Final Project of Project Appraisal and Financing Health Pharmacy

FINAL PROJECT:HEALTH PHARMACY

SUBMITTED BY:

17.M USMAN SHAUKAT L1F10MBBF2015

2.FARAH IRFAN L1F09MBBF2024

6.AYESHA KHAN L1F10MBBF0005

12.SABA AMJAD L1F10MBBF1045

35.SADEEQUE YAHYA L1S10MBBF2024

SUBMISSION DATE: 18 JAN 2014

SECTION: A

SUBMITTED TO:

PROF.NISAR AHMAD

PROJECT APPRAISAL & FINANCING

PROJECT APPRAISAL & FINANCING Page 1

FINAL PROJECT:HEALTH PHARMACY EXECUTIVE SUMMARY

In this pre-feasibility study, the proposed Medical Store is to be located in a

commercial market of Gulshan e Ravi having considerable presence of

middle or upper middle income groups. The product range offered in the planned

Medical Store is a blend of both multinational and national pharmaceutical

products. General products such as Food Supplements, Toiletries, Shampoos,

Soaps, Diapers, Sanitary Napkins and Prepaid Cellular Cards will also be

available at the store. The proposed medical store will remain open for 16 hours /

day.

The total initial cost for setting up a single outlet is estimated at Rs. 2 million

. The project will be financed through 90% debt and 10% equity. The NPV

is projected around Rs. 4.62 million, with an IRR of 39% and payback period of

3.16 years. The legal business status of this project is proposed as ‘Sole

Proprietorship’.

The medical store is required to be registered with respective District Health

Officer (DHO) of the region, under the Drug Act 1976.

BRIEF DESCRIPTION OF PROJECT & PRODUCT

In order to set-up a medical store, the investor needs to get the store and site

registered with the District Health Officer (DHO) of the respective region. The

registration requirements are available at the relevant DHO offices. In this prefeasibility

study the proposed medical store will be established in rented

premises with an area of around 1500 sq. feet, having electricity & telephone

connection.

Pre-Feasibility Study

The range offered in this Medical Store is a blend of both multinational and


FINAL PROJECT:HEALTH PHARMACY national pharmaceutical products. General Products such as Food Supplements,

Toiletries, Shampoos, Soaps, Diapers, & Sanitary Napkins, and Prepaid Cellular

Cards will also be available at the store.

The medical store will remain open for 16 hours / day. Initial trade volume is

calculated at Rs. 11.97 million in the first year, with an annual growth of 10%,

providing employment to 6 individuals.

Pharmacy Business

Name of Pharmacy The name of our pharmacy is Health Pharmacy

Proposed Ideal Location with Area:

• Exact location in front of Naveed Medical And Surgical Centre, area should have following specifications

• Front: 30 feet • Depth: 50 Feet • Total Area: 1500 Sq Ft

Significance of the Location:

The vicinity (in front and beside) of Naveed Medical And Surgical Centre is an ideal place for Pharmacy business as the hospital runs an out patient department (OPD) which provides consultation to approximately 100 patients daily during the day as well as in evening shifts.

The daily Out Patient Department is and edge which will contribute major sales volume.

Naveed Medical And Surgical Centre is a 20 bed hospital providing health care services round the clock, which will never stop patient’s flow in the vicinity.

Plus the Hospital provides Clinical services in all major areas that helps in the sale of major surgical items. Most Important departments of the hospital are.

Covers major Residential colonies of the area. (Both front and back of the road)

Prominent location ,is at the position near to exit of the road.

Has a wide road with ample parking space with proper brick lining


FINAL PROJECT:HEALTH PHARMACY Importance of Gulshan-e-Ravi Road

Two broad roads with full length extending approximately 3 kilometers.

Main hub of the area for both (Gulshan-e-Ravi and Samnabad)

Easy access from Samnabad ,Gulshan-e-ravi ,Sanda and Krishan Nagar to some extent.

The road has outlets of famous national brands such as: Gourmet, Doce, Service, Bata, and Levis Store. Others include many international Banks and large, small and medium size departmental and superstores.

Only market covering residential areas like Moon market ,Kot Khawaja Farid and other markets.

Exact Location Near Naveed Medical and Surgical Centre:

Pharmacies and Medical Stores at Gulshan e Ravi Road Lahore The vicinity of Gulshan e Ravi road is a mix of both chain Pharmacies as well

as local medical stores.

There are Two major giants of this business with there oldest presence in the area i.e.

Clinix for almost 1 year.


FINAL PROJECT:HEALTH PHARMACY Servaid Medical Store for almost last 2 years.

A total of almost 5-6 local medical stores also shares the total sales of this market.

Others with moderate sale figures include:

Ali Medical Store

Farhan Medical Store

HR with Wages at Gulshan e RaviRoad

0

10

20

30

40

50

60

70

Servaid Clinix Ali Medical Store

Sector Wise Comparison of Market Competitors

Medical Surgical Consumer

Pharmacy Manager

Pharmacist Purchaser Sr. Sales

Person/Shift In charge

Sales Person Trainee Sales Person



PROJECT ECONOMICS DETAILS Internal Rate of Return (IRR) 39% Payback Period (Yrs) 2.16 Net Present Value (NPV) - (Rs.)

4,624,446

PRODUCT CATEGORY PERCENTAGE IN TOTAL SALES Products of Multinational Companies 33.8 Products of National Companies 41.4 Herbal Products 7.5 Food Supplements 4.5 Eatables 3.0 Toiletries 2.3

ITEMS PROFIT MARGIN Margin on Multinational Sales 10% Margin on National sales 15% Margin on Herbal products 30% Margin on Eatables 10% Margin on Toiletries 10% Margin on Sanitation Products 10% Margin on Mobile Cards 3.5%

CAPITAL INVESTMENT AMOUNT (RS) Furnuture & Fixtures 584,500 Medical Store Equipment 193,000 Pre –Operating Cost 120,000 Total Capital cost 897,500 Intial Working Capital 1,166,050 Total Project Cost 2,063,550

Medical Store Equipment Costs

Equipment Quantity Cost per Unit (Rs.)

Total Cost (Rs.)

Computer 1 25,000 25,000 Software 1 100,000 100,000 UPS 1 40,000 40,000 Printer 1 10,000 10,000 Fax Machine 1 15,000 15,000 Telephones 2 1,500 3,000


FINAL PROJECT:HEALTH PHARMACY Total Equipment

193,000

Furniture &Fixture Costs

Description Quantity Unit Cost (Rs) Total Cost (Rs)

Refrigerator 1 25,000 25,000

Gluco Meter & BP apparatus

1 10,000 10,000

Wall Mounted Fans 4 3,000 12,000

Storage Racks

Chairs 6 2,500 15,000

Racks on Side Walls (15’x7’) – 315 sq. ft. @ Rs. 700 per sq. ft.

3 73,500 220,500

Racks on Mid of Shop (10’x3’) – 60 sq. ft. @ Rs. 700 per sq. ft.

2 21,000 42,000

Counter (10’x3’) – 60 sq. ft. @ Rs. 700 per sq. ft.

2 15,000 30,000

Glass Frame 115,000

Sign Board 25,000

Split A.C.s 2 45,000 90,000

Total Furniture & Fixture Cost

584,500

Staff Requirement (2 shifts)

Positions Number

Salary/Month (Rs.)

Annual Salary (Rs.)

Pharmacist 1 25,000 300,000

Salesman 3 12,000 432,000

Cashier 2 10,000 240,000

Total 6 972,000 Salaries of all employees are estimated to increase at 10% annually.



Expected Revenue Generation during Year-I

Product Category Expected Sales Amount (Rs.)

Products of Multinational Companies

4,050,000

Products of National Companies

4,950,000

Herbal Products 900,000

Food Supplements 540,000

Eatables 360,000

Toiletries 270,000 Sanitation Products 360,000

Pre Paid Cards 540,000

Total sales for the first year

11,970,000

The annual sales growth rate is estimated at 10%

INCOME STATEMENT

Year 1 Year 2 Year 3

Revenue 11,970,000 13,167,000

14,483,700

Cost of sales Add opening stock 856,050 863,184 Operating expenses 10,272,600 10,358,20

5 11,394,026

Less closing stock 856,050 863,184 949,502 Medicine Sold 9,416,550 10,351,07

1 11,307,707

Electricity Expense 240,192 264,211 290,632 Total cost of sales 9,656,742 10,615,28

2 11,598,339

Gross Profit 2,313,258 2,551,718 2,885,361 General administration & selling expenses

Administration expense 972,000 1,069,200 1,176,120 Rent expense 480,000 528,000 580,800 Travelling expense 30,000 31,500 33,075 Communications expense (phone, mail, etc.)

48,000 50,400 52,920

Printing & Stationary 60,000 63,000 66,150 Entertainment 48,000 50,400 52,920 Promotional expense 100,000 90,000 81,000



Consultancy Charges & Audit Fee 25,000 26,250 27,563 Depreciation expense 122,783 122,783 122,783 Amortization of pre-operating costs 24,000 24,000 24,000 Miscellaneous expense 24,300 26,730 29,403 Subtotal 1,934,083 2,082,263 2,246,734 Operating Income 379,175 469,454 638,627 Other income from Sugar Tests & Blood Pressure Checking 119,700 131,670 144,837

Earnings Before Interest & Taxes 498,875 601,124 783,464 Interest expense on long term debt (Project Loan) 154,146 141,122 124,005

Interest expense on long term debt (Working Capital Loan)

- - -

Subtotal 154,146 141,122 124,005 Earnings Before Tax 344,728 460,002 659,459

Tax 6000 - 25,946

NET PROFIT/(LOSS) AFTER TAX 344,728

633,513

BALANCE SHEET

Year 0 Year 1 Year 2 Year 3

Assets Current assets Cash & Bank 270,000 766,795 1,076,762 1,338,093 Accounts

i bl - - -

Raw material i t

856,050 863,184 949,502 1,044,452 Pre-paid annual land

- - - -

Pre-paid building rent

40,000 44,000 48,400 53,240

Total Current Assets

1,166,050 1,673,979 2,074,664 2,435,785

Fixed assets

Machinery & equipment

- - - -

Furniture & fixtures

584,500 526,050 467,600 409,150

Office equipment

193,000 128,667 64,333 223,422

Total Fixed A t

777,500 654,717 531,933 632,572 Intangible assets Total Intangible

120,000 96,000 72,000 48,000

TOTAL ASSETS

2,063,550 2,424,696 2,678,597 3,116,357 Liabilities &

Current liabilities



Cash Flow Statement

Year 0 Year 1 Year 2 Year 3

Operating activities

Net profit 344,728 454,002 633,513 Add: depreciation expense

122,783 122,783 122,783

Amortization of pre operatingcosts

24,000 24,000 24,000

Amortization of training costs

- - -

Deferred income tax

- 6,000 25,946

Accounts receivable

- - -

Accounts payable

- 16,417 16,554 18,210

Export re-finance facility

- - - -

Short term debt

- - - -

Other liabilities

Total Current i bili i

- 16,417 16,554 18,210 Other

Deferred tax - 6,000 31,946

Long term debt (Project L )

1,857,195 1,857,195 1,650,958 1,427,603

Long term debt ( ki

- - - -

Total Long Term

1,857,195 1,857,195 1,656,958 1,459,549

Shareholders'

Paid-up capital

206,355 206,355 206,355 206,355

Retained earnings

344,728 798,730 1,432,243

Total Equity 206,355 551,083 1,005,085 1,638,598

TOTAL CAPITAL

2,063,550 2,424,696 2,678,597 3,116,357



Finished goods inventory

- -

Equipment inventory

- - - -

Raw material inventory

(856,050) (7,134) (86,318) (94,950)

Pre-paid building rent

(40,000) (4,000) (4,400) (4,840)

Cash provided by operations

(896,050) 496,795 516,204 708,107

Financing activities

Project Loan - principal repayment

- (206,237) (223,355)

Working Capital Loan - principal repayment

- - -

Additions to Project Loan

1,857,195 - - -

Capital 206,355 - - -

Cash provided by / (used for) financing

2,063,550 - (206,237) (223,355)

Capital expenditure

(897,500) - - (223,422)

Cash (used for) / provided by investing activities

(897,500) - - (223,422)

NET CASH 270,000 496,795 309,966 261,331

KEY ASSUMPTIONS

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Hours operational per day 16 hours Days operational per month 30 days Day operational per year 360 days

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Revenue classification On the basis of diseases Sales growth rate 10% Other Income (%age of revenues) 1%



EExxppeennssee AAssssuummppttiioonnss

Printing & Stationary Rs. 60,000 per annum Entertainment Rs. 48,000 per annum Communication Expense Rs. 48,000 per annum Consultancy Charges and Audit (Annual) Rs. 25,000 Electricity cost growth rate 10% Electricity rate / unit Rs. 18 Electric Load 3 KW Depreciation Rate on Furniture 10% Depreciation Rate on Electric Equipment 10% Computers and printers 20%

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Accounts payable cycle 7 days Inventory 30 days

Comments:

Wages for Pharmacist Managers should be 30k.

Non Pharmacist Managers should be paid 25k per month.

Pharmacist without categories can be hired initially on 15k and 20k afterwards on receiving their categories.

Salaries of sales staff varies according to experience.

Inventory For Gulshan e Ravi Road

An initial induction of 1.5 million is essential.

65% of total stock is needed in General Medicine category which is approx 2 million.

11% is require to invest in Doctor Deal Products (DDP) which is almost 0.6 million.

A total surgical of 30% of complete inventory is required initially (Rupees 0.65 million)

A minor 4% of consumer can be added i.e. approx 0.2 million because of low volume of sales for consumer products in this market.


FINAL PROJECT:HEALTH PHARMACY Consumer items like cosmetics and general household products can also be

part of the inventory marginally.

Pharmacy Requirements and Operations

Contents:

1. Pharmacy Laws and Legislations.

2. Furniture Fixtures

3. Hierarchy of designations.

4. Inventory Ordering and Receiving

a) Centralize System

b) Decentralize System

5. Pharmacy Operations Overview

Pharmacy Laws and Legislations

Pharmacy space allowed for Category ‘A’ is minimum of 140 Square Feet with the front of at least 20 Feet

For Category ‘B’ minimum space should be 90 Square Feet.

The Presence of a qualified Person (Pharmacist) is essential for the supervision of sale of Drugs with stores have category ‘A’

Category ‘A’ Pharmaceutical retail outlet is allowed to sell all types of drugs including both narcotics and life saving insulin.

The sale of Imported (Smuggled Drugs) is prohibited on both ‘A’ as well as ‘B’ categories.

Temperature of the refrigerator containing life saving medications should be maintained in the range of 2-8 degree Celsius with its documentation.

The premises temperature should be below 25 degree Celsius to ensure the safety and efficacy of medical products.

Proper documentation with full details (Name of the Prescriber and Patient) of controlled drugs should be maintained on the register with counter signatures of a qualified person (Pharmacist)

The copy of drug sale license should be displayed on the front prominent area of the Pharmacy.

2. Furniture and Fixtures


FINAL PROJECT:HEALTH PHARMACY Racks made of Aluminum/Wood.

Glass Shelves fixed in Holdings.

Cashier chairs/Stools.

Manager’s table and Chair

Spare chairs for Pharmacy Staff.

IT Equipments.

Stationery Items.

Signs/Holdings.

Cash Safes.

Extra Shelves for excess storage.

Pharmacy Operation’s Overview







Suggestions


FINAL PROJECT:HEALTH PHARMACY Pharmaceutical Retailing business is more of a Product based rather then

Service based. However, the importance of service cannot be neglected but the product part dominates, so the availability of a product is of prime importance.

Hiring relevant people having business sense is a key managerial function which ultimately decides success or failure. So the right persons on the right slots get the job done!

Every area has its own profile, so adjusting the inventory mix according to the demand is the most effective approach that maximizes sales and minimizes losses.

In initial phase of every shop inventory induction is the requirement to set the ultimate profile of the area and after that adjusted according to sale.

A 24hrs pharmacy can be run with a total head count of 14 people conveniently without facing any difficulties of staff shortages, double duties. An overview is as follows:

One Pharmacy Manager.

One Purchaser (Optional in case of non central purchase system)

Two Pharmacists

Two cashiers at least

Two Sr. sale persons/Shift Incharge.

Six sale person

Trainee sales person (optional)

An ideal location for Pharmacy is one which is conveniently located with ample parking and is situated at a place which is a mix of both commercial markets as well as residential area.

To get the building selected one must keep in view the legal area requirements for the business.

Home delivery of medicines is one of the elements practiced by major chains it should have separate setup run by professionals with the addition of Drug Information Center round the clock.

Customer is the focal point in this business around which all rotates, meeting customer’s demand in a shortest possible span and if possible delivering the product at its door step within the committed time makes company valuable from a customer point of view.




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Final Project of Project Appraisal and Financing Health Pharmacy

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