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Pre-Feasibility Study

(Driving School)

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 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 REGIONAL OFFICE Sindh 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 35610572 helpdesk-khi@smeda.org.pk REGIONAL OFFICE Khyber Pakhtunkhwa Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 111-111-456 Fax: (091) 5286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE Balochistan 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

Pre-Feasibility Study

Driving School

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 ........................................................................................ 4 7 CRITICAL FACTORS ............................................................................................................................ 5 8 INSTALLED & OPERATIONAL CAPACITIES................................................................................. 5 9 POTENTIAL TARGET MARKET / CITIES ....................................................................................... 5 10 PROJECT COST SUMMARY ............................................................................................................... 5 10.1 10.2 10.3 10.4 10.5 10.6 10.7 PROJECT ECONOMICS ................................................................................................................... 6 PROJECT FINANCING .................................................................................................................... 6 PROJECT COST ............................................................................................................................. 6 MACHINERY REQUIREMENT ......................................................................................................... 7 RAW MATERIAL REQUIREMENTS ................................................................................................. 7 HUMAN RESOURCE REQUIREMENT .............................................................................................. 7 REVENUE GENERATION................................................................................................................ 8

11 CONTACT DETAILS OF GOVT. INSTITUTIONS / EXPERTS ...................................................... 8 12 ANNEXURE ............................................................................................................................................. 9 12.1 12.2 12.3 INCOME STATEMENT .................................................................................................................... 9 CASH FLOW STATEMENT ........................................................................................................... 10 BALANCE SHEET ........................................................................................................................ 11

13 USEFUL LINKS ..................................................................................................................................... 12 14 KEY ASSUMPTIONS............................................................................................................................ 13

Pre-Feasibility Study

Driving School

1 DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general idea and information on the 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 exercised 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

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Pre-Feasibility Study

Driving School

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 Driving School 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, 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 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.

SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -

Pre-Feasibility Study

Driving School

4 INTRODUCTION TO SCHEME
Prime Ministers Youth Business Loan 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 by the National Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL). Youth Business Loans upto 2 million with tenure upto 8 years, inclusive of 01 year grace period and a debt : equity 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 particular Pre-feasibility is for LTV Driving School. Driving is a skilful task that needs proper training and knowledge of traffic laws and regulations. There is a tremendous increase in the number of vehicles particularly in the urban cities of Pakistan. Moreover, the government has been taking steps towards effective implementation of traffic regulations. This has created a demand for formalized driver training and provision of road safety information, thereby creating an opportunity for establishing a Driving School for a prospective entrepreneur. The project is proposed to be set-up in a suitable locality of any urban city such as Lahore, Karachi, Sukkur, Hyderabad, Faisalabad, Sargodha, Multan, Quetta, DI Khan, Nowshera and Peshawar. Keeping in view the nature of services, there is a 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 the training service center will be to train 720 drivers annually. During the sessions, trainees shall be familiarized with the basic rules of driving along with traffic signal system, awareness about traffic rules and dealing with emergencies and accidents. Total investment in the project is Rs. 1.8 million with Rs. 1.6 million as capital investment and Rs. 0.2 million as working capital. NPV and IRR of the project is Rs. 8.07 million and 57% respectively with a payback period of 2.35 years.

BRIEF DESCRIPTION OF THE PROJECT

The proposed Driving School can be started as a home based business without having any formal office set-up, with 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. The instructors will also brief trainees

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Pre-Feasibility Study

Driving School

on traffic regulations and road safety information. The driving school will train 360 individuals 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 engaging female drivers. Effective marketing / awareness of the service particularly with traffic police & drivers licensing section. 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 of vehicles due to major / minor accidents during the training.

8 INSTALLED & OPERATIONAL CAPACITIES


The facility will consist of 3 vehicles out of which two are 800 cc and one 1000 cc vehicle. The Driving School will offer a 10 day training program. The total capacity of the driving school 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


Due to development and expansion of roads and increase in the number of vehicles, the Driving School can be started in any suitable area of a big city such as Lahore, Karachi, Sukkur, Hyderabad, Faisalabad, Sargodha, Multan, Quetta, DI Khan, Nowshera and Peshawar.

10 PROJECT COST SUMMARY


A detailed financial model has been developed to analyze the commercial viability of a Driving School under the Prime Ministers Youth 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

SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -

Pre-Feasibility Study

Driving School

10.1 Project Economics The Driving School 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 Internal Rate of Return (IRR) Payback Period (yrs) Net Present Value (NPV)

Details 57% 2.35 Rs. 8,070,195

Returns on the investment and its profitability are highly dependent on trained staff, marketing, and competitive fee structure. In case the Driving School is not managed efficiently, it will not be able to capitalize on the potential market and recover payments; hence cost of operating the business will increase. 10.2 Project Financing Following table provides details of the equity required and variables related to bank loan:
Table 2: Project Financing Description Details

Total Equity (10%) Bank Loan (90%.) Markup to the Borrower (%age/annum) Tenure of the Loan (Years) Grace Period (Year) 10.3 Project Cost

Rs.180,000 Rs.1,620,000 8% 8 1

Following requirements have been identified for operations of the proposed business.
Table 3: Total Project Cost Capital Investment Amount (Rs.)

Vehicles Total Working Capital Cash in hand Total Total Project Cost

1,600,000 1,600,000 Amount (Rs.) 200,000 200,000 1,800,000

SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -

Pre-Feasibility Study

Driving School

10.4 Machinery Requirement Following table provides list of machinery / equipment required for an average drivers training service:
Table 4: List of Vehicles

Description Suzuki Mehran Suzuki Cultus Total

Quantity

Cost Rs/unit 2 500,000 1 600,000 3

Total Rs. 1,000,000 600,000 1600,000

Main equipment required for a Driving School are vehicle(s) for providing practical training to the drivers. Keeping in view the project investment size, used vehicles are proposed. Therefore, due attention and care should to be exercised while procuring these vehicles.

10.5 Raw Material Requirements Fuel for vehicle(s) will be the only commodity required as a raw material in this project.
Table 5: Cost of 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 Owner Driving Instructors Total Salaries

No. of Employees 1 3 4

Salary per month 20,000 15,000

Annual Salary 240,000 540,000 780,000

The above table provides details of human resource required to run the Driving School. Salaries of all employees are estimated to increase at 10% annually.

SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -

Pre-Feasibility Study

Driving School

10.7 Revenue Generation


Table 7: Revenue Details

Product Fee (Rs./Student) Expected no. of Students First Year Revenue 1st Year (Rs.)

Unit Rs. No. Rs.

6,000 360 2,160,000

11 CONTACT DETAILS OF GOVT. INSTITUTIONS / EXPERTS

Principal National Logistics Cell (NLC) Driving School G. T. Road, Dina Ph: 0544-631908

National Highways and Motorway Police (NH&MP) Training College P.O. Box #16 General Post Office, Sheikhupura Ph: 056-3794601

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Pre-Feasibility Study

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12 ANNEXURE
12.1 Income Statement

Income Statement
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, inter Promotional expense Depreciation expense Subtotal Operating Income Earnings Before Interest & Taxes Interest expense on long term debt (Project Loan) Subtotal Earnings Before Tax Tax NET PROFIT/(LOSS) AFTER TAX Year 1 2,160,000 21% 25% 8% 54% 459,998 540,000 162,000 1,161,998 998,002 240,000 43,200 108,000 160,000 551,200 446,802 446,802 134,459 134,459 312,342 312,342 Year 2 2,613,600 556,598 592,575 196,020 1,345,193 1,268,407 263,367 52,272 130,680 160,000 606,319 662,088 662,088 123,099 123,099 538,989 13,899 525,090 Year 3 3,136,320 667,918 650,269 235,224 1,553,411 1,582,909 289,008 62,726 156,816 160,000 668,551 914,358 914,358 108,167 108,167 806,191 43,429 762,763 Year 4 3,737,448 795,935 713,580 280,309 1,789,824 1,947,624 317,147 74,749 186,872 160,000 738,768 1,208,856 1,208,856 91,997 91,997 1,116,859 90,029 1,026,831 Year 5 4,427,438 942,877 783,055 332,058 2,057,990 2,369,448 348,025 88,549 221,372 160,000 817,945 1,551,503 1,551,503 74,484 74,484 1,477,019 144,053 1,332,966 Year 6 5,218,052 1,111,248 859,295 391,354 2,361,897 2,856,156 381,909 104,361 260,903 160,000 907,172 1,948,983 1,948,983 55,517 55,517 1,893,466 226,193 1,667,273 Year 7 6,122,515 1,303,864 942,957 459,189 2,706,010 3,416,505 419,092 122,450 306,126 160,000 1,007,668 2,408,837 2,408,837 34,977 34,977 2,373,860 322,272 2,051,588 Year 8 6,734,766 1,434,251 1,034,765 505,107 2,974,123 3,760,644 459,895 134,695 336,738 160,000 1,091,329 2,669,315 2,669,315 12,731 12,731 2,656,583 386,646 2,269,938 Year 9 7,408,243 1,577,676 1,135,511 555,618 3,268,805 4,139,438 504,671 148,165 370,412 160,000 1,183,248 2,956,190 2,956,190 2,956,190 461,547 2,494,643 Year 10 8,149,067 1,735,443 1,246,066 611,180 3,592,689 4,556,378 553,807 162,981 407,453 160,000 1,284,242 3,272,137 3,272,137 3,272,137 540,534 2,731,603

11% 2% 5% 7%

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Pre-Feasibility Study

Driving School

12.2 Cash Flow Statement


Cash Flow Statement
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 Cash provided by / (used for) financing activities Capital expenditure Cash (used for) / provided by investing activities NET CASH Year 1 312,342 160,000 472,342 472,342 Year 2 525,090 160,000 13,899 698,989 (179,897) (179,897) 519,092 Year 3 762,763 160,000 43,429 966,191 (194,829) (194,829) 771,362 Year 4 1,026,831 160,000 90,029 1,276,859 (210,999) (210,999) 1,065,860 Year 5 1,332,966 160,000 144,053 1,637,019 (228,512) (228,512) 1,408,507 Year 6 1,667,273 160,000 226,193 2,053,466 (247,479) (247,479) 1,805,987 Year 7 2,051,588 160,000 322,272 2,533,860 (268,019) (268,019) 2,265,841 Year 8 2,269,938 160,000 386,646 2,816,583 (290,265) (290,265) 2,526,319 Year 9 2,494,643 160,000 461,547 3,116,190 3,116,190 Year 10 2,731,603 160,000 540,534 3,432,137 3,432,137

1,620,000 180,000 1,800,000 (1,600,000) (1,600,000) 200,000

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Pre-Feasibility Study

Driving Training service

12.3 Balance Sheet


Balance Sheet
Year 0 Assets Current assets Cash & Bank Total Current Assets Fixed assets Machinery & equipment Total Fixed Assets Intangible assets Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Total Current Liabilities Other liabilities Deferred tax Long term debt (Project Loan) Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES 200,000 200,000 1,600,000 1,600,000 1,800,000 672,342 672,342 1,440,000 1,440,000 2,112,342 1,191,435 1,191,435 1,280,000 1,280,000 2,471,435 1,962,797 1,962,797 1,120,000 1,120,000 3,082,797 3,028,657 3,028,657 960,000 960,000 3,988,657 4,437,164 4,437,164 800,000 800,000 5,237,164 6,243,151 6,243,151 640,000 640,000 6,883,151 8,508,992 8,508,992 480,000 480,000 8,988,992 11,035,311 11,035,311 320,000 320,000 11,355,311 14,151,501 14,151,501 160,000 160,000 14,311,501 17,583,638 17,583,638 17,583,638 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

1,620,000 1,620,000 180,000 312,342 492,342 2,112,342

13,899 1,440,103 1,454,002 180,000 837,433 1,017,433 2,471,435

57,327 1,245,274 1,302,601 180,000 1,600,196 1,780,196 3,082,797

147,356 1,034,275 1,181,631 180,000 2,627,026 2,807,026 3,988,657

291,409 805,762 1,097,171 180,000 3,959,992 4,139,992 5,237,164

517,602 558,284 1,075,886 180,000 5,627,265 5,807,265 6,883,151

839,874 290,265 1,130,138 180,000 7,678,854 7,858,854 8,988,992

1,226,519 1,226,519 180,000 9,948,792 10,128,792 11,355,311

1,688,067 1,688,067 180,000 12,443,434 12,623,434 14,311,501

2,228,601 2,228,601 180,000 15,175,037 15,355,037 17,583,638

1,620,000 1,620,000 180,000 180,000 1,800,000

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Pre-Feasibility Study

Driving Training service

13 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 National Highway Authority (NHA) 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 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

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Pre-Feasibility Study

Driving Training service

14 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 (Years) Grace period (Years) General Inflation Rate
Table 9: Operating Assumptions

10 10% 90% 8% 8 1 10% 300 Rs 6,000 10 days 360 10% 5% 10%

No of Working Days in One Year


Table 10: Revenue Assumptions

Fee income per Student Course Duration Expected Number of Students per year at 50% Capacity Sale price growth rate Production capacity growth rate
Table 11: Depreciation Assumptions

Vehicles
Table 12: Expenditure Assumptions

Communication expense Promotional Expense

2% 5%

Of Sales Of revenue

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