Pre-Feasibility Study
Prime Ministers Small Business Loan Scheme
(Drivers Training Service)
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, 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
KPK
REGIONAL OFFICE
BALOCHISTAN
3rd Floor, Building No. 3,
Aiwan e Iqbal, Egerton Road
Lahore,
Tel: (042) 111-111-456
Fax: (042)6304926-7
helpdesk.punjab@smeda.org.pk
5TH Floor, Bahria
Complex II, M.T. Khan Road,
Karachi.
Tel: (021) 111-111-456
Fax: (021) 5610572
helpdesk-khi@smeda.org.pk
Ground Floor
State Life Building
The Mall, Peshawar.
Tel: (091) 9213046-47
Fax: (091) 286908
helpdesk-pew@smeda.org.pk
Bungalow No. 15-A
Chaman Housing Scheme
Airport Road, Quetta.
Tel: (081) 831623, 831702
Fax: (081) 831922
helpdesk-qta@smeda.org.pk
September 2013
Pre-Feasibility Study
Drivers Training Service
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 ........................................................................................ 5
7 CRITICAL FACTORS ............................................................................................................................ 5
8 INSTALLED & OPERATIONAL CAPACITIES ................................................................................. 5
9 POTENTIAL TARGET MARKET / CITIES ....................................................................................... 5
10 PROJECT COST SUMMARY ............................................................................................................... 6
10.1
10.2
10.3
10.4
10.5
10.6
10.7
PROJECT ECONOMICS ................................................................................................................... 6
PROJECT FINANCING .................................................................................................................... 7
PROJECT COST ............................................................................................................................. 7
MACHINERY REQUIREMENT ......................................................................................................... 7
RAW MATERIAL REQUIREMENTS ................................................................................................. 8
HUMAN RESOURCE REQUIREMENT .............................................................................................. 8
REVENUE GENERATION................................................................................................................ 8
11 ANNEXURE ............................................................................................................................................. 9
11.1
11.2
11.3
INCOME STATEMENT .................................................................................................................... 9
CASH FLOW STATEMENT ............................................................................................................10
BALANCE SHEET .........................................................................................................................11
12 USEFUL LINKS ..................................................................................................................................... 12
13 KEY ASSUMPTIONS............................................................................................................................ 13
Pre-Feasibility Study
Drivers Training Service
1 DISCLAIMER
This information memorandum is to introduce the subject matter and provide a
general idea and information on the said matter. 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 contact our website:
www.smeda.org.pk
Pre-Feasibility Study
Drivers Training Service
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, and production, marketing, finance and business
management.
The purpose of this document is to facilitate potential investors in Driving Training
Service 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 its successful
management.
Apart from carefully studying the whole document one must consider critical
aspects provided later on, which form basis of any Investment Decision.
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 successful 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
capacity building programs of different types in addition to business guidance
through help desk services.
Pre-Feasibility Study
Drivers Training Service
4 INTRODUCTION TO SCHEME
Prime Ministers Small Business Loans Scheme, for young entrepreneurs, with
an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide
subsidised financing at 8% mark-up per annum for one hundred thousand
(100,000) beneficiaries, through designated financial institutions, initially through
National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL).
Small business loans with tenure upto 7 years, and a debt : equity of 90 : 10 will
be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh,
Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and
Federally Administered Tribal Areas (FATA).
5 EXECUTIVE SUMMARY
This particular Pre-feasibility is for provision of LTV driver training services.
Driving is a skillful task that needs proper training and knowledge of Traffic laws
and regulations. There is a tremendous increase in the number of vehicles
particularly in urbanized cities of Pakistan. Moreover, the government has been
taking steps towards effective implementation of traffic regulations. This has
created a demand for formalized drivers training and road safety information
thereby creating an opportunity for establishing a Drivers Training Service for a
prospective entrepreneur.
The total cost for setting up requisite training facility is Rs. 1.80 million out of
which Rs. 1.60 million is the capital cost and Rs. 0.20 million is working capital
requirement. The debt and equity ratio is 90% and 10%. The project NPV is
around Rs. 4.14 million with an IRR of 57%, and payback period of 2.35 years.
The project is proposed to be set up in suitable locality of any of the urban
centers of Pakistan like Lahore, Karachi, Sukkur, Hyderabad, Faisalabad,
Sargodha, Multan, Quetta and DI Khan, Nowshera and Peshawar. Keeping in
view the nature of services, there is minimal requirement of establishing a formal
office. The facility will comprise of 3 vehicles and employ 4 individuals including
the owner manager. The total capacity of training service will be to train 720
drivers annually. During the sessions, trainees shall be familiarized with the
basics of driving functions including traffic signal system, awareness about traffic
rules and dealing with emergencies and accidents.
Pre-Feasibility Study
Drivers Training Service
BRIEF DESCRIPTION OF THE PROJECT
This project is for setting up a driving training service as there is an increasing
preference of public for hiring properly rained drivers.
The proposed driving training service can be started as a home based business
without having any formal office setup, having the legal status of Sole
Proprietorship. The facility will acquire three second hand vehicles for practical
training and hire three trainers / instructors for imparting training to the potential
drivers. The instructors will also brief trainees on traffic regulations and road
safety information. The training service will train 360 students in the first year.
7 CRITICAL FACTORS
The following significant factors may be taken into account while making
investment decision:
Hiring of quality trainers/instructors with a special focus on female drivers.
Effective marketing/awareness of the service.
Competitive fee structure offering value for money.
Efficient utilization of idle capacity by offering Pick & Drop facilities to office
executives on need basis as an additional business opportunity.
Timely and cost effective repair and maintenance due to major/minor
accidents of the vehicles during the training.
8 INSTALLED & OPERATIONAL CAPACITIES
The facility will consist of 3 vehicles out of which 2 are 800 cc and one 1000 cc
vehicle. The training service will offer 10 days training course.
The total capacity of training service will be to train 720 students annually. The
capacity of the facility is calculated on the basis of available vehicles, and drive
time of 40 minutes per trainee per day. In the first year, the training service will
operate at 50% capacity and will provide training services to 360 individuals.
9 POTENTIAL TARGET MARKET / CITIES
The said service can be started in any suitable area of developed cities because
of development and increase in the number of vehicles on the roads in these big
cities such as Lahore, Karachi, Sukkur, Hyderabad, Faisalabad, Sargodha,
Multan, Quetta and DI Khan, Nowshera and Peshawar.
Pre-Feasibility Study
Drivers Training Service
10 PROJECT COST SUMMARY
A detailed financial model has been developed to analyze the commercial
viability of driving training service project under the Prime Ministers Small
Business Loan Scheme. 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 appendix
10.1 Project Economics
Driving Trainings service will train 360 drivers at 50% capacity in year one with
three vehicles and three trainers.
The following table shows internal rates of return and payback period.
Table 1: Project Economics
Description
Details
Internal Rate of Return (IRR)
57%
Payback Period (yrs)
2.35
Net Present Value (NPV)
Rs. 4,148,210
Returns on the investment and its profitability are highly dependent on trained
staff, marketing, and competitive fee structure. In case the Driving Training
service is not managed efficiently, it will not be able to cover the potential market
and recover payments; hence cost of operating the business will increase.
Pre-Feasibility Study
Drivers Training Service
10.2 Project Financing
Following table provides details of the equity required and variables related to
bank loan:
Table 2: Project Financing
Description
Total Equity (10%)
Bank Loan (90%.)
Markup to the Borrower (%age/annum)
Tenure of the Loan (Years)
Details
Rs.180,000
Rs.1,620,000
8%
7
10.3 Project Cost
Following requirements have been identified for operations of the proposed
business.
Table 3: Total Project Cost
Capital Investment
Amount (Rs.)
Vehicles
1,600,000
1,600,000
Amount (Rs.)
200,000
200,000
1,800,000
Total
Working Capital
Cash in hand
Total
Total Project Cost
10.4 Machinery Requirement
Following table provides list of machinery / equipment required for an average
driving training service operating for drivers training.
Table 4: List of Vehicles
Description
Quantity
Cost
Rs/unit
2 500,000
1 600,000
3
Suzuki Mehran car
Suzuki Cultus car
Total
Total
Rs.
1,000,000
600,000
1600,000
Main equipment for driving training service is vehicle for providing practical
training to the drivers. Keeping in view the project investment size, used vehicles
are proposed, therefore, due attention and care is to be exercised while
procuring these vehicles.
Pre-Feasibility Study
Drivers Training Service
10.5 Raw Material Requirements
Fuel of vehicle will be the only commodity required as a raw material in this
project.
Table 5: Cost of Material (Fuel)
Sr.
No
1
2
Unit
Suzuki Mehran Car (800 cc)
Suzuki Cultus Car (1000 cc)
Fuel
Petrol
Consumption
Rate / ltr
Km/ltr
17
Rs. 109
14
Rs. 109
Total Km /
day /
vehicle
90
90
10.6 Human Resource Requirement
Table 6: Human Resource Requirement
Description
No. of
Employees
Salary per
month
Annual Salary
Owner
20,000
240,000
Driving Instructors
15,000
540,000
Total Salaries
780,000
The table above provides details of human resource required to run this project.
Salaries of all employees are estimated to increase at 10% annually.
10.7 Revenue Generation
Table 7: Revenue Details
Product
Unit
Rs.
No.
Rs.
Fee (Rs./Student)
Expected no. of Students First Year
Revenue 1st Year (Rs.)
6,000
360
2,160,000
Pre-Feasibility Study
Drivers Training Service
11 ANNEXURE
11.1 Income Statement
Income Statement
Year 1
2,160,000
Year 2
2,613,600
Year 3
3,136,320
Year 4
3,737,448
Year 5
4,427,438
Year 6
5,218,052
Year 7
6,122,515
Year 8
6,734,766
Year 9
7,408,243
Year 10
8,149,067
21%
25%
8%
54%
459,998
540,000
162,000
1,161,998
998,002
556,598
592,575
196,020
1,345,193
1,268,407
667,918
650,269
235,224
1,553,411
1,582,909
795,935
713,580
280,309
1,789,824
1,947,624
942,877
783,055
332,058
2,057,990
2,369,448
1,111,248
859,295
391,354
2,361,897
2,856,156
1,303,864
942,957
459,189
2,706,010
3,416,505
1,434,251
1,034,765
505,107
2,974,123
3,760,644
1,577,676
1,135,511
555,618
3,268,805
4,139,438
1,735,443
1,246,066
611,180
3,592,689
4,556,378
11%
2%
5%
7%
240,000
43,200
108,000
160,000
263,367
52,272
130,680
160,000
289,008
62,726
156,816
160,000
317,147
74,749
186,872
160,000
348,025
88,549
221,372
160,000
381,909
104,361
260,903
160,000
419,092
122,450
306,126
160,000
459,895
134,695
336,738
160,000
504,671
148,165
370,412
160,000
553,807
162,981
407,453
160,000
551,200
446,802
606,319
662,088
668,551
914,358
738,768
1,208,856
817,945
1,551,503
907,172
1,948,983
1,007,668
2,408,837
1,091,329
2,669,315
1,183,248
2,956,190
1,284,242
3,272,137
Earnings Before Interest & Taxes
Interest expense on long term debt (Project Loan)
Subtotal
Earnings Before Tax
446,802
123,099
123,099
323,703
662,088
108,167
108,167
553,921
914,358
91,997
91,997
822,362
1,208,856
74,484
74,484
1,134,372
1,551,503
55,517
55,517
1,495,985
1,948,983
34,977
34,977
1,914,007
2,408,837
12,731
12,731
2,396,106
2,669,315
2,669,315
2,956,190
2,956,190
3,272,137
3,272,137
Tax
NET PROFIT/(LOSS) AFTER TAX
323,703
15,392
538,529
45,854
776,508
92,656
1,041,716
146,898
1,349,088
230,301
1,683,705
326,721
2,069,385
389,828
2,279,486
461,547
2,494,643
540,534
2,731,603
Balance brought forward
Total profit available for appropriation
Balance carried forward
323,703
323,703
323,703
862,232
862,232
862,232
1,638,739
1,638,739
1,638,739
2,680,456
2,680,456
2,680,456
4,029,544
4,029,544
4,029,544
5,713,249
5,713,249
5,713,249
7,782,634
7,782,634
7,782,634
10,062,120
10,062,120
10,062,120
12,556,763
12,556,763
12,556,763
15,288,366
15,288,366
Revenue
Cost of sales
Cost of goods sold (Fuel Cost)
Operation costs 1 (direct labor)
Operating costs 2 (machinery maintenance)
Total cost of sales
Gross Profit
General administration & selling expenses
Administration expense
Communications expense (phone, fax, mail, internet, etc
Promotional expense
Depreciation expense
Miscellaneous expense 1
Subtotal
Operating Income
Pre-Feasibility Study
Drivers Training Service
11.2 Cash Flow Statement
Cash Flow Statement
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
323,703
160,000
483,703
538,529
160,000
15,392
713,921
776,508
160,000
45,854
982,362
1,041,716
160,000
92,656
1,294,372
1,349,088
160,000
146,898
1,655,985
1,683,705
160,000
230,301
2,074,007
2,069,385
160,000
326,721
2,556,106
2,279,486
160,000
389,828
2,829,315
2,494,643
160,000
461,547
3,116,190
2,731,603
160,000
540,534
3,432,137
1,620,000
180,000
(179,897)
-
(194,829)
-
(210,999)
-
(228,512)
-
(247,479)
-
(268,019)
-
(290,265)
-
1,800,000
(179,897)
(194,829)
(210,999)
(228,512)
(247,479)
(268,019)
(290,265)
Year 0
Operating activities
Net profit
Add: depreciation expense
Deferred income tax
Cash provided by operations
Financing activities
Project Loan - principal repayment
Additions to Project Loan
Issuance of shares
Purchase of (treasury) shares
Cash provided by / (used for) financing activities
Investing activities
Capital expenditure
Acquisitions
Cash (used for) / provided by investing activities
(1,600,000)
(1,600,000)
NET CASH
200,000
303,806
519,092
771,362
1,065,860
1,408,507
1,805,987
2,265,841
2,829,315
3,116,190
3,432,137
Cash balance brought forward
Cash available for appropriation
Cash balance
Cash carried forward
200,000
200,000
200,000
200,000
503,806
503,806
503,806
503,806
1,022,898
1,022,898
1,022,898
1,022,898
1,794,260
1,794,260
1,794,260
1,794,260
2,860,120
2,860,120
2,860,120
2,860,120
4,268,627
4,268,627
4,268,627
4,268,627
6,074,614
6,074,614
6,074,614
6,074,614
8,340,455
8,340,455
8,340,455
8,340,455
11,169,770
11,169,770
11,169,770
11,169,770
14,285,960
14,285,960
14,285,960
14,285,960
17,718,097
17,718,097
17,718,097
10
Pre-Feasibility Study
Driving Training service
11.3 Balance Sheet
Balance Sheet
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
200,000
200,000
503,806
503,806
1,022,898
1,022,898
1,794,260
1,794,260
2,860,120
2,860,120
4,268,627
4,268,627
6,074,614
6,074,614
8,340,455
8,340,455
11,169,770
11,169,770
14,285,960
14,285,960
17,718,097
17,718,097
Fixed assets
Machinery & equipment
Total Fixed Assets
1,600,000
1,600,000
1,440,000
1,440,000
1,280,000
1,280,000
1,120,000
1,120,000
960,000
960,000
800,000
800,000
640,000
640,000
480,000
480,000
320,000
320,000
160,000
160,000
Intangible assets
Total Intangible Assets
TOTAL ASSETS
1,800,000
1,943,806
2,302,898
2,914,260
3,820,120
5,068,627
6,714,614
8,820,455
11,489,770
14,445,960
Assets
Current assets
Cash & Bank
Total Current Assets
Liabilities & Shareholders' Equity
Current liabilities
Total Current Liabilities
Other liabilities
Deferred tax
Long term debt (Project Loan)
Long term debt (Working Capital Loan)
Total Long Term Liabilities
Shareholders' equity
Paid-up capital
Retained earnings
Total Equity
TOTAL CAPITAL AND LIABILITIES
1,620,000
1,620,000
180,000
180,000
1,800,000
17,718,097
1,440,103
1,440,103
15,392
1,245,274
1,260,666
61,246
1,034,275
1,095,521
153,902
805,762
959,664
300,800
558,284
859,083
531,101
290,265
821,365
857,822
857,822
1,247,650
1,247,650
1,709,197
1,709,197
2,249,731
2,249,731
180,000
323,703
503,703
1,943,806
180,000
862,232
1,042,232
2,302,898
180,000
1,638,739
1,818,739
2,914,260
180,000
2,680,456
2,860,456
3,820,120
180,000
4,029,544
4,209,544
5,068,627
180,000
5,713,249
5,893,249
6,714,614
180,000
7,782,634
7,962,634
8,820,455
180,000
10,062,120
10,242,120
11,489,770
180,000
12,556,763
12,736,763
14,445,960
180,000
15,288,366
15,468,366
17,718,097
11
September 2013
Pre-Feasibility Study
Driving Training service
12 USEFUL LINKS
Prime Ministers Office, www.pmo.gov.pk
Small and Medium Enterprise Development Authority, www.smeda.org.pk
National Bank of Pakistan (NBP), www.nbp.com.pk
First Women Bank Limited (FWBL), www.fwbl.com.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 Pakhtoonkhwa, www.khyberpakhtunkhwa.gov.pk
Government of Balochistan, www.balochistan.gov.pk
Government of Gilgit Baltistan, www.gilgitbaltistan.gov.pk
Government of Azad Jamu Kashmir, www.ajk.gov.pk
Trade Development Authority of Pakistan (TDAP), www.tdap.gov.pk
Security 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
12
September 2013
Pre-Feasibility Study
Driving Training service
13 KEY ASSUMPTIONS
Table 8: Project Assumptions
Projected Life of The Project in Years
Sponsors' Equity
Debt Financing
Annual Mark Up Rate (Short Term & Long Term)
Debt Tenure in Years
General Inflation Rate
10
10%
90%
8%
7
5%
Table 9: Operating Assumptions
Total No. of Days in One Year
Total No. of Months in One Year
No of Working Days in One Year
365
12
300
Table 10: Revenue Assumptions
Fee income per Student
Course Duration
Expected Number of Students per year at 50%
Capacity
Expected increase per Month per each succeeding
year
Rs 6,000
10 days
360
5%
Table 11: Depreciation Assumptions
Vehicles
10%
Table 12: Expenditure Assumptions
Vehicle Repair & Maintenance Per Car
2.5
2%
5%
Communication expense
Promotional Expense
13
September 2013
Rs. Per
K.m
Of Sales
Of revenue
