.

Finished Goods Inventoryorder supplies from the export market and for display sampling and exhibitions. For this purpose, around 50 finished carpets have been assumed to be purchased from market at the beginning of the business. This inventory level will be maintained throughout projected period.

Revenue Projections29 [email protected]

Shah Jee Carpets Manufacturing Unit Out of maximum capacity of 110 carpets annually on 10 looms, initial manufacturing capacity has been assumed to be at 70%. This is based on the assumption that 10 standard sized looms (6ft.) working on single shift basis with 12 hours daily can produce around 160 standard sized carpets (6x4) in a year. Such a manufacturing facility if used for 8.5 hours a day will manufacture 110 carpets of the standard size in a year. The carpets will be of export quality which will generate annual revenue around Rs. 9 million at initial stage with 70% capacity utilization. For the projection purposes, annual revenue growth rate of 5% has been assumed which would cover anticipated growth in the industry as well price. Based on our discussions with the industry experts and entrepreneurs, it is anticipated that the sales price will vary according to location. Therefore, most precise sales price and growth will not be wise. However, for the purpose of this study following prices have been assumed:Size 6 x 4 (15 Knot) 6 x 4 (16 Knot) 6 x 4 (24 Knot) 8 x 5 (15 Knot) 8 x 5 (16 Knot) 8 x 5 (24 Knot) 10 x 8 (15 Knot) 10 x 8 (16 Knot) 10 x 8 (24 Knot) Production 12 12 12 10 10 10 4 4 4 Export Price 80,000 85,000 100,000 120,000 125,000 155,000 160,000 165,000 200,000

Accounts Receivables Considering the industry norm particular to the Hand made Carpet manufacturing unit, it has been assumed that 70% of the sales will be on cash whereas remaining 30% sales will be on credit to traders. A collection period of 60 days is assumed for the credit sales. A provision for bad debts has been assumed equivalent to 2% of the annual credit sales. Financial Charges It is assumed that long-term financing for 5 years will be obtained in order to finance the project investment cost. This leasing facility would be required at a rate of 15% (including 1% insurance premium) per annum with 60 monthly installments over a period of five years. The installments are assumed to be paid at the end of every month. Taxation The business is assumed to be run as a sole proprietorship; therefore, tax rates applicable on the income of a non salaried individual taxpayer are used for income tax calculation of the business.

Cost Of CapitalThe cost of capital is explained in the following table: 30 [email protected]

Shah Jee Carpets Manufacturing Unit Particulars Required return on equity Cost of finance Weighted Average cost of Capital Rate 20% 15% 17.5%

ConclusionAccording to TDAP (Trade development authority of Pakistan) the domestic carpet industry is confronted with the surging competition from other low cost countries in Asia namely Iran, India, China & Nepal. According to the recommendations the carpet industry needs to improve quality, move up in the value chain, lay technological foundations, and strength global business operations to generate more Employment opportunities and become global player from Pakistan. The organization selected for practical analysis was Shah Jee Carpets Manufacturing Unit company. During our course of discussion with their training personnel and other staff we have found that Shah Jee Carpets Manufacturing Unit is still in its preliminary stage of development and is performing up to the mark. Training is an ongoing and continued process in this organization. Although there is always room for improvement, and there is a lot to improve, yet the training programs are catering the most of the present day needs.

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Recommendations There are no proper manage the books of accounts by the accountants and his team, Shah Jee Carpets must have an Accountant illiterate in CA. ACCA, M.com. Who have the knowledge of accounts There must be recommended computerized and latest system would be provide to the Shah Jee Carpets. There are not giving the pages numbers to the files. So if during work some important document is misplaced no one can know unless they need that pacific document. But if there is pages numbers on files and some page is misplaced one will easily know that the page is misplaced or not in file. So it is highly recommended that they might maintain office file with proper paging. We highly recommended them to make database of their employees to make ease in their work. Security deposit of Rs.10000/- (Ten thousands) at the time of hiring should be eliminated completely. Or if it is not possible then it should be work an extra month. Company should provide Shah Jee Carpets kit; the security deposit should not be used for this purpose. Company should guarantee full repayment of the deposit at the time of leaving the company if the worker is clear. The workers of the Shah Jee Carpets have no permission to make a Union of workers; it can be ensured that the union should work only for the betterment of the workers and not on negative sides. Union activities increase workers satisfaction. For the better performance of the workers who are hire by the HR department, they would conduct a test or check out their working proficiency. Similarly a test for employee fit in should be carried out as Shah Jee Carpets has developed its unique working environment . 32 To make instruction and training more fruitful and effective videos and films can be put to use. Its a very fast and effective tool for training. Practical exercises can be arranged at classroom. A dummy situation in which employee has to handle various difficulties or dealing with different hurdles. Ladies are not properly paid for the over time. Company is tried to be run on the pattern International Imports & Export strategies. But this is not better for the workers who are not so illiterate. Lack of entertainment/ recreation activities has created a tense environment must be Conduct in the production Area. [email protected]

Shah Jee Carpets Manufacturing Unit The workers whose are duty to do work in the First shift at morning 8:00 am to 5:00 pm the Second shift 5:00 pm to 11:00 pm. Must be in time and out time but the over time of any worker paid the extra amount of her/his duty. Stand by Workers are not paid for the duty if they are not called in for work. Shah Jee keeps standby workers in case of emergency. These workers have to remain alert throughout the whole day. If they are called in for the duty, they get their daily wage but if not they arent given any thing, although they remained on duty full time.

These are the areas we were able to explore during our survey and the results indicate that although Shah Jee Carpets is being managed very well and it may be in profit but the thing that matters is the man behind the gun. But Shah Jee Managing team would work under these Recommendations and other Rules and Regulations in Pakistan and other countries but the policies of the other countries in the base of security purposes must be follow.

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shah jee carpet final report

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