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 Ali

Chairman
Ian J. Donald
Managing Director
Fritz Van Dijk
Director
Alexandre Cantacuzene
Director
Raymond Franke
Director
Syed Babar Ali
Director
Syed Hyder Ali
Director

OFFICERS

Ian J. Donald
Chief Executive
Raymond Franke
Chief Financial Officer
Ali Sadozai
Company 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
5
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 TWO
MANAGEMENT AND THE SPONSORS

7
MANAGEMENT

Syed Yawar Ali

Chairman
Ian J. Donald
Managing Director
Fritz Van Dijk
Director
Alexandre Cantacuzene
Director
Raymond Franke
Director
Syed Babar Ali
Director
Syed Hyder Ali
Director

OFFICERS

Ian J. Donald
Chief Executive
Raymond Franke
Chief Financial Officer
Ali Sadozai
Company Secretary

8
 CHAPTER THREE
LOCATION 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 INCHARGE
DEPART INCHARGE MONTHLY PAY
PROCESSING DEPART 1 10000
MANUFACTURING DEPART 1 10000
FINISHING DEPART 1 10000
Total 3 30000

PROCESSING DEPART
LABOU
MACHINES SUPERISOR MONTHLY PAY
MONTHLY PAY R
BLADE 1 8000 10 60000
DRUMS 1 8000 8 48000
SAVER BLADE 1 8000 10 60000
SOUP FORMATION MACHINE 1 8000 4 24000
Total 4 32000 32 192000

10
 MANUFACTURING DEPART
LABOU
MACHINES SUPERVISOR MONTHLY PAY
MONTHLY PAY R
PADDLE 1 8000 15 90000
FRESHING SHOWER 1 8000 6 36000
BEET MACHINE 1 8000 3 18000
GANDLE BLADE 1 8000 10 60000
ACID PROCESSING 1 8000 4 24000
BOW METER 1 8000 4 24000
SHAMING MACHNE 1 8000 6 36000
DRAIN PROCESSING 1 8000 5 30000
HANGING PROCESSING 1 8000 6 36000
TAGGLE MACHINE 1 8000 15 90000
TOAP MACHINE 1 8000 15 90000
Total 11 88000 89 534000

FINISHING DEPART
LABOU
MACHINES SUPERISOR MONTHLY PAY
MONTHLY PAY R
OILING MACHINE 1 8000 6 36000
POWDER PROCESSING 1 8000 6 36000
STOCK AQUARIUMS 1 8000 6 36000
DYE MACHINE 1 8000 8 48000
SPRAY CODE MACHINE 1 8000 4 24000
ACID MIXING MACHINE 1 8000 4 24000
Total 6 48000 34 204000

SECURITY GUARD
SECURITY
SHIFT Monthly Salary
GUARD
SHIFT (A) 5 25000
SHIFT (B) 5 25000
Total 10 50000

1,860,00
Total Direct Labor 0
446,00
Total Indirect Labor 0

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.

12
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.

13
 • Participation in international fairs and exhibitions at subsidized rates through
EPB.
• 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.

14
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.

15
 CHAPTER FOUR
MARKET 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

PRODUCT
The 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 PAYMENT

GEO 1,000,000 12,000,000
INDUS 1,000,000 12,000,000
METRO 800,000 9,600,000
ADVERTISING EXPENSE 2,800,000 33,600,000

SIGN BOARD AND BUS SHELTERS ADVERTISING COST:

City names No. of Expense Yearly Expense

advertisement
Karachi 10 Rs.50,00,000 60,000,000
Hyderabad 5 Rs.15,00,000 18,00,000
Lahore 10 Rs.60,00,000 72,000,000
Islamabad 10 Rs.60,00,000 72,000,000
Rawalpindi 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

19
 Area No, of Price of Total Amount
Shops Visualizers
Karachi
Big Visualizers 200 18000 41,00,000
Small Visualizers 50 10000

Hyderabad
Big Visualizers 25 18000 700,000
Small Visualizers 25 10000

Lahore 1800,000
Big Visualizes 100 18000

Rawalpindi
Big Visualizers 50 18000 1150,000
Small Visualizers 25 10000

Islamabad
Big Visualizers 100 18000 1800,000

Total 575 95,50,000

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

20
 CHAPTER FIVE
MACHINERY 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.

22
 CHAPTER SIX
COST 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 & 20,000,

Building 000
16,255,
Plant And Machinery 000
4,000,
Lifter Machine 000
150,0
Fire Alarm 00
200,0
Transportation 00
200,0
Generator 00
4,118,
Total Salaries 000
160,000,
Purchases 000
Preliminary Expenses
4,000,0
Automobiles 00
500,0
Furniture Fixture 00
267,0
Computer, Fax & etc. 00
1,000,0
Selling Expenses 00
500,0
Miscellaneous Expenses 00
Refreshment Expenses 400,0 6,667,

24
 00 000
38,410,
Reserved For Operational Work 000

250,000,
Projected Total Project Cost 000

WORKING CAPITAL

Description Amount
2,981,71
Cash In Hand
2

7,872,50
Inventories 1

686,33
Salaries Expenses
3

11,540,5
Total For Two Months
46

25
 CHAPTER SEVEN
OPERATIONAL PERFORMANCES AND
FINANCIAL ASPECTS

26
 PROJECTED INCOME STATEMENT

Income Statement Fist Year 2nd Year 3rd Year 4th Year 5th Year
2011 2012 2013
(Eff.) 2010 2014

204,080,82 260,182,6 306,365,0 349,531,9

Sales 366,833,729
5 44 63 00
Less: Rebate (@ 7.34% of Sale (14,979,53 (19,097,40 (22,487,19 (25,655,6 (26,925,596
Value) 3) 6) 6) 41) )
Less: Export Surcharge (0.25% of (510,20 (650,4 (765,91 (873,8 (917,084
Sale) 2) 57) 3) 30) )
Less: Shipment Charges (3% (6,122,42 (7,805,47 (9,190,95 (10,485,9 (11,005,012
of Sale) 5) 9) 2) 57) )
182,468,66 232,629,3 273,921,0 312,516,4
Net Sale 327,986,037
5 02 03 72
(131,665,04 (190,993,36 (216,572,68 (235,004,10
Less: Cost Of Goods Sold (247,167,026)
8) 4) 2) 5)
50,803,61 41,635,9 57,348,3 77,512,3
Gross Profit 80,819,011
7 38 21 67
(11,082,908 (11,553,152 (11,765,672 (11,983,298
Less: Operating Expenses (12,206,091)
) ) ) )
Income Before Interest and 39,720,70 30,082,7 45,582,6 65,529,0
68,612,920
Tax 9 86 49 69
(37,184,67 (37,184,67 (37,184,67 (37,184,6 (37,184,674
Less: Interest Expenses (25%)
4) 4) 4) 74) )
2,536,03 (7,101,88 8,397,9 28,344,3
Income Before Tax 31,428,246
5 8) 75 95
(634,00 (1,775,47 (2,099,49 (7,086,0 (7,857,062
Less: Tax 25%
9) 2) 4) 99) )
1,902,0 (8,877,36 6,298,4 21,258,2
Income After Tax 23,571,185
26 0) 81 96

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

27
 CASH FLOW

Sr. 2010 2011 2012 2013 2014

Description
# 1st Year 2nd Year 3rd Year 4th Year 5th Year
45,372,00
1 Fixed Assets 0
11,540,54
2 Net Working Capital 6
182,468,66 232,629,3 273,921,0 312,516,4 327,986,0
3 Revenue 5 02 03 72 37
(131,665,04 (190,993,3 (216,572,6 (235,004,1 (247,167,0
Less: Cost Of Goods Sold
4 8) 64) 82) 05) 26)
50,803,61 41,635,9 57,348,3 77,512,3 80,819,0
Gross Profit
5 7 38 21 67 11
(11,082,90 (11,553,1 (11,765,6 (11,983,2 (12,206,0
Less: Operating Expenses
6 8) 52) 72) 98) 91)
Income Before Interest 39,720,70 30,082,7 45,582,6 65,529,0 68,612,9
7 and Tax 9 86 49 69 20
Less: Interest Expenses (34,920,59 (34,920,5 (34,920,5 (34,920,5 (34,920,5
8 (22%) 3) 93) 93) 93) 93)
4,800,11 (4,837,8 10,662,0 30,608,4 33,692,3
Income Before Tax
9 5 07) 56 75 27
(1,056,02 (1,064,3 (2,345,6 (6,733,8 (7,412,3
Less: Tax 22%
10 5) 18) 52) 65) 12)
3,744,09 (5,902,1 8,316,4 23,874,6 26,280,0
Net Income
11 0 25) 03 11 15

28
BALANCE SHEET

29
 SENSITIVITY ANALYSIS

1st Aspect:

Material Price Decline

Unit Total
2nd
YearAspect: Total Unit
Cost Purchase
Year 1 Sales
250 Decline
400,0 100,000,
00 000
Year Unit Total Unite
418,0
Total Sales
104,500,
Year 2 250
Price 00 000
Year 1 510.2 447,2
400, 204,080,
111,815,
Year 3 250
60
000 825 000
Year 2 622.4 487,5
360, 224,064,
121,878,
Year 4 250
13
000 250
000
Year 3 685.0 507,0
324, 221,940,
126,753,
Year 5 250
14
000 500
000
The
YearPrice
4 Of717.0
Raw Material Decrease
291, by Rs.150/=
209,077,
Per
Piece 600 200
262, 189,875,
Year 5 723.5
440 340
Sales Decline By 10% as per year due to
uncertainties.

30
 CHAPTER EIGHT
EVALUATION OF FEASIBILITY REPORT

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

1. non discounting criteria

2. discounting criteria

NONDISCOUNTING CRITERIA

31
PAY BACK PERIOD

0 1 2 3 4 5

Outflow

(45,105,00 31,104,6 21,708, 35,914, 51,461, 53,855,

0) 21 305 602 190 556
(14,000,3 7,707,92
79) 6

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

Beg Of The Year
Cash Flow Of The Year

=1+
14,000,379
21,708,30
5
= 1 + 0.65

= 1.65 Years

DISCOUNTING PAY BACK PERIOD

0 1 2 3 4 5

Outflow

(45,105,00 25,084,3 14,118,3 18,836,7 21,766,7 18,370,5

0) 72 05 51 25 47
(20,020,6 (5,902,32 12,934,42
28) 4) 8

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

=2+
5,902,324
18,836,75
1
= 2 + 0.32
= 2.32 Years

32
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%)
0.
Step 1 29.00% + 22% 0.088 0.78
6
0.068
Step 2 0.1740 +
6

WACC = 0.2426

NET PRESENT VALUE

PV Inflow:

Year 1 Year 2 Year 3 Year 4

Year 5
88,914,4 85,446,9 105,976,4 111,619,3
59,845,671
61 28 95 15
(1.24)1 (1.24)2 (1.24)3 (1.24)4
(1.24)5

57,826,7 44,815,8 44,825,2 38,074,2

48,262,638
82 25 59 12

NPV = Pv Inflow - Pv Outflow

145,105,0
233,804,717 -
00
88,699,717

INTERNAL RATE OF RETURN

NPV = 0
Pv Inflow = Pv Outflow

Pv Outflow = Pv Inflow
45,105,0 31,104,6 21,708,3 35,914,6 51,461,1 53,855,5
00 21 + 05 + 02 + 90 + 56
( 1+i )^ 1 ( 1+i )^ 2 ( 1+i )^ 3 ( 1+i )^ 4 ( 1+i )^ 5

0.6 0.6 0.6 0.6 0.6

18614375 7 7774510 7 7697358 7 6600457 7 4133789 7

If i = 67.1% then;

Pv = Pv
Outflow Inflow

33
 45,105,0 44,820,4
00 89

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 NINE
ENVIRONMENT AND ECOLOGICAL ASPECT

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,

35
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.

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.

36
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
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

37
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

Solution Technical Characteristics Operational

Characteristics
lagoons Anerobic lagoons are deep BOD5 loading kg/m 3/d –
earthen basins used for high least efficient
strength organic wastewater · BOD5 removal efficiency
with high solid – 85 -90 %
concentration. Facultative · Energy requirement for
lagoons are earthen basins aeration kwh/kg BOD
filled with screened or treated – moderately
primary effluent in which efficient
stabilization of waste is · Hydraulic detention time-
brought about by a very high
combination of aerobic, · mechanical complexity –
anaerobic and facultative low
bacteria. Aerobic lagoons · Reactor resilience for
are large, shallow earthen power failure
basins used for treatment of and shock loads – moderate
wastewater by natural to high
processes involving both · By-product – nil
algae and bacteria. · On-site environmental
Maturation ponds are low impacts - soil
rate stabilization ponds infiltration and aerosoles
usually designed to provide dispersion

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 for secondary effluent · Land requirement --- large
polishing and seasonal · Man power requirement –
nitrification. skilled
· Frequency of repair &
maintenance -
medium
Trickling Filters Wastewater flows from top . BOD5 loading kg/m 3/d –
to bottom, dispersed over least efficient
filter material (stones, lava · BOD5 removal efficiency
or plastic) during which – 85 -90 %
soluble compounds are · Energy requirement for
removed and, to a lesser aeration
extent, solids are taken up kwh/kg BOD treated – most
into the biofilm adhered to efficient
the carrier material. (natural ventilation)
· Hydraulic detention time
—most
efficient (recirculation is
required)
· mechanical complexity –
low
· Reactor resilience for
power failure
and 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 The basic idea of this BOD5 loading kg/m 3/d –
Blanket (UASB) Reactor system is that the flocs of very efficient
anaerobic bacteria will tend · BOD5 removal efficiency
to settle under gravity, – 80 -90 %
when applying a moderate · Energy requirement for
up-flow velocity of aeration
wastewater. In this way no Kwh /kg BOD treated –
separate sedimentation tank most efficient
is necessary (only for pumping)
The wastewater passes the · Hydraulic detention time
reactor from bottom to top. —most
To guarantee sufficient efficient

39
 contact between the · mechanical complexity –
incoming wastewater and low
the bacteria in the sludge · Reactor resilience for
layer the, the wastewater is power failure
fed evenly over the bottom and shock loads – moderate
of the reactor. Further · By-product – bio-gas
mixing is brought about by · On-site environmental
the production of the gas. impacts - nil
The organic compounds are · Land requirement --- small
consumed by anaerobic · Man power requirement –
bacteria during passage of highly
wastewater through sludge skilled
layer. · Frequency of repair &
maintenance -low
Activated Sludge Many variations of . BOD5 loading kg/m 3/d –
Treatment activated sludge treatment very efficient
exist, depending on load . BOD5 removal efficiency
characteristics and local – 85 - 95 %
climatic conditions; the low · Energy requirement for
loaded activated sludge aeration
system is the most relevant kwh/kg BOD treated – least
option. In this system, efficient
secondary sludge is · Hydraulic detention time
digested in the same moderately efficient
reactor. Wastewater to be · mechanical complexity –
treated is introduced into high
the reactor but mechanical · Reactor resilience for
stirring or by compressed power failure – low and for
air, where it is mixed with shock loads – moderate
the mass of basterial flocs · By-product – nil
maintained constantly in · On-site environmental
suspension. After sufficient impacts -
contact time, the mixture is aerosol dispersion and noise
clarified in the sttling tank · Land requirement ---
and sludge is recycled in the moderate
aeriation tank. · 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

40
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 TEN
ECONOMIC APPRAISAL

NUMBER OF PERSONNEL EMPLOYED

INCHARGE 3
SUPERVISOR 21
SECURITY GAURD 10

42
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 ELEVEN
CONCLUSION AND RECOMMENDATION

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

44
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 FOR

INVESTMENT

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

• 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

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 • 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
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 Daily

1................................ 40%................................................240
2................................ 60%................................................360
3................................ 70%................................................420
4................................ 80%................................................480
5................................ 90%................................................540
6................................ 90%................................................540
7................................ 90%................................................540
8................................ 95%................................................570
9................................ 95%................................................570
10.............................. 95%................................................570

Selling Price
The 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:

46
Type of
The selling price per pair of shoe is increased by 7.5% every year keeping in view the
inflation.

Depreciation on Assets
Depreciation 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 receivables
The 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.

Raw Material Stock

Synthetic 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 Process
Seven (7) days work in process has been taken into account for working capital
calculation.

Finished Goods
Usually, 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.

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Accessories and Packing Material Stock
Accessories 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 Employees
Advances to employees are calculated on the basis of 25 days of both payroll and staff
benefits.

Tool and Spares Stock

Certain 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 Payable
Cost 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
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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