NAWAZ SHARIF YOUTH BUSINESS LOAN SCHEME 2014

Prepared by:

Ussaid Imtiaz(CA-Finalist)

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Pre-Feasibility Study

Optics Shop (Service &

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. We, our 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.

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2.INTRODUCTION TO SCHEME:

Prime Minister’s ‘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 subsidized 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). 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).

3.EXECUTIVE SUMMARY:

The demand for optics is rising with growing population. A number

of small shops are operating in almost every residential and

commercial area. However, these shops seldom follow required

quality standards; except for those few recently introduced in

high income group residential areas. The proposed optics shop

would supply medically processed, quality optics and glasses. The

shop is proposed to be located in a commercial market of

residential area belonging to middle or upper middle income 3

group. The projected products available in the shop will include

optics and glasses, supplied according to the customer’s

requirement. The total initial project cost for setting up an

outlet is estimated at Rs.1.55 million. The project is proposed

to be financed through 90% debt and 10% equity. The NPV is

projected around Rs. 8.12 million with an IRR of 51% and payback

period of 1.99 years. The legal business status of this project

will be ‘Sole Proprietorship’.

4.BREIF DESCRIPTION OF PROJECT AND PRODUCT:

In this pre-feasibility study, an optics shop is proposed to sell

processed optics and glasses.

This business involves purchase of frames and lens from a

wholesale market. Contract procurement lens from reliable

suppliers can be an economical alternative. In addition there

would be eyesight testing service by an expert or eye specialist.

The legal status of the proposed project is recommended to be

purchased in bulk. Particular attention should be paid on the

quality of lens purchased. The lens is then cut into pieces of

different frame sizes in the shop according to the customer’s

demand. The shop will operate for 10 hours a day,

5.CRITICAL FACTORS:

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To establish optics shop business successfully, following

critical factors must be observed:

Location of shop, preferably in commercial markets of

populated areas.

Ensure good quality of service & supply.

Shop should be neat and clean with standard tools and

equipments.

The sale of products must be according to the prevailing

market price.

6.INSTALLED AND OPERATIONAL CAPACITIES:

Generally, in this business, installed capacity is reflected by

turnover potential in a given locality, while the shop should be

able to store more than a day’s inventory requirement. The

inventory requirement is based on bulk purchase.

7.GEOGRAPHICAL POTENTIAL FOR INVESTMENT:

The location of the shop recommended in this pre-feasibility is

in a commercial market of middle or upper middle income group

residential area. For example in Rawalpindi, localities such as

Saddar, Scheme III, Tench Bhatta , Murree Road, Jehlum Road etc.

may be considered for setting up an optics shop. Similarly any

major city of Pakistan including Peshawar, Lahore, Quetta, 5

Karachi, and Faisalabad with similar demography is suitable for

this business.

8.POTENTIAL TARGET MARKETS:

The target market is primarily customers belonging to middle and

upper middle income group, specifically health conscious

individuals who are particular about purchasing quality products.

9.PROJECT COST SUMMARY:

A detailed financial model has been developed to analyze the

commercial viability of optics shop under the ‘Prime Minister’s

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

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a.PROJECT ECONOMICS:

The following table shows internal rate of return and payback

period.

Table 1- Project Economics

Description   Details

Internal Rate of

Return (IRR) 51%

Payback Period (yrs) 1.99

Net Present Value

(NPV)

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,122,671

Following table provides details of the equity required and

variables related to bank loan;

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Table 2 - Project Financing

Description Details

Total Equity (10%)

155,621

Bank Loan (90%)

1,400,582

Markup to the Borrower

(%age/annum) 8%

Tenure of the Loan (Years)

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Grace Period (Year) 1

b.PROJECT COST:

Following requirements have been identified for operations of the

proposed business.

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Table 3: Capital Investment for the

Project

Capital Investment

Amount

(Rs.)

Pre-operating costs

25,340

Machinery & Equipment

730,000

Furniture & fixtures

120,000

Total Capital Cost

875,340

Initial Working

Capital

680,863

Total Project Cost

1,556,203

10. SPACE REQUIREMENT:

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The area has been calculated on the basis of space requirement

for production area, store and retail space. However, the units

operating in the industry do not follow any set pattern.

Following table shows calculations for project space requirement.

A shop area of 300 sq.ft is required with an estimated monthly

rent of Rs. 15,000.

Table 4: Space Requirement

Space

Requirement

(Sq.

ft.)

Rent/Sq

.ft.

Rent/Mon

th

Outlet

300

50

15,000

Total Area    

15,000

11. MACHINERY AND EQUIPMENT:

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Following table provides list of machinery and equipment for the

proposed Optics shop.

Table 5: List of Machinery and Equipment

Description Quantity Cost Total

    Rs/unit Rs.

Eyesight Testing Computer

1

350,0

00

350

,000

Lens Meter

1

200,0

00

200

,000

Retnoscope

1

50

,000

5

0,000

Trial Box

1

30

,000

3

0,000

Cutting Machine

1

100,0

00

100

,000

Total    

730

,000

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12. FURNITURE & FIXTURES:

Table 6: Furniture & fixtures

Description

Quant

ity Cost Total

   

Rs/uni

t Rs.

Telephone Sets

1

1,000

1,000

Furniture & Counters

2

5,000

25,000

Interior Designing

for Shop

5

0,000

50,000

Energy savers, fans,

etc

4,000

4,000

Generator (2.5 KVA)

1

4

0,000

40,000

Total    

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120,000

13. RAW MATERIAL REQUIREMENTS:

Raw material required for optics shop is as follow;

Table 7: Raw Material Requirements

Description Amount

  (Rs)

Frames

2

72,345

Optical Lens

4

08,518

Total

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80,863

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14. HUMAN RESOURCE REQUIREMENTS:

Following human resources are required to run an optics shop;

Table 8: Human Resource Requirement

Descriptio

n

No. of

Employees

Monthly Salary

per

Annual

Salary

    employee (Rs.) (Rs.)

Owner/

Manager

1

20,000

240,000

Salesman

2

10,000

240,000

-

Total

Staff

3  

480,000

15. REVENUE GENERATION:

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Revenue from the optics shop in the first year of operation

is expected as per following Table:

Table 9: Revenue Generation

Description First Year

  Sales

  Revenue

(Rs)

Eyesight

Checking

354,650

Frames

1

,418,600

Optical Lens

1

,773,250

Total Revenue

3

,546,500

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16. USEFULL PROJECT MANAGEMENT TIPS:

Technology

Quality Assurance Equipment & Standards: Required products

quality

Standards need to be defined on the packaging and a system to

check them instituted, this improves credibility.

Marketing

Product Development & Packaging: Expert's help may be engaged for

product/service and packaging design & development.

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Price - Bulk Discounts, Cost plus Introductory Discounts: Price

should never be allowed to compromise quality. Price during

introductory phase may be lower and used as promotional tool.

Product cost estimates should be carefully documented before

price setting. Government controlled prices shall be displayed.

Human Resources

An investment, even to the extent of offering share in

business profit.

Should be focused through performance measurement and

performance based compensation.

Employees through experts and exposure to best practices.

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