Driving School

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

[email protected]

REGIONAL OFFICE Punjab

REGIONAL OFFICE Sindh

REGIONAL OFFICE Khyber Pakhtunkhwa

REGIONAL OFFICE Balochistan

3rd Floor, Building No. 3, Aiwan-e-Iqbal Complex,

Egerton Road Lahore, Tel: (042) 111-111-456 Fax: (042) 36304926-7

[email protected]

5th Floor, Bahria Complex II, M.T. Khan Road,

Karachi. Tel: (021) 111-111-456 Fax: (021) 35610572

[email protected]

Ground Floor State Life Building

The Mall, Peshawar. Tel: (091) 111-111-456

Fax: (091) 5286908 [email protected]

Bungalow No. 15-A Chaman Housing Scheme

Airport Road, Quetta. Tel: (081) 2831623, 2831702

Fax: (081) 2831922 [email protected]

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 PROJECT ECONOMICS ...................................................................................................... 6 10.2 PROJECT FINANCING ........................................................................................................ 6 10.3 PROJECT COST ................................................................................................................ 6 10.4 MACHINERY REQUIREMENT ............................................................................................... 7 10.5 RAW MATERIAL REQUIREMENTS ........................................................................................ 7 10.6 HUMAN RESOURCE REQUIREMENT .................................................................................... 7 10.7 REVENUE GENERATION .................................................................................................... 8 11 CONTACT DETAILS OF GOVT. INSTITUTIONS / EXPERTS .................................................. 8 12 ANNEXURE ................................................................................................................................ 9 12.1 INCOME STATEMENT ......................................................................................................... 9 12.2 CASH FLOW STATEMENT ................................................................................................ 10 12.3 BALANCE SHEET ............................................................................................................. 11 12.4 USEFUL MANAGEMENT TIPS ............................................................................................ 12 12.5 USEFUL LINKS ................................................................................................................ 12 13 KEY ASSUMPTIONS ................................................................................................................ 14


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

SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST - 2


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.



4 INTRODUCTION TO SCHEME Prime Ministers Youth Business Loans Programme, 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 from Rs. 0.1 million to Rs. 2.0 million with tenure up to 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 starting of Light Transport Vehicle (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. 6.31 million and 47% respectively with a payback period of 2.58 years.

6 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 on traffic regulations and road safety information. The driving school will train 396 individuals in the first year @ 55% of its capacity.

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 55% capacity and will provide training services to 396 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, Peshawar, Abbotabad and Khuzdar etc.

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 annexures.

10.1 Project Economics The Driving School will train 396 drivers at 55% capacity in year one with three vehicles and three trainers.

The following table shows internal rate of return, payback period and net present value.

Table 1: Project Economics Description Details

Internal Rate of Return (IRR) 47% Payback Period (yrs) 2.58 Net Present Value (NPV) Rs. 6,308,128 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%) Rs.180,000 Bank Loan (90%.) Rs.1,620,000 Markup to the Borrower (%age/annum) 8% Tenure of the Loan (Years) 8 Grace Period (Year) 1

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 Total 1,600,000 Working Capital Cash in hand 200,000



Total 200,000 Total Project Cost 1,800,000

10.4 Machinery Requirement 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.

Table 4: List of Vehicles Description Quantity Cost

Rs/unit Total Rs.

800 CC 2 500,000 1,000,000 1000 CC 1 600,000 600,000

Total 3 1600,000

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 Unit

No. of vehicles

Fuel Consumption

Km/ltr Petrol

Rate / ltr Total Km /

day / vehicle

1 800 CC 2 12 Rs. 113 90 2 1000 CC 1 10 Rs. 113 90

Average fuel cost per Kilometer is estimated to be Rs. 10.044. Considering total mileage of 180 KM / student (for 10 days training session), fuel cost for 396 students (55% of total capacity) is worked out to be Rs. 715,968.

10.6 Human Resource Requirement

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

Table 6: Human Resource Requirement

Description No. of Employees

Salary per month

Annual Salary

Owner 1 20,000 240,000



Driving Instructors 3 15,000 540,000 Total Salaries 4 780,000

10.7 Revenue Generation Table 7: Revenue Details

Product Unit Fee (Rs./Student) Rs. 6,000 Expected no. of Students First Year No. 396 Revenue 1st Year (Rs.) Rs. 2,376,000

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



12 ANNEXURE

12.1 Income Statement

Income Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Revenue 2,376,000 2,851,200 3,397,680 4,024,944 4,743,684 5,565,923 6,122,515 6,734,766 7,408,243 8,149,067

Cost of salesCost of goods sold (Fuel Cost) 715,968 859,162 1,023,834 1,212,850 1,429,430 1,677,198 1,844,918 2,029,410 2,232,351 2,455,586 Operation costs 1 (direct labor) 540,000 594,000 653,400 718,740 790,614 869,675 956,643 1,052,307 1,157,538 1,273,292 Vehicles Maintaince Cost 178,200 213,840 254,826 301,871 355,776 417,444 459,189 505,107 555,618 611,180

Total cost of sales 1,434,168 1,667,002 1,932,060 2,233,461 2,575,820 2,964,318 3,260,749 3,586,824 3,945,507 4,340,057 Gross Profit 941,832 1,184,198 1,465,620 1,791,483 2,167,864 2,601,605 2,861,765 3,147,942 3,462,736 3,809,010

General administration & selling expensesAdministration expense 240,000 264,000 290,400 319,440 351,384 386,522 425,175 467,692 514,461 565,907 Communications expense (phone, fax, mail, internet, 47,520 57,024 67,954 80,499 94,874 111,318 122,450 134,695 148,165 162,981 Promotional expense 118,800 142,560 169,884 201,247 237,184 278,296 306,126 336,738 370,412 407,453 Depreciation expense 320,000 320,000 320,000 320,000 320,000 515,363 515,363 515,363 515,363 515,363

Subtotal 726,320 783,584 848,238 921,186 1,003,442 1,291,500 1,369,114 1,454,489 1,548,402 1,651,705 Operating Income 215,512 400,614 617,382 870,297 1,164,422 1,310,105 1,492,652 1,693,453 1,914,335 2,157,304

Gain / (loss) on sale of office vehicles - - - - 960,000 - - - - Earnings Before Interest & Taxes 215,512 400,614 617,382 870,297 2,124,422 1,310,105 1,492,652 1,693,453 1,914,335 2,157,304

Interest expense on long term debt (Project Loan) 134,459 123,099 108,167 91,997 74,484 55,517 34,977 12,731 - - Subtotal 134,459 123,099 108,167 91,997 74,484 55,517 34,977 12,731 - - Earnings Before Tax 81,053 277,516 509,215 778,301 2,049,938 1,254,587 1,457,675 1,680,722 1,914,335 2,157,304

Tax - - 10,921 39,245 257,487 110,688 141,151 183,644 230,367 278,961 NET PROFIT/(LOSS) AFTER TAX 81,053 277,516 498,293 739,056 1,792,451 1,143,899 1,316,524 1,497,078 1,683,968 1,878,344



12.2 Cash Flow Statement

Cash Flow Statement

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Operating activities

Net profit 81,053 277,516 498,293 739,056 1,792,451 1,143,899 1,316,524 1,497,078 1,683,968 1,878,344 Add: depreciation expense 320,000 320,000 320,000 320,000 320,000 515,363 515,363 515,363 515,363 515,363 Deferred income tax - - 10,921 39,245 257,487 110,688 141,151 183,644 230,367 278,961

Cash provided by operations - 401,053 597,516 829,215 1,098,301 2,369,938 1,769,951 1,973,038 2,196,085 2,429,698 2,672,668

Financing activitiesProject Loan - principal repayment - (179,897) (194,829) (210,999) (228,512) (247,479) (268,019) (290,265) - - Additions to Project Loan 1,620,000 - - - - - - - - - - Issuance of shares 180,000 - - - - 2,576,816 - - - - - Purchase of (treasury) shares

Cash provided by / (used for) financing activities 1,800,000 - (179,897) (194,829) (210,999) 2,348,304 (247,479) (268,019) (290,265) - -

Investing activitiesCapital expenditure (1,600,000) - - - - (2,576,816) - - - - - Acquisitions

Cash (used for) / provided by investing activities (1,600,000) - - - - (2,576,816) - - - - -

NET CASH 200,000 401,053 417,618 634,386 887,301 2,141,426 1,522,472 1,705,019 1,905,820 2,429,698 2,672,668


Pre-Feasibility Study Driving Training service

12.3 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

Current assetsCash & Bank 200,000 601,053 1,018,671 1,653,057 2,540,359 4,681,784 6,204,256 7,909,275 9,815,095 12,244,793 14,917,461

Total Current Assets 200,000 601,053 1,018,671 1,653,057 2,540,359 4,681,784 6,204,256 7,909,275 9,815,095 12,244,793 14,917,461

Fixed assetsOffice vehicles 1,600,000 1,280,000 960,000 640,000 320,000 2,576,816 2,061,453 1,546,090 1,030,726 515,363 -

Total Fixed Assets 1,600,000 1,280,000 960,000 640,000 320,000 2,576,816 2,061,453 1,546,090 1,030,726 515,363 -

Intangible assetsTotal Intangible Assets - - - - - - - - - - - TOTAL ASSETS 1,800,000 1,881,053 1,978,671 2,293,057 2,860,359 7,258,600 8,265,709 9,455,365 10,845,822 12,760,156 14,917,461

Current liabilitiesTotal Current Liabilities - - - - - - - - - - -

Other liabilitiesDeferred tax - - 10,921 50,166 307,654 418,342 559,493 743,137 973,504 1,252,464 Long term debt (Project Loan) 1,620,000 1,620,000 1,440,103 1,245,274 1,034,275 805,762 558,284 290,265 - - -

Total Long Term Liabilities 1,620,000 1,620,000 1,440,103 1,256,196 1,084,441 1,113,416 976,626 849,758 743,137 973,504 1,252,464

Shareholders' equityPaid-up capital 180,000 180,000 180,000 180,000 180,000 2,756,816 2,756,816 2,756,816 2,756,816 2,756,816 2,756,816 Retained earnings 81,053 358,568 856,862 1,595,918 3,388,368 4,532,268 5,848,791 7,345,869 9,029,837 10,908,181

Total Equity 180,000 261,053 538,568 1,036,862 1,775,918 6,145,184 7,289,084 8,605,607 10,102,685 11,786,653 13,664,997 TOTAL CAPITAL AND LIABILITIES 1,800,000 1,881,053 1,978,671 2,293,057 2,860,359 7,258,600 8,265,709 9,455,365 10,845,822 12,760,156 14,917,461

Liabilities & Shareholders' Equity

Assets



12.4 Useful Management Tips Marketing

Ads & Point of Sales Promotion: Business promotion and dissemination through banners and launch events is highly recommended. Product brochures from good quality service providers

Price - Bulk Discounts, Cost plus Introductory Discounts: Price should never be allowed to compromise on service quality. Price during introductory phase may be lower and used as promotional tool.

Human Resources

Adequacy & Competencies: Skilled and experienced instructors should be considered an investment even to the extent of offering share in business profit.

Training & Skill Development: Encouraging training and skill of self & instructors through experts

12.5 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



13 KEY ASSUMPTIONS Table 8: Project Assumptions

Projected Life of the Project in Years 10 Owner' Equity 10% Debt Financing 90% Annual Mark Up Rate (Short Term & Long Term) 8% Debt Tenure (Years) 8 Grace Period (Years) 1 General Inflation Rate Per Annum 10%

Table 9: Operating Assumptions

No of Working Days in One Year 300

Table 10: Revenue Assumptions Fee income per Student Rs 6,000 Course Duration 10 days Expected Number of Students per year at 55% Capacity 396 Sale price growth rate 10% Production capacity growth rate 5%

Table 11: Depreciation Assumptions Vehicles 20% Life of Vehicle 05 Years

Table 12: Expenditure Assumptions

Communication expense 2% Of Sales Promotional Expense 5% Of revenue


Title for Driving School-Feb2014Driving School (F3) - Javed Afzal1 DISCLAIMER2 Purpose of the Document3 Introduction to SMEDA4 Introduction to Scheme5 EXECUTIVE SUMMARY6 BRIEF DESCRIPTION OF THE PROJECT7 CRITICAL FACTORS8 INSTALLED & OPERATIONAL CAPACITIES9 POTENTIAL TARGET MARKET / CITIES10 Project Cost Summary10.1 Project Economics10.2 Project Financing10.3 Project Cost10.4 Machinery Requirement10.5 Raw Material Requirements10.6 Human Resource Requirement10.7 Revenue Generation

11 Contact details of Govt. Institutions / Experts12 Annexure12.1 Income Statement/12.2 Cash Flow Statement12.3 Balance Sheet12.4 Useful Management Tips12.5 Useful Links

13 KEY ASSUMPTIONS

Driving School

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