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Pre-Feasibility Study
MEDICAL STORE
Small and Medium Enterprise Development AuthorityGovernment of Pakistan
www.smeda.org.pk
HEAD OFFICE
6th Floor LDA Plaza Egerton Road, Lahore
Tel 111 111 456, Fax: 6304926-7 Website www.smeda.org.pk
4.10.1 Product Range counts a lot............................................................................................ 84.10.2 Customer Service .......................................................................................................... 84.10.3 Location of the outlet..................................................................................................... 8
5 SECTOR & INDUSTRY ANALYSIS........................................................................................... 8
5.1 SECTOR CHARACTERISTICS ..................................................................................................... 85.2 SUB SECTOR INFORMATION ..................................................................................................... 9
The Pharma Industry has experienced major growth in recent years. As per an estimate the Pharma industry is growing at 18 % annually. The Pakistan’s harsh climate provides more favorable business opportunities in pharmaceutical business.......................................................................................... 9
5.3 LEGAL ISSUES REGARDING INDUSTRY ..................................................................................... 95.4 MAJOR PLAYERS..................................................................................................................... 9
6 MARKET INFORMATION ......................................................................................................... 9
The Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program.
Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development.
SMEDA has so far successfully formulated strategies for sectors including, fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.
Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way.
This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.
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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, marketing, finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself.
This particular pre-feasibility is regarding Medical Store, which comes under Pharmaceutical sector. Before studying the whole document one must consider following critical aspects, which forms the basis of any investment decision.
Before making any investment decision, it is advisable to evaluate the associated risk factors by taking into consideration certain key elements. For starting a medical store critical factors that should be taken into consideration before launching the project are listed below:
Number of customers to the Medical Store will determine the financial success of the project. The entrepreneur should analyze the minimum percentage of population that it will have to mobilize out of the total population to achieve a steady flow of customers. In order to do this, the entrepreneur should analyze existing competing Medical Store businesses in the target vicinity.
Looking at the nature of the products offered on a medical store, it is advised that the store should be established in a city that has a population to cover the sales concept of the project.
Another aspect linked with the revenue generating capacity of the project is the spending pattern of the potential customers in a specific city. Average per capita income in Pakistan is USD 830/yr and increasing concern of people about their health and fitness show that now people are consuming more medicines. This factor is very helpful and it is observed in recent days that international multinational pharmaceutical companies are looking at our country as potential market.
Selection of location for sales outlet is an important factor in the successful running of any medical store. Areas in the vicinity of a hospital/clinic or the developing areas are most suitable locations.
Availability of complete product line is another important factor. In addition to this, provision of other general items, for the customers, also plays a major role in increasing sales of a medical store.
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Pakistan is a very populous country. Pakistan’s population has soared up to 149.50 million, and at least one-third of it is living below the poverty level. Majority of population has no access to clean water to drink or proper sanitation facilities. This poses serious threats to health of masses. Moreover the variable and harsh climate of Pakistan causes major viral diseases through out the year. This creates a great demand for Pharmaceutical Products in Pakistan. As the major source of retail sales of Pharma Products is through medical stores, a big investment opportunity exists in this sector.
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The proposed project is a well built medical store with all of the product range in stock for sales. The proposed Size of the medical store should be around 500 sq. feet, with
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PREF-82/January 2007/Rev3 6
electricity and 2 telephone lines. The proposed project is based on well-established Pharmaceutical Retail Chains of Pakistan.
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As such there is no specific time required for the entry time in pharmaceutical sector. As the need is increasing day by day due to the increase in population and diseases, investment in this sector can be made any time in the year.
A medical store can be started as a sole proprietorship or a partnership and even it can be registered under company law with Securities and Exchange Commission of Pakistan. Although selection totally depends upon the choice of the entrepreneur but this financial feasibility is based on a Sole Proprietorship. For getting information on the formation of type of firm/company, please visit the Website:
The product range offered on a Medical Store is blend of both multinational and national companies’ products and General Products (Food Supplements, Toiletries, Shampoo, Soaps, Diapers (sanitary napkins), Internet Cards, Payphone Cards and Cellular Prepaid Cards). The proposed medical store will remain open for 24 hours (3 shifts). It isrecommended to start with one retail outlet and expand the operation by one outlet after every 3 years.
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The total cost of the project is around Rs. 4.47 million.
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Capital Investment Rs. 2,939,900 Working Capital Requirement Rs. 1,536,124
Total Investment Rs. 4,476,024
The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity. However this composition of debt and equity can be changed as per the requirement of the investor.
Equity 50% 2,238,012 Total project Investment Rs. 3,918,224
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IRR % 73.22NPV @25% Rs. 23,892,003 Pay Back Period (year) Yrs. 0.70
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The proposed medical store will be offering a blend of different products. Percentage quantity of each item offered on the store is based on survey of distribution companies. Following is the list of products, which are to be offered on medical store.
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Product Category Percentage In Total SalesProducts of Multinational Companies 39.1
Products of National Companies 44.1
Herbal Products 4.2
Food Supplements 4.2
Eatables 3.3
Toiletries 1.7
Sanitation Products 1.7
Pre Paid Cards 1.7
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A medical store should be easily accessible and should have considerable population concentration. Considering the spread of new well developed residential areas some of the suitable locations in Lahore are:
Main Boulevard Allama Iqbal Town Near Akbar Chowk Faisal Town Johar Town Near Doctors Hospital DHA EME Colony Tech Society Jail Road Mughal Pura Chowk Chauburji Or any locations near any new hospital or emerging clinics.
Some of the Key Success factors that will determine the success of this project include:
Availability of regular medicine supplies. A well trained Pharmacist Availability of complete product range Reasonable and competitive prices. Inventory control to avoid any pilferage.
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Variety and availability are the key factors in retail business. As far as the Pharma business is concerned, this is the most crucial factor. Almost all major manufacturers of pharmaceutical products offer same drugs with different names (Company Names). So availability of all major brands is crucial.
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Outlet must have a proper temperature and proper outlook to attract the customers. If we take a look at major players in Pharma retail business, like Fazal Din’s, Zaka’s Pharmacy, Clinix Plus, all of them have well-organized outlets all around the city. Not only the outlets for the proposed medical store should be well organized, also the service provided to the customers should be very quick and efficient.
The investment in better location pays in the long run. The Pharma retails business is highly dependent upon the easy access for the buyers. This includes all areas near any major hospital or popular clinics.
The review of Pakistani pharmaceutical market shows that there are around 450 companies, which are registered with the Ministry of Health. Out of some 350 manufacturing units operating in the country include dozens of multinationals. Multinational pharmaceutical companies have played a vital role to provide the base for the growth of the pharmaceutical industry since the emergence of Pakistan. They have been enjoying the bulk of the business and are still enjoying after so many years, though their collective market share has dropped significantly during last 18 years. In 1985, the MNCs enjoyed 65 per cent of the market share while the national companies had 35 per cent of it. The national pharmaceutical companies have improved their market share by an average of 1.2 per cent every year. This percentage share increased up to a level of 53% in the year 2000 and this 18 per cent gain has come at the cost of MNCs whose
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collective share has dropped by an equal percentage to 47 per cent during the same period. Thus in 2000, the share of national companies stood at 53 per cent, 6 per cent more than that of the MNCs1.
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The Pharma Industry has experienced major growth in recent years. As per an estimate the Pharma industry is growing at 18 % annually. The Pakistan’s harsh climate provides more favorable business opportunities in pharmaceutical business.
The medical store must be registered under Drugs Act 1976 with respective District Health Officer (DHO). The registration fee for obtaining license is Rs. 1,200/- and license will be renewed after every 2 years. The office of Executive Director Health is located at 24-Cooper Road, Lahore. A form is duly filled and submitted along with all the required documents. The said form is available at the same office. After that a physical survey is conducted by the health department and only after that license is issued.
Purchase and sale of drugs of narcotics and steroid nature will be maintained in the stock register. All the purchase invoices and stock register will be kept for 5 years.
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The pharmaceutical industry is growing in Pakistan day by day. Out of the national and multinational companies operating in Pakistan the major players in this sector are:
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Name of the Company No. of retail stores in LahoreFazal Din & Sons (Pvt.) Ltd. 4Fazal Din Pharma Plus 9Zaka Pharmacy 11Clinix 6
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The review of Pakistani pharmaceutical market shows that there are around 450 companies which are registered with the Ministry of Health, some 350 manufacturing
units operating in the country including dozens of multinationals. Healthcare in Pakistan is still in the early stages of development. Widespread poverty and a weak health system underlie the poor health status of the population. Government funding continues to be minimal, equal to around 3% of GDP and achieves little more than maintaining the status quo, while the problems of poor nutrition and sanitation are compounded by Pakistan's large and fast growing population. However as the economy improves, the level of spending may well begin to rise. Other issues at the heart of the problem include the continuing prevalence of communicable diseases, low health manpower levels and the under- utilization of primary health facilities.
The Pakistani pharmaceutical market remains beset with difficulties. Strict government control over pricing has made many drugs uneconomical, with the result that they either become available only on the black market at inflated prices, or disappear completely. In this environment, manufacturers, both local and foreign-owned, have proved unable to generate the profits needed for capital investment. This is not helped by a regulatory system best described as rudimentary. There is virtually no public drug reimbursement or IP protection; patent law was officially tightened in December 2000, although the effectiveness of this has been questioned. In 2002, further changes were made, making Pakistan's IP laws even weaker. The appointment of drug inspection teams to investigate the manufacture and sale of 'fake' drugs has met with disappointing results so far, largely due to a lack of resources and bureaucratic complications.
Drug prices are officially controlled, although the government lacks the capacity to enforce its policies in this area. Some price rises have been allowed since 2000, but the current government shows little sign of enacting any serious reform of the pharmaceutical sector, preferring to allege profiteering on the part of the pharmaceutical industry. New legislation permitting imports of Indian-made drugs was introduced in June 2005, although this has yet to be capitalized upon in any significant way and is unlikely to be in the near future.
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The major target market for the facility consists of residential areas in the vicinity of the medical store.
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The proposed medical store will be offering a blend of different pharmaceuticals. Alongwith pharmaceutical products, it will also be providing approximately 33% general items. These general items include herbal products, eatables, food supplements and toiletries.
The sales prices charged for each item would be competitive and will only be earning a certain percentage of revenue. Percentage margin charged on each type of product is as under:
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Item Profit MarginMargin on Multinational Sales 10%Margin on National Sales 15%Margin on Herbal Products 30%Margin on Food Supplements 50%Margin on Eatables 10%Margin on Toiletries 10%Margin on Sanitation products 10%Margin on Mobile Cards 3.5%Margin on Calling Cards 5%Margin on Net Cards 20%
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Total amount of sales is based on survey and observation. Total sales assumed for the first year are as under:
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Product Category Expected Sales Amount (Rs.)Products of Multinational Companies 10,998,000 Products of National Companies 12,402,000 Herbal Products 1,440,000 Food Supplements 1,260,000 Eatables 1,080,000 Toiletries 540,000 Sanitation Products 540,000 Pre Paid Cards 1,116,000 Total sales for the first year 29,376,000
Above mentioned sales are assumed for the first year on the basis of survey. Annual growth rate in sales is taken as 10%.
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Other income includes revenues from diabetes tests, blood pressure checking and any sort of intra muscular injections. Such income is taken as 1% of the total annual revenues.
Approximately 500-sq. ft. will be required for a medical store. It is recommended that the area should be acquired for rent. Rent cost for the proposed areas will be ranging between Rs.80,000 to Rs.100,000. Rent cost incorporated for financial analysis is Rs.100,000. Advance rent of six months is also to be paid.
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ElectricityTelephone
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The following equipment and furniture will be required for the offices
3 details given in financial analysis(Revenue Calculation)
Medical Store will run for 24 hours in three shifts (i.e. 8 hours per shift). Shift timing will be:
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Shift 1 8:00 am to 4:00 pmShift 2 4:00 pm to mid nightShift 3 midnight to 8:00 am
The staff will include Pharmacist who will have B-Pharmacy degree. Accounts officer must be B. Com and having one year experience in related field. Computer operator will be one year diploma holder having knowledge of proper inventory control.
Human resource requirement for the proposed project is as under:
The breakdown of total project cost is in the table below:
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Capital Costs Rs.Office Equipment 764,900 Preliminary Expenses 75,000Pre-operational Expenses4 2,100,000 Total Capital Costs 2,939,900Working Capital Inventory 1,569,000
Accounts Payable ( 32,876)
Total Working Capital 1,536,124 Project Cost 4,476,024
4 Pre-operational Expenses include advance rent of six months
Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Year - XSales/Revenue 29,376 32,314 35,545 39,099 43,009 47,310 52,041 57,246 62,970 69,267 Cost of Sales:
Year - 0 Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Year - XTangible Fixed Assets 765 673 593 524 464 411 365 324 289 257 229 Preliminary Expenses 75 60 45 30 15 - - - - - - Current Assets:
Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Year - XSales Growth Rate 10% 10% 10% 10% 10% 10% 10% 10% 10%
Printing & Stationary 1% of RevenueEntertainment 0.1 % of RevenueCommunication Expense 0.1% of RevenueConsultancy Charges and Audit (Annual) Rs.15,000Electricity cost growth rate 10%Electricity rate / unit Rs. 6.75Kilo Watts Consumed per day 8.3Depreciation Method Written Down ValueDepreciation Rate on Furniture 10%Depreciation Rate on Electric Equipment 10%Computers and printers 20%