Pre-Feasibility Study

IT COLLEGE

Small and Medium Enterprise Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE Waheed Trade Complex, 1st Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756 helpdesk@smeda.org.pk
REGIONAL OFFICE PUNJAB Waheed Trade Complex, 1st Floor, 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore. Tel: (042) 111-111-456 Fax: (042) 5896619, 5899756 helpdesk@smeda.org.pk REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 helpdesk-khi@smeda.org.pk REGIONAL OFFICE NWFP Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 831623, 831702 Fax: (081) 831922 helpdesk-qta@smeda.org.pk

July, 2001

Pre-Feasibility Study

IT College

DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. 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 does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/her own due diligence and gather any information he/she considers necessary for making an informed decision. The contents of the information memorandum do not bind SMEDA in any legal or other form.

DOCUMENT CONTROL
Document No. Revision Prepared by Approved by Issue Date Issued by PREF-26 1 SMEDA-Punjab GM Punjab July 30, 2001 Library Officer

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INTRODUCTION

1.1 Project Brief

This document describes the investment opportunity about setting up a college of providing educational & training services in Information Technology. The college can start by offering short courses and with the passage of time can venture to develop into a proper degree awarding authority. The institute can be established in any of the major cities of the country. However, with a phenomenal growth of IT colleges in Karachi, Lahore and Islamabad, a college offering quality education and wide course options, opened up in other large peripheral cities is expected to earn early recognition and student preference. Faisalabad, Sialkot, Sargodha, Hyderabad, Multan, & Sukhar are some of the potential cities for setting up the institute. The project will offer following short courses in the initial phase. Visual Basic C++ Java Certified Professional (JCP) Oracle Certified Professional (OCP) Microsoft Certified Service Engineer (MCSE) MS Office E-Commerce Web Development A+ This combination is designed according to the needs of a particular target market and is by no means rigid. Each individual entrepreneur will have to carry out a market research and offer a course offer corresponding to the educational needs and requirement of his particular community and city.

1.2 Project Cost

The college is designed to provide high quality education services to IT industry. An optimum ration of one PC to one student has been used. The college will have two classrooms cum computer labs equipped with twenty-two1 computers linked through a network, one media projector in each lab and proper air conditioning facilities. 24 hours free and unlimited Internet access to students is recommended. Total investment in the project is around Rs 2.1 million including a working capital requirement of Rs 0.57 million.

This does not include three other PCs with admin.

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Total Investment (Rs) Capital Cost Working Capital

2,119,323 1,547,266 572,057

1.3 Opportunity Rationale

Information Technology has already become one of the largest sector of economic activity worldwide, and the software industrys total output alone has reached the mark of around US$1 trillion. However, Pakistans share in this huge market is negligible. Pakistan earned only $5 million from software exports in the year 1999 whereas, in contrast, India earned $7 billion from software export in the same year. This export opportunity cannot be tapped without a properly trained human resource base. The government has recently engaged itself towards provision of high quality IT education in the country and also encourages private sector to contribute its due share. All the income from such a venture is income tax free. In addition to this, various financial incentives offered by the government to software export houses are expected to result in a surge of demand for highly qualified software professionals in the next few years. In addition to the existence of high market demand, the project economics are also healthy, portraying a reasonably positive profit margins. Equity 63% 3.39 Project 54% 3.47

IRR Payback Period (yrs)

1.4 Viable Economic Size

An IT college is a service offering business and there cannot be a standardized viable economic size. However for this particular set up, it is expected that a minimum of 6-7 course offerings and a minimum of 7-8 students per class will enable the entrepreneur to earn health returns on his/her investment.

1.5 Proposed Capacity

The capacity of the proposed IT College at any point in time is 22-25 students in the two classes. However, the capacity can be increased if the number of prospective students increase in future.

1.6 Proposed Courses

Following courses, suggested fees & expected number of students are proposed for the IT college. 4
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NAME OF THE COURSE

EXPECTED STUDENTS

SUGGESTED DURATION NO. OF FEE (MONTHS) COURSES/YEAR

1 2 3 4 5 6 7 8 9

Visual Basic C++ JCP OCP MCSE MS Office E-Commerce Web Development A+

6 6 12 12 10 10 10 10 5

6,000 7,000 9,000 12,000 10,000 2,500 10,000 6,000 4,000

2 2 4 4 4 2 4 2 2

6 6 3 3 3 6 3 6 6

CURRENT INDUSTRY STRUCTURE

According to an approximate figure, there are more than 400 IT institutes in Pakistan. Around 150 of these are in Lahore alone. There is a general trend moving towards IT studies in Pakistan that makes this industry even more attractive. The local market is divided into different tiers depending on the quality of faculty, training facilities and affiliation. Bulk of the market however is attracted towards recognized and established groups. Therefore a number of foreign IT institute chains are coming into Pakistan including, APTECH & APIIT. In addition to these foreign affiliated institutions, local colleges with long established histories of quality education are also running as successful ventures. These include Nicon, Informatics, Petroman, Infologix etc.

MARKET ANALYSIS

3.1 Target Market

The target market for an IT College can be divided into subgroups depending on different criteria. These market segments will depend primarily on the city and locality in which this institute is to be established. However, for simplicity, this target market can be divided into two major groups. 1. Students School/College going students taking part time courses Full time IT Students 2. Professionals Any IT college shall assess the need of each of the individual target group and design its course offer accordingly. General guidelines for course offer include enough demand in the area and availability of a qualified instructor. In addition to that, the product offer 5
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shall be well balanced to offer different selected segments of the market according to its demand. MS Office and Internet package can suffice for schools going children, but college students will demand certification-oriented courses like MCSE, C++, OCP, VB, & JAVA. Macro Media, E-Commerce and Graphic Designing would be the courses demanded by professionals looking for skill diversification and enhancement. Moreover, the college shall adopt a policy where there is a balanced mix amongst the specialized courses that can act as flag bearers for the college enhancing its image, as well as simple courses that can bring volumes to the college.

3.2 Competition
Competition for any new IT college comes both from private as well as public sector. However, the public sector colleges are until now engaged in provision of longer degree courses in IT education and are not very well recognized in short courses. In the market of short IT courses, there are different tiers of competition present in the market. IT education market in big cities are primarily dominated by well recognized branded IT colleges with long historic track record or a foreign affiliations. Some of the colleges in this group are Nicon, Informatics, APTECH, APIIT to name a few. However, along with this front line schools, there are numerous other schools providing economical/cheap educational facilities to growing number of IT students.

3.3 Strategic Plan

Mushroom growth of IT colleges in major cities of the country has left any new entrant in the business with limited viable options. One of these is to distinguish itself through provision of high quality education and that too in cities & places where quality education is not easily available. Good quality education would mean hiring qualified instructors and offering a reasonably wide range of education services in a technologically well equipped environment.

MAN POWER REQUIREMENTS

The primary human resources requirement for an IT College is the course instructors for different courses offered by the institute. The number of the instructors depends on the courses offered and their pay structure will also be determined by the quality of education that the institute is expected to provide. In larger cities, especially in federal and provincial capitals, good quality qualified computer professionals at competitive salaries are abundantly available. However, at second string cities like Sargodha, Sialkot and Faisalabad, this can be a serious management problem that will eventually determine the success of the venture. Qualified professionals for high-end computer programs are not easily available in these cities. The recommended option for such a venture is to hire visiting faculty members from adjoining bigger cities at attractive salary packages in the initial phase. During this initial phase, the management can train own permanent staff or hire from among the qualified computer professionals passing out from its own college. A detail of the required personnel is given in the table below. 6
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POST CEO (Owner Manager) Course Consultant Faculty Teachers MS Office Teacher Visual Basic Teacher C++ Teacher JCP Teacher OCP Teacher MCSE Teacher E-Commerce Teacher Web Development Teacher A+ Administration Staff Security Guards Lab Supervisors Receptionist Office Boys Total

Number of Expected Salary Positions (Rs/person/month) 1 25,000 1 8,000 1 1 1 1 1 1 1 1 1 2 2 1 2 18 5,000 5,000 6,000 10,000 12,000 7,000 12,000 8,000 6,000 2,500 8,000 4,000 2,000 133,000

MACHINERY DETAILS

Major machinery and equipment required for an IT College includes computers and teaching aids like media projectors and printers. Moreover, it is also suggested that the whole college and its facilities should be networked. This will require networking equipment. In addition, for ensuring the safety of all electric equipment, UPS will also be required. The preferred computer to user ratio is 1:1 for short courses but for courses like Microsoft Word, Excel, Powerpoint, Access, Internet Explorer, the computer to student ratio can be 1:3. It is recommended that the entrepreneur buys Pentium II's. These can also be bought either second hand or brand new. The preference should be brand new as the new machines have a 10-12 month warranty. Although Pentium III's can be bought but there is no real requirement of a higher end machine, as the job to be done will be adequately performed by Pentium II's. The PCs need not be branded and are easily available in the local market. The minimum specifications that these PCs should have: PII - 266 Mega Hertz 7
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128 MB RAM 6GB Hard Disk 40X CD Drive 1.44 MB Floppy 14" monitor NIC (Network Interface Card)

At the time these pages were written, the price of this system was about Rs 21,000, but these prices are very volatile and keep changing every week. Given below, is the list of all the major machinery and equipment required: MACHINERY Units Cost Total Cost 25 21,000 525,000 2 22,000 44,000 13 10,000 130,000 1 60,000 60,000 1 25,000 25,000 2 25 1,000 50 2 16,000 500 16 45 3,300 32,000 12,500 16,000 2,250 6,600 853,350

Computers Printers UPS (Local) UPS (Imported) Server Networking Hubs Nodes Cabling (Feet) Patch Cables Panels Total Machinery Cost

Office Equipment & Furniture Media Projector 1 167,000 Multimedia Projector 1 96,000 Telephones 3 500 Total Office Equipment Total Cost of Machinery & Equipment

167,000 96,000 1,500 264,500 1,117,850

The cost of a network terminal is equivalent to a normal PC as it can very easily be converted into network server.

LAND & BUILDING

The college will have two classrooms that will also act as computer labs. In addition to that, a separate IT room is required for hosting tsshe server, the same IT room can also be utilized as a faculty room. The detail of required constructed land & building is given below,: 8
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Description Management building Class Rooms Cafeteria IT Room Pavement/driveway Total Space Requirement

Space in Sq. ft 250 480 120 320 176 1,346

(Should not be less than 15 Sq.ft per student)

Though ideally, a purpose built building can best suit an IT college, however any building with the required space in a peaceful environment can be rented out for the purpose. While selecting a suitable location, following points should be kept in mind: There should be sufficient parking available for students. The place should be conveniently accessible and within the reach of public transport route. An IT College should preferably be not located in a congested or commercial area. Telephone, electricity and Internet facility should be available.

FINANCIAL ANALYSIS

7.1 Project Cost

Capital Investment for purchase of equipment is the major component of total project cost of an IT college. While the detail of individual items is given above in the machinery section, a summary of the capital investment is given below. Capital Investment Machinery & equipment Furniture & fixtures Office equipment2 Pre-operating costs3 Total Capital Costs Rs 853,350 365,000 264,500 64,416 1,547,266

In addition to capital investment, the project will also require working capital. This detail is given below:

2 3

includes 2 Multimedia projector & 3 Telephone sets. includes Pre-operational Administrative expense & accrued interest.

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Working Capital Pre-paid building rent Pre-paid insurance payment Cash Total Working Capital Total Investment

Rs 242,190 42,668 287,200 572,057 2,119,323

7.2 Financing Arrangement

The project is based on debt to equity ratio of 1:1. Financing Plan Debt (Rs) Equity (Rs)

1,059,661 1,059,661

7.3 Project Economics

A comprehensive financial analysis & projections of the project show that the project has a potential to bring healthy positive returns to the investors. All estimates are conservative with minimal number of students in the initial phase. Equity 63% 3.38 Project 54% 3.47

IRR Payback Period (yrs)

KEY SUCCESS FACTORS

Ability to hire good quality faculty will eventually determine the success of the venture. Other critical success factors are the number of courses being offered in the institute and the environment and facilities offered.

8.1 Regulations
Income tax holiday for IT Training Institutions has been extended up to the year 2005.

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Financial Statements Statement

Income Statement
Year 1 Revenue Cost of goods sold Gross Profit General administration & selling expenses Administration expense Rental expense Utilities expense Communications expense (phone, fax, etc.) Office expenses (stationary, etc.) Promotional expense Insurance expense Professional fees (legal, audit, etc.) Depreciation expense Amortization expense Subtotal Operating Income Other income Gain / (loss) on sale of assets Earnings Before Interest & Taxes Interest expense Earnings Before Tax Taxable earnings for the year Tax NET PROFIT/(LOSS) AFTER TAX Balance brought forward Total profit available for appropriation Dividend Balance carried forward 2,454,000 2,454,000 Year 2 3,140,550 3,140,550 Year 3 4,008,690 4,008,690 Year 4 5,174,584 5,174,584 Year 5 6,720,534 6,720,534 Year 6 8,120,980 8,120,980 Year 7 9,391,390 9,391,390 Year 8 10,629,237 10,629,237 Rs. in Year 9 11,577,341 11,577,341 actuals Year 10 12,640,222 12,640,222

SMEDA

1,596,000 242,190 388,986 9,000 15,960 122,700 42,418 12,270 345,733 6,439 2,781,696 (327,696) 38,425 (289,271) 169,032 (458,303) (458,303) (458,303)

1,751,389 266,409 427,884 9,450 17,514 157,028 28,278 15,703 345,733 6,439 3,025,827 114,723 35,633 150,356 144,453 5,903 (452,401) 5,903 (458,303) (452,401) (452,401)

1,921,907 293,050 470,673 9,923 19,219 200,435 14,139 20,043 345,733 6,439 3,301,560 707,130 73,246 254,505 1,034,880 115,942 918,939 466,538 918,939 (452,401) 466,538 466,538 -

2,109,026 322,355 517,740 10,419 21,090 258,729 49,104 25,873 390,307 6,439 3,711,082 1,463,502 106,231 1,569,733 161,434 1,408,299 1,408,299 1,408,299 1,408,299 1,408,299 -

2,314,364 354,590 569,514 10,940 23,144 336,027 32,736 33,603 390,307 6,439 4,071,663 2,648,871 113,653 2,762,524 111,645 2,650,879 2,650,879 2,650,879 2,650,879 2,650,879 -

2,539,694 390,049 626,466 11,487 25,397 406,049 16,368 40,605 390,307 6,439 4,452,860 3,668,120 128,959 294,621 4,091,700 53,889 4,037,811 4,037,811 4,037,811 4,037,811 4,037,811 -

2,786,962 429,054 689,112 12,061 27,870 469,570 56,844 46,957 441,907 6,439 4,966,774 4,424,616 155,287 4,579,903 129,467 4,450,436 4,450,436 4,450,436 4,450,436 4,450,436 -

3,058,304 471,960 758,023 12,664 30,583 531,462 37,896 53,146 441,907 6,439 5,402,384 5,226,853 180,678 5,407,530 98,410 5,309,120 5,309,120 5,309,120 5,309,120 5,309,120 -

3,356,065 519,156 833,826 13,297 33,561 578,867 18,948 57,887 441,907 6,439 5,859,952 5,717,389 206,885 341,061 6,265,335 62,384 6,202,951 6,202,951 6,202,951 6,202,951 6,202,951 -

3,682,816 571,071 917,208 13,962 36,828 632,011 65,803 63,201 501,640 6,439 6,490,981 6,149,242 241,020 6,390,262 149,874 6,240,388 6,240,388 6,240,388 6,240,388 6,240,388 -

(458,303) (458,303)

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Statement Summaries
Balance Sheet
Year 0 Assets Current assets Cash & Bank Pre-paid building rent Pre-paid lease interest Pre-paid insurance Total Current Assets Fixed assets Machinery & equipment Furniture & fixtures Office equipment Total Fixed Assets Intangible assets Pre-operation costs Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Total Current Liabilities Other liabilities Long term debt Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Rs. in Year 9

SMEDA
actuals Year 10

508,060 20,183 42,418 570,660

260,432 22,201 28,278 310,911

452,230 24,421 14,139 490,790

1,012,688 26,863 49,104 1,088,655

1,111,933 29,549 32,736 1,174,218

1,161,121 32,504 16,368 1,209,993

1,418,063 35,755 56,844 1,510,661

1,687,676 39,330 37,896 1,764,902

1,925,874 43,263 18,948 1,988,085

2,211,817 47,589 65,803 2,325,209

2,608,587 2,608,587

848,350 365,000 264,500 1,477,850

565,567 328,500 238,050 1,132,117

282,783 292,000 211,600 786,383

982,071 255,500 185,150 1,422,721

654,714 219,000 158,700 1,032,414

327,357 182,500 132,250 642,107

1,136,870 146,000 105,800 1,388,670

757,913 109,500 79,350 946,763

378,957 73,000 52,900 504,857

1,316,069 36,500 26,450 1,379,019

877,380 877,380

64,392 64,392 2,112,902

57,953 57,953 1,500,981

51,514 51,514 1,328,686

45,074 45,074 2,556,450

38,635 38,635 2,245,268

32,196 32,196 1,884,296

25,757 25,757 2,925,088

19,318 19,318 2,730,983

12,878 12,878 2,505,820

6,439 6,439 3,710,668

(0) (0) 3,485,966

1,056,451 1,056,451

902,833 902,833

724,636 724,636

1,008,964 1,008,964

697,781 697,781

336,809 336,809

809,167 809,167

615,061 615,061

389,899 389,899

936,712 936,712

712,010 712,010

1,056,451 1,056,451 2,112,902

-

1,056,451 (458,303) 598,148 1,500,981

-

1,056,451 (452,401) 604,050 1,328,686

-

1,547,487 1,547,487 2,556,450

-

1,547,487 1,547,487 2,245,268

-

1,547,487 1,547,487 1,884,296

-

2,115,922 2,115,922 2,925,088

-

2,115,922 2,115,922 2,730,983

-

2,115,922 2,115,922 2,505,820

-

2,773,956 2,773,956 3,710,668

-

2,773,956 2,773,956 3,485,966

-

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Cash Flow Statement

Statement Summaries
Cash Flow Statement
Year 0 Operating activities Net profit Add: depreciation expense amortization expense Pre-paid building rent Advance insurance premium Accounts payable Cash provided by operations Financing activities Change in long term debt Issuance of shares Cash provided by / (used for) financing activ Investing activities Capital expenditure Cash (used for) / provided by investing activ NET CASH Cash balance brought forward Cash available for appropriation Dividend Cash carried forward Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Rs. in Year 9 actuals Year 10

SMEDA

(20,183) (42,418) (62,600)

(458,303) 345,733 6,439 (2,018) 14,139 (94,010)

5,903 345,733 6,439 (2,220) 14,139 369,994

918,939 345,733 6,439 (2,442) (34,964) 1,233,705

1,408,299 390,307 6,439 (2,686) 16,368 1,818,727

2,650,879 390,307 6,439 (2,955) 16,368 3,061,038

4,037,811 390,307 6,439 (3,250) (40,476) 4,390,831

4,450,436 441,907 6,439 (3,575) 18,948 4,914,154

5,309,120 441,907 6,439 (3,933) 18,948 5,772,481

6,202,951 441,907 6,439 (4,326) (46,856) 6,600,115

6,240,388 501,640 6,439 47,589 65,803 6,861,860

1,056,451 1,056,451 2,112,902

(153,618) (153,618)

(178,197) (178,197)

284,327 491,036 775,363

(311,183) (311,183)

(360,972) (360,972)

472,358 568,435 1,040,793

(194,106) (194,106)

(225,163) (225,163)

546,813 658,035 1,204,848

(224,702) (224,702)

(1,542,242) (1,542,242) 508,060

(247,628) 508,060 260,432 260,432

191,797 260,432 452,230 452,230

(982,071) (982,071) 1,026,996 452,230 1,479,226 466,538 1,012,688

1,507,544 1,012,688 2,520,232 1,408,299 1,111,933

2,700,066 1,111,933 3,812,000 2,650,879 1,161,121

(1,136,870) (1,136,870) 4,294,754 1,161,121 5,455,874 4,037,811 1,418,063

4,720,049 1,418,063 6,138,112 4,450,436 1,687,676

5,547,319 1,687,676 7,234,995 5,309,120 1,925,874

(1,316,069) (1,316,069) 6,488,893 1,925,874 8,414,768 6,202,951 2,211,817

6,637,158 2,211,817 8,848,975 6,240,388 2,608,587

508,060 508,060

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