Loan Auto and Tractor Parts Manufacturing

 Pre-Feasibility Study
(Auto and Tractor Parts Manufacturing)
Small and Medium Enterprises Development Authority
Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,
Lahore
Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7
helpdesk@smeda.org.pk
REGIONAL OFFICE
Punjab REGIONAL OFFICE
Sindh REGIONAL OFFICE
Khyber Pakhtunkhwa REGIONAL OFFICE
Balochistan
3rd Floor, Building No. 3,
Aiwan-e-Iqbal Complex,
Egerton Road Lahore,
Tel: (042) 111-111-456
Fax: (042) 36304926-7
helpdesk.punjab@smeda.org.pk
5TH Floor, Bahria
Complex II, M.T. Khan Road,
Karachi.
Tel: (021) 111-111-456
Fax: (021) 35610572
helpdesk-khi@smeda.org.pk
Ground Floor
State Life Building
The Mall, Peshawar.
Tel: (091) 111-111-456
Fax: (091) 5286908
helpdesk-pew@smeda.org.pk
Bungalow No. 15-A
Chaman Housing Scheme
Airport Road, Quetta.
Tel: (081) 2831623, 2831702
Fax: (081) 2831922
helpdesk-qta@smeda.org.pk
Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost
December, 2013

TABLE OF CONTENTS
1 DISCLAIMER ............................................................................................................................... 2
2 PURPOSE OF THE DOCUMENT ................................................................................................. 3
3 INTRODUCTION TO SMEDA...................................................................................................... 3
4 INTRODUCTION TO SCHEME ................................................................................................... 4
5 EXECUTIVE SUMMARY ............................................................................................................. 4
6 BRIEF DESCRIPTION OF THE PROJECT & PRODUCT......................................................... 4
7 CRITICAL FACTORS ................................................................................................................... 5
8 INSTALLED & OPERATIONAL CAPACITIES ......................................................................... 5
9 POTENTIAL TARGET MARKET / PERI-URBAN / SMALL TOWN AREAS .......................... 5
10 PROJECT COST SUMMARY ....................................................................................................... 6
10.1 PROJECT ECONOMICS ............................................................................................................ 6
10.2 PROJECT FINANCING .............................................................................................................. 7
10.3 PROJECT COST ...................................................................................................................... 7
10.4 AREA REQUIREMENT .............................................................................................................. 7
10.5 MACHINERY AND EQUIPMENT REQUIREMENT ............................................................................... 8
10.6 OFFICE EQUIPMENT ............................................................................................................... 9
10.7 RAW MATERIAL REQUIREMENTS ............................................................................................ 9
10.8 TECHNICALLY TRAINED WORKFORCE ................................................................................... 10
10.9 REVENUE GENERATION ........................................................................................................ 10
10.10 UTILITY COSTS ..................................................................................................................... 11
TABLE 11: UTILITY COSTS PER ANNUM ............................................................................................... 11
11 ANNEXURES ............................................................................................................................... 12
11.1 INCOME STATEMENT ............................................................................................................ 12
11.2 BALANCE SHEET .................................................................................................................. 13
11.3 CASH FLOW STATEMENT ...................................................................................................... 14
11.4 USEFUL PROJECT MANAGEMENT TIPS ................................................................................. 15
11.5 USEFUL LINKS ...................................................................................................................... 15
12 KEY ASSUMPTIONS .................................................................................................................. 16
1 DISCLAIMER
This information memorandum is to introduce the subject matter and provide a
general idea and information on the said subject. Although, the material included
in this document is based on data / information gathered from various reliable
sources; however, it is based upon certain assumptions which may differ from
case to case. The information has been provided on “as is where is basis”
without any warranties or assertions as to the correctness or soundness thereof.
Although, due care and diligence has been taken to compile this document, the
contained information may vary due to any change in any of the concerned
factors, and the actual results may differ substantially from the presented
information. SMEDA, its employees or agents do not assume any liability for any
financial or other loss resulting from this memorandum in consequence of
undertaking this activity. The contained information does not preclude any further
professional advice. The prospective user of this memorandum is encouraged to
carry out additional diligence and gather any information which is necessary for
making an informed decision, including taking professional advice from a
qualified consultant / technical expert before taking any decision to act upon the
information.

For more information on services offered by SMEDA, please visit our website:
www.smeda.org.pk

2 PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential
entrepreneurs in project identification for investment. The project pre-feasibility
may form the basis of an important investment decision and in order to serve this
objective, the document / study covers various aspects of project concept
development, start-up, production, marketing, finance and business
management.
The purpose of this document is to facilitate potential investors in Auto & Tractor
Parts Manufacturing business by providing them with a general understanding
of the business with the intention of supporting potential investors in crucial
investment decisions.
The need to come up with pre-feasibility reports for undocumented or minimally
documented sectors attains greater imminence as the research that precedes
such reports reveal certain thumb rules; best practices developed by existing
enterprises by trial and error, and certain industrial norms that become a guiding
source regarding various aspects of business set-up and it’s successful
management.
Apart from carefully studying the whole document, one must consider critical
aspects provided later on, which form the basis of investment decisions.
3 INTRODUCTION TO SMEDA

The Small and Medium Enterprises Development Authority (SMEDA) was
established in October 1998 with an objective to provide fresh impetus to the
economy through development of Small and Medium Enterprises (SMEs).
With a mission "to assist in employment generation and value addition to the
national income, through development of the SME sector, by helping increase
the number, scale and competitiveness of SMEs", SMEDA has carried out
‘sectoral research’ to identify policy, access to finance, business development
services, strategic initiatives and institutional collaboration and networking
initiatives.
Preparation and dissemination of prefeasibility studies in key areas of investment
has been a hallmark of SME facilitation by SMEDA.
Concurrent to the prefeasibility studies, a broad spectrum of business
development services is also offered to the SMEs by SMEDA. These services
include identification of experts and consultants and delivery of need based
capability building programs of different types in addition to business guidance
through help desk services.


4 INTRODUCTION TO SCHEME
‘Prime Minister’s Youth Business Loan’ scheme, for young entrepreneurs, with
an allocated budget of Rs. 5.0 Billion for the Financial Year 2013-2014, is
designed to provide subsidised financing at 8% mark-up per annum for one
hundred thousand (100,000) beneficiaries, by designated financial institutions,
initially by the National Bank of Pakistan (NBP) and the First Women Bank Ltd.
(FWBL).
Loans of 0.1 million to 2.0 million, with a tenure of upto eight (8) years, inclusive
of grace period of 1 year and a debt : equity ratio of 90 : 10 will be disbursed to
SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber
Pakhtunkhwa, Balochistan, Gilgit-Baltistan, Azad Jammu & Kashmir and
Federally Administered Tribal Areas (FATA).
5 EXECUTIVE SUMMARY

This Pre-feasibility is for establishing an “Auto & Mechanical Manufacturing
Workshop”. Induction of an experienced machinist and two helpers will be a
necessity along with technically experienced and skilled owner / manager.
The total project cost is Rs. 2.20 million out of which Rs. 1.33 million is the capital
cost and Rs. 0.87 million for working capital. The debt to equity ratio is 90% and
10%. The project NPV is around Rs. 22.62 million, with an IRR of 79%, and
payback period of 2.13 years.
The project is proposed to be set up in a locality of peri-urban area. It will provide
direct employment to a maximum of four persons at the initiation time. The total
capacity of this business with combination of a few machines, would be small
sized sheet metal stampings, fabricated sheet metal shapes, turned parts,
machined parts with work equivalaent of 120,000 stampings.
The proposed location for the project is Kana Kacha, near Lahore.
6 BRIEF DESCRIPTION OF THE PROJECT & PRODUCT
This specific project pertains to setting up of a small sized manufacturing facility
on the outskirts of Lahore. The workshop is proposed in a rented premises
having a covered shed of approx which may consist of second hand galvanised
tin sheet roofs, along with two secure brick rooms to operate as a store and
office, along with the usual boundary wall and entrance gate.
Manufacturing side can be taken up if the individual who will be the owner /
manager feels confident that he can seek orders in the market through his
contacts, is able to manufacture as per engineering drawings / as per accurate
sample obtained, service the order successfully and get his payment. The
workshop is proposed to be operated as a “Sole Proprietorship”.

7 CRITICAL FACTORS

• The entrepreneur should have knowledge and few years experience in the
engineering field related to small sized parts manufacturing or repairing /
rebuilding of engines / gear boxes / differentials sub-assemblies.
• If in manufacturing, should be able to read engineering drawings, inspect the
dies ordered for blanking / slitting / bending / shaping operations, understand
fabrications, know where to find proper grade sheet metal / alloy bars etc.
• Delivery on time of accurately manufactured component parts would be the
key element in the initial success of such an established workshop.
• Success of the project is based on the quality of service rendered to the
clients in terms of ‘as per specifications’ adherance for a manufactured
product, in time. Also, use of proper grade materials American Society for
Testing and Material (ASTM) and accurate measuring tools such as external
micrometers, vernier calipers, steel foot rulers, sheet metal gauges etc.
• Understanding on the use of primers and phosphating process to do rust free
work.The margins available on the bulk purchase of steel sheet, round bars,
steel flats, welding rods, cast / forged items purchased. Also the price of Die
Set and its good use life span.



8 INSTALLED & OPERATIONAL CAPACITIES

The project will engage a maximum of six (6) permanent staff including owner /
manager at its later breakout stage. The manufacturing facility will function 10
hours on a daily basis if orders arrive. If in manufacturing business then work to
start will be dependent on how long the die maker takes to make a die, before
manufacturing effort starts. For each sheet metal part a different die will have to
be made by a die maker, therefore, this task is proposed to be outsourced. For a
fabricated sheet metal product, number of dies for the bending / shaping
operation could be three or five etc. in a set for a single job order.
9 POTENTIAL TARGET MARKET / PERI-URBAN / SMALL
TOWN AREAS
These kind of technical projects can only be carried out by technologically
experienced persons, who have prior experience or who have access to


guidance from older generation persons in the same line of work. The facility can
be started anywhere in the country especially in peri-urban areas close to
metropolitan cities or small towns where vehicular traffic is more frequent, and
labour mobility is not an issue.

10 PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial
viability of the project. Various cost and revenue related assumptions along with
results of the analysis are outlined in this section. The projected Income
Statement, Cash Flow Statement and Balance Sheet are attached as annexure.

10.1 Project Economics

All the figures in this financial model have been calculated for a target of 444,000
pieces of small sheet metal parts blanked out / bent in three Die Sets per annum,
for a manufacturing facility. It is assumed that during first year of the operations
the project will initiate from zero manufacturing orders per week to one per month
during the first year and then slowly progress towards 8 orders per month after a
few years. The manufacturing service provision details of first year clients are:
Table 1: Category Wise Service(Production / Repair) Capacity in Year I

Sr. No

Description

No of pieces handled in Year 1

1

Sheet Metal Blanking Die Set No: 1

180,000

2

Sheet Metal Forming Die Set No: 2

120,000

3

Sheet Metal Stamping Die Set No: 3

144,000

4

Putting threads on bolts

15,000

5

Sheet metal fabrication work

150



Total

459,150




Table -2 below shows the internal rates of return and payback period.
Table 2: Project Economics

Description

Details

 Internal Rate of Return (IRR)

79%

 Payback Period (Years)

2.13

NPV (Rs.)

22,623,204






10.2 Project Financing

Following table provides details of the equity required and variables related to
bank loan;
Table 3: Project Finance

Description

Details

Total Equity (10%)

 Rs. 220,000

Bank Loan (90%.)

Rs. 1,980,000

 Markup to the Borrower (%age/annum)

8%

Tenure of the Loan (Years)

8

Grace period (year)

1



10.3 Project Cost

Following requirements identified for operations of the proposed business:
Table 4: Project Cost details

Capital Investment

Amount Rs.

Second Hand / Rebuilt Machinery

1,150,000

Second hand Office Equipment

51,000

Furniture & Fixtures

50,000

Pre-operating Cost

75,000

Total Capital Costs

1,326,000

Working Capital

874,000

Total Investment

2,200,000




10.4 Area Requirement

Approximately 5 Marla covered shed area alongwith two/three rooms brick built
with a secure boundary wall is required for the proposed manufacturing facility.
For the repair facility 10 marla area with brick built two rooms are required, along
with the standard WAPDA connection and secure boundary wall.
The premises area splits into following main sections:

Table 5: Space Requirement
Main Sections

Space Requirement (sq ft)

Working area 1,000
Office 150
Store 150
Genset 100
Total 1,400
It is recommended to rent an abandoned small industrial plot.
10.5 Machinery and Equipment Requirement
Following table provides the list of machinery and equipment required for the
proposed Manufacturing facility.
Table 6: List of Machinery and Equipment-Second Hand
Sr. No Description Quantity Unit Cost
(Rs.)
Cum Cost
(Rs.)
1 Stamping Machines 3 150,000 450,000
2 Mechanical Hacksaw 1 85,000 85,000
3 16 inch Disc Cutter (new) 1 28,000 28,000
4 Lathe Machine 5 ft bed length 1 100,000 100,000
5 Welding Plant 500 Amps local
made (new) 1 50,000 50,000
6 Horizontal & Vertical Milling
Machine 1 200,000 200,000
7 Mechanical Shaper 12 inch
stroke 1 105,000 105,000
8 Diesel Genset 6 KVA 1 50,000 50,000
9 Steel Inspection Table Grade II 1 50,000 50,000
10 Measuring Instruments &
Gauges (new) 1 Set 32,000 32,000
Total 1,150,000
SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST



10.6 Office Equipment
Following table provides the list of office equipment required for the proposed
project:

Table 7: Office Equipment (Second Hand)

Sr. No Description Quantity Unit Cost (Rs.) Cum (Rs.)
1 Computer 1 20,000 20,000
3 Telefax machine 1 5,500 5,500
4 Refridgerator 1 14,500 14,500
5 Telephone 1 1,000 1,000
Total 51,000
10.7 Raw Material Requirements
The raw material in this trade is bought from the steel related wholesale markets
to get quantity discount. The rate at present for mild steel grade products is Rs
83 to Rs 90 per Kg. For Alloy Steel materials it is higher. For Die Steel materials
it is more than Rs 650 / Kg. A brief list of these steel materials is provided in the
table below. For this kind of business, it is assumed that cost of steel sheet for
usage in manufacturing will be 50% of the value as per convention.
Table 8: Raw Materials Used
Steel Products Foundry & Forge Products
Angle Irons As Cast castings
Round bars As Forge castings
Hexagonal bars Forgings
Flat bars High Tensile bars to make bolts
Hardware = Nuts,bolts,washers Cast iron plugs for Engine Block
recovery
Sheet Metal Imported Cast iron weld supports
2 Printer 1 10,000 10,000
Sheet Metal galvanized Aluminium Alloy parts
Welding Rods

Gun metal washers

SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST



10.8 Technically Trained Workforce
Trained workforce required for successfully operating the proposed business are
given below:
Table 9: Workforce Requirement

Sr.
No Description No of
Persons
Salary per
Month (Rs.)
Salary per
Annum (Rs.)
1 Owner Manager 1 50,000 600,000
2 Machinist 1 15,000 180,000
3 Welder 1 18,000 216,000
4 Press Operator 1 12,000 144,000
5 Helpers 2 10,000 240,000
Total 6
1,380,000


Hiring of technical workers for this type of business with the Light Engineering
background is suitable and engagement may be made on need basis. Six
persons including the owner manager in manufacturing business will be the
average manpower required to manage the business.
10.9 Revenue Generation

Table 10: Sales Revenue for Proposed (1st Year)
Sr.
No.
Category of Services Cost
(Rs.)
Price /
piece (Rs.)
Qty Revenue
(Rs.)
1 Blanking 10 20 90,000 1,800,000
2 Forming 30 45 60,000 2,700,000
3 Stamping 10 15 72,000 1,080,000
4 Putting threads on high
tensile bolts
3 10 7,500 75,000
5 Sheet metal fabrication
work
15,000 40,000 75 3,000,000
Total 8,655,000

 
10.10 Utility Costs
Electricity expenses through a three phase meter are expected to be about Rs.
45,000 per month, while Natural Gas per month should cost Rs. 5,000. Water
and Sewerage charge of Rs. 6,000 per annum, if in a proper small Industrial
Estate. Telephone and Fax bills of Rs. 10,000 per month including mobile phone
bills. Postage and stationary will be another Rs. 2,000 per month. Annual
increase of 10% will occur in all these costs. Moreover expenses on diesel fuel of
generator, where the generator runs four hours per day and six days per week
and some miscellaneous expenses will also be a part of operational costs.
Table 11: Utility Costs per annum
Sr. No Description Mfg/mth
(Rs)
Cost /
Annum
(Rs)
1 Electricity 45,000/15,000 540,000
2 Natural Gas 5,000/2,000 60,000
3 Tel,Fax, Internet 10,000/5,000 120,000
4 Postage/ Statry 2,000/500 24,000
5 Water/Sewerage 500/400 6,000
6 Entertainment 5,000/9,000 60,000
7 Diesel Fuel @ 3 litres / hr x 4
hrs / day @ Rs 120 / litre
36,000 432,000
Total 1,242,000




 
Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 8,655,000 11,424,600 14,661,570 18,431,688 22,809,214 27,877,928 30,665,721 33,732,293 37,105,522 40,816,075
Cost of sales
Raw Material Cost 4,567,500 6,029,100 7,737,345 9,726,948 12,037,098 14,712,009 16,183,210 17,801,531 19,581,684 21,539,852
Consumables 456,750 602,910 773,735 972,695 1,203,710 1,471,201 1,618,321 1,780,153 1,958,168 2,153,985
Labour Cost 780,000 858,000 943,800 1,038,180 1,141,998 1,256,198 1,381,818 1,519,999 1,671,999 1,839,199
Generator Diesel Expense 432,000 475,200 522,720 574,992 632,491 695,740 765,314 841,846 926,030 1,018,633
Gas Expense 60,000 66,000 72,600 79,860 87,846 96,631 106,294 116,923 128,615 141,477
Water Expens 6,000 6,600 7,260 7,986 8,785 9,663 10,629 11,692 12,862 14,148
Electricity Expense 540,000 594,000 653,400 718,740 790,614 869,675 956,643 1,052,307 1,157,538 1,273,292
Total cost of sales 6,842,250 8,631,810 10,710,860 13,119,401 15,902,542 19,111,117 21,022,229 23,124,451 25,436,897 27,980,586
Gross Profit 1,812,750 2,792,790 3,950,711 5,312,287 6,906,672 8,766,811 9,643,492 10,607,842 11,668,626 12,835,488
General administration & selling expenses
Administration expense 600,000 660,000 726,000 798,600 878,460 966,306 1,062,937 1,169,230 1,286,153 1,414,769
Rent expense 240,000 264,000 290,400 319,440 351,384 386,522 425,175 467,692 514,461 565,907
Communications expense (phone, mail, etc.) 120,000 132,000 145,200 159,720 175,692 193,261 212,587 233,846 257,231 282,954
Printing & Stationary 24,000 25,200 26,460 27,783 29,172 30,631 32,162 33,770 35,459 37,232
Entertainment 60,000 63,000 66,150 69,458 72,930 76,577 80,406 84,426 88,647 93,080
Promotional expense 15,000 13,500 12,150 10,935 9,842 8,857 7,972 7,174 6,457 5,811
Depreciation expense 142,000 142,000 142,000 144,680 144,680 147,442 150,544 150,544 150,544 154,135
Miscellaneous expense 12,000 13,200 14,520 15,972 17,569 19,326 21,259 23,385 25,723 28,295
Subtotal 1,228,000 1,327,900 1,437,880 1,561,587 1,694,729 1,828,923 1,993,041 2,170,068 2,364,676 2,582,183
Operating Income 584,750 1,464,890 2,512,831 3,750,700 5,211,943 6,937,888 7,650,451 8,437,773 9,303,950 10,253,305
Other income (interest on cash) - - - - - - - - - -
Earnings Before Interest & Taxes 584,750 1,464,890 2,512,831 3,750,700 5,211,943 6,937,888 7,650,451 8,437,773 9,303,950 10,253,305
Interest on short term debt - - - - - - - - - -
Interest expense on long term debt (Project Loan) 164,339 150,454 132,204 112,440 91,036 67,855 42,749 15,561 - -
Subtotal 164,339 150,454 132,204 112,440 91,036 67,855 42,749 15,561 - -
Earnings Before Tax 420,411 1,314,436 2,380,626 3,638,260 5,120,908 6,870,033 7,607,702 8,422,213 9,303,950 10,253,305
Tax 2,041 119,665 323,625 632,065 1,058,772 1,627,011 1,885,195 2,170,274 2,478,882 2,811,156
NET PROFIT/(LOSS) AFTER TAX 418,370 1,194,771 2,057,001 3,006,195 4,062,136 5,243,022 5,722,507 6,251,939 6,825,068 7,442,149
11 ANNEXURES
11.1 Income Statement

Balance Sheet
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Current assets
Cash & Bank 283,812 655,038 1,656,601 3,664,067 6,864,140 11,470,844 17,729,122 24,906,819 32,846,541 41,994,941 52,117,553
Accounts receivable 355,685 469,504 602,530 757,467 937,365 1,145,668 1,260,235 1,386,259 1,524,884 1,677,373
Raw material inventory 570,188 418,688 552,668 709,257 891,637 1,103,401 1,348,601 1,483,461 1,631,807 1,794,988 1,974,486
Pre-paid building rent 20,000 22,000 24,200 26,620 29,282 32,210 35,431 38,974 42,872 47,159 -
Total Current Assets 874,000 1,451,411 2,702,972 5,002,474 8,542,526 13,543,820 20,258,822 27,689,489 35,907,478 45,361,973 55,769,413
Fixed assets
Machinery & equipment 1,150,000 1,035,000 920,000 805,000 690,000 575,000 460,000 345,000 230,000 115,000 -
Furniture & fixtures 50,000 40,000 30,000 20,000 10,000 63,814 51,051 38,288 25,526 12,763 -
Cafe equipment 51,000 34,000 17,000 59,039 39,359 19,680 68,345 45,563 22,782 79,118 52,745
Total Fixed Assets 1,251,000 1,109,000 967,000 884,039 739,359 658,494 579,396 428,852 278,307 206,881 52,745
Intangible assets
Pre-operation costs 75,000 60,000 45,000 30,000 15,000 - - - - - -
Total Intangible Assets 75,000 60,000 45,000 30,000 15,000 - - - - - -
TOTAL ASSETS 2,200,000 2,620,411 3,714,972 5,916,513 9,296,885 14,202,314 20,838,218 28,118,341 36,185,786 45,568,853 55,822,158
Other liabilities
Deferred tax 2,041 121,706 445,331 1,077,396 2,136,168 3,763,179 5,648,374 7,818,648 10,297,529 13,108,685
Long term debt (Project Loan) 1,980,000 1,980,000 1,760,125 1,522,001 1,264,113 984,821 682,347 354,768 - - -
Total Long Term Liabilities 1,980,000 1,982,041 1,881,831 1,967,333 2,341,509 3,120,989 4,445,526 6,003,142 7,818,648 10,297,529 13,108,685
Shareholders' equity
Paid-up capital 220,000 220,000 220,000 279,039 279,039 342,853 411,198 411,198 411,198 490,316 490,316
Retained earnings 418,370 1,613,141 3,670,142 6,676,337 10,738,472 15,981,495 21,704,001 27,955,940 34,781,008 42,223,157
Total Equity 220,000 638,370 1,833,141 3,949,181 6,955,376 11,081,325 16,392,693 22,115,199 28,367,138 35,271,324 42,713,473
TOTAL CAPITAL AND LIABILITIES 2,200,000 2,620,411 3,714,972 5,916,513 9,296,885 14,202,314 20,838,218 28,118,341 36,185,786 45,568,853 55,822,158
Liabilities & Shareholders' Equity
Assets
11.2 Balance Sheet

Cash Flow Statement
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating activities
Net profit 418,370 1,194,771 2,057,001 3,006,195 4,062,136 5,243,022 5,722,507 6,251,939 6,825,068 7,442,149
Add: depreciation expense 142,000 142,000 142,000 144,680 144,680 147,442 150,544 150,544 150,544 154,135
amortization of pre-operating costs 15,000 15,000 15,000 15,000 15,000 - - - - -
Deferred income tax 2,041 119,665 323,625 632,065 1,058,772 1,627,011 1,885,195 2,170,274 2,478,882 2,811,156
Accounts receivable (355,685) (113,819) (133,026) (154,936) (179,898) (208,303) (114,567) (126,024) (138,626) ( 152,488)
Raw material inventory ( 570,188) 151,500 (133,980) (156,589) (182,380) (211,764) (245,200) (134,860) (148,346) (163,181) ( 179,499)
Pre-paid building rent ( 20,000) (2,000) (2,200) (2,420) (2,662) (2,928) (3,221) (3,543) (3,897) (4,287) 47,159
Cash provided by operations ( 590,188) 371,226 1,221,437 2,245,591 3,457,961 4,885,997 6,560,751 7,505,276 8,294,490 9,148,400 10,122,612
Financing activities
Project Loan - principal repayment - (219,874) (238,124) (257,888) (279,293) (302,474) (327,579) (354,768) - -
Additions to Project Loan 1,980,000 - - - - - - - - - -
Additions to Working Capital Loan - - - - - - - - - - -
Issuance of shares 220,000 - - 59,039 - 63,814 68,345 - - 79,118 -
Cash provided by / (used for) financing activities 2,200,000 - (219,874) (179,085) (257,888) (215,479) (234,129) (327,579) (354,768) 79,118 -
Investing activities
Capital expenditure ( 1,326,000) - - (59,039) - (63,814) (68,345) - - (79,118) -
Cash (used for) / provided by investing activities ( 1,326,000) - - (59,039) - (63,814) (68,345) - - (79,118) -
NET CASH 283,812 371,226 1,001,562 2,007,467 3,200,073 4,606,704 6,258,278 7,177,697 7,939,722 9,148,400 10,122,612
11.3 Cash flow Statement

11.4 Useful Project Management Tips
Technology
• Equipment Purchasing Techniques:
o Use second hand machinery where ever possible to save on cost. Take
a machinery purchasing expert or a tool room experienced person along
with you. Run the machine at the seller’s premises and measure the
accuracy of the job produced on the machine to make a price offer.
o Try to purchase a machine which has just arrived from overseas as a
junk machine, and take a machine tool rebuilding person along with you
to understand what it will take to repair it.
o Lease out a machine with a leasing company if it is imported as second
hand and carries a European Union’s 6 month warranty of refurbishment
at the export stage. This would be a higher accuracy working machine
and probably a dedicated work machine






Human Resources
• Adequacy & Competencies: Skilled and experienced machinist should be
considered an asset for the business.
• Performance Based Remuneration: Attempt to manage hiring cost should
be focused through performance measurement and performance based
compensation.
• Training & Skill Development: Enhancing skill of self & employees through
exposure to experts and reading about present day best practices is the route
to success.


11.5 Useful Links
• Prime Minister’s Office, www.pmo.gov.pk
• Government of Pakistan, www.pakistan.gov.pk
• Ministry of Industries & Production, www.moip.gov.pk
• Ministry of Education, Training & Standards in Higher Education,
http://moptt.gov.pk
• Government of Punjab, www.punjab.gov.pk
• Government of Sindh, www.sindh.gov.pk
• Government of Khyber Pakhtunkhwa, www.khyberpakhtunkhwa.gov.pk



• Government of Balochistan, www.balochistan.gov.pk
• Government of Gilgit Baltistan, www.gilgitbaltistan.gov.pk
• Government of Azad Jammu Kashmir, www.ajk.gov.pk
• Trade Development Authority of Pakistan (TDAP), www.tdap.gov.pk
• Securities & Exchange Commission of Pakistan (SECP),
www.secp.gov.pk
• Federation of Pakistan Chambers of Commerce and Industry (FPCCI),
www.fpcci.com.pk
• State Bank of Pakistan (SBP), www.sbp.org.pk
• National Bank of Pakistan (NBP), www.nbp.com.pk
• First Women Bank Limited (FWBL), www.fwbl.com.pk


12 KEY ASSUMPTIONS
Capacity Assumptions
Job Orders for each specific nature of work per day will be
one per day
Mfg One Type/
week
Production Capacity Utilization increasing by 20% each
month after first month. For Repairs is 10% for each
month after first month(for each kind of repairs)
20%/mth during
first year, growth
10%/annum
Maximum Capacity Utilization after one year 90%
Operating Assumptions
Operational per day is 10 hours for Manufacturing facility 10 hrs
Days operational per year 300
Growth Rates
Starting Production Capacity in First Year 50%
Sales Price Growth Rate/annum 10%
Cost of Raw Materials for manufacturing jobs is 50% of
the price of product/service.
50%