smeda software house

Pre-Feasibility Study

SOFTWARE HOUSE

Small and Medium Enterprises Development Authority

Government of Pakistan www.smeda.org.pk

HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore

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

[email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE KHYBER PAKTUNKHWA

REGIONAL OFFICE BALOCHISTAN

8th Floor LDA Plaza,

Egerton Road, Lahore.

Tel: (042) 111 111 456, Fax: (042) 36370474

[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, 9213046-7 Fax: (091) 286908

[email protected]

Bungalow No. 15-A Chamn

Housing Scheme Airport Road, Quetta.

Tel: (081) 2831623, 2831702 Fax: (081) 2831922

[email protected]

June, 2010

Pre-feasibility Study Software House

1 EXECUTIVE SUMMARY................................................................................................................. 1 2 INTRODUCTION TO SMEDA ........................................................................................................ 2 3 PURPOSE OF THE DOCUMENT ................................................................................................... 2 4 OPPORTUNITY RATIONALE........................................................................................................ 3 5 INDUSTRY STRUCTURE ................................................................................................................ 3

5.1 CLASSIFICATION OF INDUSTRY..................................................................................................... 5 5.1.1 Product/Service Based Classification..................................................................................... 6 5.1.2 Market Based Classification................................................................................................... 7

6 MARKET ANALYSIS ....................................................................................................................... 9 6.1 MARKET DEMAND ....................................................................................................................... 9 6.2 OPPORTUNITIES IN MARKET....................................................................................................... 10

7 QUALITY MANAGEMENT........................................................................................................... 11 7.1 MANAGERIAL BEST PRACTICES ................................................................................................. 11 7.2 OBJECT ORIENTED DESIGN AND QUALITY ASSURANCE............................................................. 11 7.3 MARKETING STRATEGY ............................................................................................................. 12

8 PRODUCT/SERVICE...................................................................................................................... 12 8.1 SERVICES ................................................................................................................................... 12

The main technological services that will be offered, by category, include: ...................................... 12 8.1.1 Systems Integration............................................................................................................... 12 8.1.2 Technology Outsourcing....................................................................................................... 13 8.1.3 Business Process Outsourcing (BPO) .................................................................................. 13 8.1.4 Customized Application Development .................................................................................. 13 8.1.5 IT and Business Processes Consultancy............................................................................... 13 8.1.6 Information Security ............................................................................................................. 14 8.1.7 Products Based Solutions ..................................................................................................... 14

8.2 INDUSTRIES ................................................................................................................................ 15 8.2.1 Leasing and Finance ............................................................................................................ 15 8.2.2 Insurance .............................................................................................................................. 15 8.2.3 Banking................................................................................................................................. 15 8.2.4 Government .......................................................................................................................... 15 8.2.5 Defence ................................................................................................................................. 15 8.2.6 Manufacturing ...................................................................................................................... 16 8.2.7 Health ................................................................................................................................... 16 8.2.8 Education.............................................................................................................................. 16 8.2.9 Information Technology........................................................................................................ 16

9 HUMAN RESOURCES.................................................................................................................... 16 10 MACHINERY & EQUIPMENT ..................................................................................................... 17

10.1 IT EQUIPMENT............................................................................................................................ 17 10.2 FURNITURE AND FIXTURE .......................................................................................................... 17 10.3 VEHICLE..................................................................................................................................... 17

11 INFRASTRUCTURE ....................................................................................................................... 17 12 PROJECT DETAIL.......................................................................................................................... 18

12.1 PROJECT COST ........................................................................................................................... 18 12.2 PROJECT FINANCING .................................................................................................................. 19 12.3 PROJECT VIABILITY ................................................................................................................... 19 12.4 PROPOSED BUSINESS LEGAL STATUS......................................................................................... 19

i


13 ASSUMPTIONS................................................................................................................................ 19 13.1 REVENUE ASSUMPTIONS ............................................................................................................ 19 13.2 OPERATING EXPENSES ASSUMPTIONS........................................................................................ 19

13.2.1 Working Capital Assumptions.......................................................................................... 20 13.2.2 Accounting Depreciation on Assets ................................................................................. 20 13.2.3 Debt Assumptions ............................................................................................................ 20 13.2.4 Miscellaneous Assumptions ............................................................................................. 20

14 FINANCIAL PROJECTIONS......................................................................................................... 21 14.1 PROJECTED INCOME STATEMENT ............................................................................................... 21 14.2 PROJECTED BALANCE SHEET ..................................................................................................... 22 14.3 PROJECTED CASH FLOW STATEMENT......................................................................................... 23

15 ANNEXURE...................................................................................................................................... 24 15.1 ANNEXURE 1 PROJECT COST AND MEANS OF FINANCING ......................................................... 24 15.2 ANNEXURE 2 REVENUE GENERATION ....................................................................................... 25 15.3 ANNEXURE 3 LIST OF FIXED ASSETS.......................................................................................... 26 15.4 ANNEXURE 4 STAFF SALARIES .................................................................................................. 27 15.5 ANNEXURE 5 IMPORTANT CONTACTS ....................................................................................... 28 15.6 ANNEXURE 6 TAX DEDUCTION INCOME SLABS .......................................................................... 30

ii


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. The prospective user of this memorandum is

encouraged to carry out additional diligence and gather any information he/she feels

necessary for making an informed decision.

For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk

DOCUMENT CONTROL

Document No. PREF-93

Prepared by SMEDA-Punjab

Revision 2

Issue Date May 2006

Revision Date June 2010

Issued by Library Officer

PREF-93/June, 2010/ Rev 2 iii

http://www.smeda.org.pk/


11 EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY This project entails opening up a Software House that will cater to both local and export markets in the Middle East, USA and UK. The company’s corporate office will be opened in Lahore, Pakistan. The Software House will provide automated and Information Technology (IT) enabled solutions catering to businesses across various verticals in Pakistan, Middle East, UK and USA.

The Software House will have IT specialists with vast industry experience and knowledge. The company will offer a wide range of consulting services and cost-effective development of customized application softwares. In addition to this, the focus of the firm will be to become a multi-dimensional technology company deriving revenue and customer satisfaction from a variety of Information Technology services and custom software offerings including Technology Outsourcing, Systems Integration, Application Development, Processes Consulting, Business Intelligence Consulting, and Information Security Consulting among others.

Foreign-based companies have entered a recovery phase and started outsourcing their multiple services to the IT and IT-enabled companies of various countries. Pakistan has potential to grab its share in IT-enabled services market as well as contribute towards providing software applications to various developed countries. The demand is expected to flourish in the upcoming years. Many countries prefer outsourcing from Pakistan because of the lower cost of manpower and advanced technological infrastructure. This enables the IT sector to bring in good investment opportunities in the country. This will also be helpful in making more job opportunities in Pakistan.

The estimated cost of the project is Rs.16.24 million. The project is proposed to be financed through 50% debt and 50% equity. The project NPV is around Rs. 19.89 million, with an IRR of 43.5% and payback period of 3.35 years. The project will be run by qualified professionals. The legal business status of this project is proposed as ‘Sole Proprietorship’.

PREF-93/June, 2010/ Rev 2 1


22 IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA The Small and Medium Enterprises 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 industries such as horticulture, including export of fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport, dairy etc. 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.

33 PPUURRPPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT This particular pre-feasibility comes under the ‘Information Technology’ sector, a sub-sector of ‘Information and Communication Technology’ and is in regard to setting up a “Software House” in any big city of Pakistan.

The objective of this pre-feasibility study is primarily to provide an overview of the IT and IT Enabled Services (ITeS) business. This project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document covers various aspects of the business concept development, start-up, marketing, finance and business management.



44 OOPPPPOORRTTUUNNIITTYY RRAATTIIOONNAALLEE Competing in a worldwide scale, Pakistan’s IT industry has experienced massive growth in IT exports. With the fast paced industry growth rate and government’s investor friendly policies, Pakistan has become a major player in the IT industry, not just on the South Asian but on a global scale as well.

One of the biggest reasons to invest in IT is the fact that the Government of Pakistan has allowed 100% ownership of equity and 100% repatriation of profits for foreign investors. Major tax incentives for companies have been allowed till 2016. Also, the Government has given tax exemption on the income from export of computer software and related services.

55 IINNDDUUSSTTRRYY SSTTRRUUCCTTUURREE Information technology (IT) with its revolutionary power as a critical enabler of growth, development, and modernization is increasingly moving to the core of national competitiveness strategies worldwide. Recent economic history has shown that, as developed countries approach the technological frontier, IT is crucial for them to continue innovating in their processes and products and to maintain their competitive advantage. Equally importantly, IT has proven instrumental for enabling developing and middle-income economies to leapfrog to higher stages of development and fostering economic and social transformation.

In the recent past, global recession has slowed down the economies, but information technology is showing the way to recovery of the businesses and economies through innovative and smarter solutions. Pakistan’s economy has been under tremendous pressure during the period. This has also adversely affected the IT Sector. The growth has slowed down with no significant and sizeable investments coming during the year 2009-10 into the country. Despite this slow-down, the IT Sector is still vibrant enough and is envisaged to pick-up by the end of next year 2010-11.

The overall size of the Information and Communication Technology (ICT) industry in Pakistan has risen above $12 billion, including $1 billion under foreign direct investment (FDI). It is expected that IT exports in 2009-10 will reach US$ 250 million approximately against a target of US$ 280 million. This under-achieved status is mainly attributed to the overall uncertain situation that prevailed during the year 2009-10, which made the international investors reluctant to invest and undertake business in Pakistan and many local companies in expanding initiatives within the country. According to a report by the Pakistan Software Export Board (PSEB), the top five companies that have contributed the most to the IT sector are Netsol Technologies, Ovex Technologies, TRG Private Ltd, Systems Private Ltd, and Elixir Technologies.1

In the Public Sector Development Programme (PSDP) the amounts given in Table1-1 were allocated for information technology sector for various projects. These projects were executed by various Ministries/ Divisions.

Table 5-1 PSDP Budget Allocation for IT Sector Projects2

2009-10 2010-11 Budget Allocation (Rs.) 2.0 billion 3.2 billion IT Projects (Nos.) 65 71 Cost of Projects (Rs.) 16 billion 14 billion

1 PSEB Pakistan IT Industry Yearbook 07-08 (http://www.pseb.org.pk) 2 Planning Commission – Government of Pakistan (http://www.planningcommission.gov.pk/)



There are 1082 active IT companies in the country out of which 110 are ISO certified while over 25 companies are undergoing Capability Maturity Model Integration (CMMI)3 assessment currently. The country has 110,000 IT professionals including expatriates from North America and Europe.4

Several global IT companies such as NCR, IBM and Oracle use Pakistan as a regional hub for South Asia and Middle East. The year 2009-10 saw slight improvement in the network readiness index rankings. It increased from 98 in last year to 87 in the current year, showing the potential of Information Technology (IT) sector to perform well. Pakistan offers various competitive advantages over other outsourcing destinations, such as high quality software development, swift and easy establishment of business, low cost basis, emerging and state-of-the-art telecommunication and IT infrastructure. In spite of this, Pakistan still ranks much lower than its regional competitors.

The Government of Pakistan has been proactively taking measures to develop the IT sector in Pakistan. It is working to extend a greater cooperation and interaction between the government, industry and academia to get maximum benefits of information technology.5 A few of the incentives offered include tax exemption till 2016, establishment of IT Parks with low rent, foreign ownership of equity invested in IT and 100% repatriation of profit allowed to IT companies.4

Table 5-2 Statistics of Pakistan’s IT/ITES Industry4

IT companies registered with PSEB 1082 Substantial IT companies region-wise:

Karachi 611 Islamabad/Rawalpindi 479 Lahore 544 Other regions 105

Foreign IT and telecommunication companies 60 Number of CMMI-assessed companies:

CMM Level 5 1 CMMI Level 5 2 CMMI Level 3 3 CMMI Level 2 16

Total industry size US$ 2.8 billion IT and IT-enabled services exports US$ 1.4 billion Percentage growth in exports (2009-2010) 19% IT graduates produced per year Approx. 20,000 Export targets for fiscal year 2010-2011 US$ 350 million Number of institutes offering IT/CS programs 110 IT professionals in export-oriented activities More than 15,000 IT professionals employed in Pakistan 110,000 Space utilized in IT & Software Technology parks 11 parks covering 750,000 sq ft

3 Capability Maturity Model Integration (CMMI) is a process improvement approach that helps organizations improves their performance. 4 Pakistan Software Export Board (http://www.pseb.org.pk/) 5 Pakistan Telecom and IT news (http://propakistani.pk/2010/05/10/size-pakistan-ict-industry-rises-12-billion/)



The major achievements for 2009-10 are delineated below: 6

Human Resource Development The educated and highly skilled human resource is imperative for the growth of information technology. Pakistan has to equip not only its educational institutions at all levels with the information technology facilities but also it has to establish new vocational training centres throughout the country which focus on providing training to convert the latent human resource available into a highly skilled IT workforce that is competitive at the world level.

Information Technology Industry Development In order to strengthen the local information technology industry to compete in the international markets, following projects were executed during the year 2009-10:

• Purchase of Land in Karachi and Lahore for Establishment of IT Parks was approved for capacity building of IT industry. This project will boost the information technology infrastructure and facilitate more companies to establish their business in Pakistan.

• IT Parks Construction projects’ consultancy for both Karachi and Lahore airports was launched during the year. These parks will facilitate more IT firms to establish their businesses in the country.

• Standardization of Pakistani Software Industry Program was initiated to obtain internationally recognized certifications by local companies. As a result, the number of Capability Maturity Model Integration (CMMI) assessed companies has increased. Currently CMMI certified companies according to their level include, two CMMI Level-5, three CMMI Level-3 and sixteen CMMI Level-2 companies. Also, now there are 110 ISO-9000 certified. ISO 27001 consultancy and audit of ten IT companies has been completed this year.

• Automation of Domestic Industry on Open Source Systems. This project was initiated to encourage the local companies to develop expertise in open source arena as well as to provide automation at low cost for domestic industry

5.1 Classification of Industry On the basis of reports and research software industry can be categorized as follow:

i) Product /Service Base

• Product Focused

• Services Focused

• Hybrid Operation

ii) Market Base

• Domestic-Focused Local Firms

• Export-Focused Foreign Firm

• Export-Focused Local Firms

• Export-Focused Foreign Firms

• Dedicated Development Centre

6 Planning Commission Annual Plan – Government of Pakistan (http://www.planningcommission.gov.pk/)



5.1.1 Product/Service Based Classification In terms of product/service strategy there are product focused or packaged software companies, software/IT services and software/IT consulting companies working in a niche product/service market.

5.1.1.1 Product Focused In Pakistan numbers of products have been developed and are successfully working in multiple organizations. However, there is still plenty of room for growth in this area.

Potential Areas for Product-Focused Companies i) Financial Management System

ii) Payroll/ Supply Chain Mgt. System

iii) Share & Portfolio Mgt. System

iv) Flagship Product.

v) Medical Insurance Plan

vi) PBM (Project Building & Monitoring)

vii) E-Call , E-Share and E-CRM Solutions in B2C

viii) Purchase & Inventory Mgt. System

ix) Fixed Assets Management System

x) Real-Estate-Property System

xi) Hospital Mgt. & Patient Filing System

xii) MOR (Manage Your Own Risks)

xiii) Software Measurement and Metric Tool (SMMT)

xiv) E-CRM Solutions in B2B, E-DoX, E-FaX, E-College 5.1.1.2 Service Focused The second largest focus area is the customized services. Companies focusing on customized services provide standardized software applications with some customization. In this category a software house can work on more than one project. The customized services provided by the software houses are given in Table 5-4.

Potential Areas for Service-Focused Companies i) EPR Solutions & B2C & B2B Business Model- KalPoint

• IVR Systems

• Public Map-Geographic Info System

ii) Web Designing and Development

• TTI Voice hardware platform mostly for banking sector 5.1.1.3 Hybrid operations-Changes in Existing Product Another area that has potential in Pakistan market is implementation of already developed Standard ERP Solutions like Oracle, SAP-R/3, SAGE and ACCPAC etc. In this area there is very little competition prevailing in local market.



5.1.2 Market Based Classification Another way of classifying the software industry is according to their market orientation i.e. those companies that are predominantly export-focused, domestic-focused and with hybrids working in between in both export and domestic markets. 5.1.2.1 The Export-Focused Local Firm These firms are owned by Pakistan-based entrepreneurial team (that may or may not have been aided/encouraged by a group of expatriates), but with an explicit purpose of exporting software products or services. Majority of firms are targeting on offshore programming and coding for foreign clients. In this category, the companies focusing on products have numbers relatively smaller than those focusing on export of services. Companies that are following this business model are:

i) Three sixty Degrees (Lahore)

ii) Post Amazers (Karachi)

iii) Advanced Communications (Islamabad)

iv) Makabu (Islamabad)

v) Netsol (Lahore, Karachi and Islamabad)

vi) Autosoft Dynamics (Karachi and Islamabad) 5.1.2.2 The Export-Focused Foreign (Expatriate) Firm These firms are based either overseas or in Pakistan and are usually run by an expatriate entrepreneurial team, with an explicit purpose of using Pakistan-based offshore development facility to deliver a product or service demanded by foreign market. This type of business model has been adopted by services and product-focused companies alike. Within both services and products domains, this type of model has been more valuable than Export-Focused Local Firm model. Some salient examples of companies following this business model are:

i) Elixir Technologies (Islamabad)

ii) Etilize Inc. (Karachi)

iii) Ultimus (Islamabad)

iv) MixIT (Karachi)

v) TechLogix (Lahore)

vi) Prosol (Islamabad)

vii) Xavor (Lahore) 5.1.2.3 The Domestic-Focused Local Firm These firms plan to export its products or services abroad and are merely using the domestic market as a vehicle to gain reputation. These companies first do enough “large” projects fairly quickly in the local market to build a reputable portfolio of customers, to develop a domain expertise, and to migrate effectively to a much more sophisticated and quality conscious foreign market. The more successful of these firms have already begun to look overseas, primarily the Middle Eastern region, for a portion of the export market and have been fairly successful. Some salient examples of this type of business model are:

i) 2B Technologies (Karachi)



ii) ZRG (Karachi)

iii) TPS (Karachi)

iv) Lumensoft (Lahore)

v) Yevolve (Karachi)

vi) SI3 (Karachi)

vii) Softech Systems (Lahore)

viii) AppXS (Karachi)

ix) Genesis Solutions (Karachi) 5.1.2.4 The Domestic-Focused Foreign Firm The Domestic-Focused Foreign (Expatriate) Firm is almost non-existent due to the small size and lack of maturity of the local market. It does, however, find some expression in the relocation of Pakistani expatriates back to Pakistan with a desire to set up companies that either serve the local—the prime example being SI3 whose expressed purpose is to work on the domestic front—or the export market but who end up doing quite a fair bit of work in the domestic market as well. 5.1.2.5 Dedicated Offshore Development Centre There are fairly limited offshore development foreign companies. It is different from the Export-Focused Foreign (Expatriate) Firm in the sense that it is often an “add-on” to an already existing company who’s strategic and managerial processes and controls are quite well-established. It, therefore, does not get an equal say in the long-term vision and strategic direction of its parent. Some salient examples of this type of business model are:

i) MetaApps (Lahore)

ii) ITIM Associates (Karachi)

iii) Clickmarks (Karachi)

iv) Trivor Systems (Islamabad)

v) Strategic Systems International (Lahore)

Table 5-3 Market Base Business Model

Domestic-Focused Local Firms

Export-Focused Local Firm

Export-Focused Foreign Firm

Dedicated Development

ZRG Three Sixty Degree Etilize ITIM AssociatesTPS Post Amazers Prosol MetaApps

Lumensoft Advanced Comm. Adamsoft ClickmarksYevolve Netsol Ultimus Enabling Tech.

2B Technologies Makabu MixIT Trivor SystemS13 Autosoft Dynamics Techlogix Strategic System

Softech System Sidaat Hyder Xavor ESP Global Genesis Solution Avanza Solution Elixer

Alchemy Technology Gonet AppXS Kalsoft Oratech Jinn Technologies



Askari Info System Secure network Acrologix Systems Ltd. Comcept Progressive System LMKR Millennium Software CARE Cressoft

66 MMAARRKKEETT AANNAALLYYSSIISS 6.1 Market Demand Foreign-based companies have entered the recovery phase and started outsourcing their multiple services to the IT and IT-enabled companies of various countries. Pakistan has potential to grab its share in IT-enabled services market although it is also competent in providing software applications to various developed countries, demand will be flourishing in the upcoming years.

United States of America is the largest buyer of Pakistan IT-enabled services with the share of 58 percent in the overall country’s exports. It is followed by UK, where the exports are hovering around 10 percent. The pie of total exports shows 16 percent share to the other countries including Australia, Canada, Thailand, UAE and others.

Companies such as IBM, Microsoft, Cisco Systems, Hewlett Packard, and Novell choose to get services from sub-contractors in low cost countries with strong IT capability, HR capital and infrastructure and low risk. These companies are also moving many development and support jobs to such locations.

Ratios of revenue generation from export and domestic market are approximately 60:40. In export, revenues generate from products and services are 22.55% and 38.55% respectively. Majority of the product-exports are “customized” rather than “shrink-wrapped” products.

Exporters are optimistic on the sustainability of export growth gradually in tandem with the recovery of developed economies where country has good markets. The demand of local IT services has gotten better in the traditional exports’ market in the recent times.

Pakistan’s market demand can be viewed by last year’s growth at around 37% in revenue and 27% in terms of technical and professional employment. Another encouraging sign is the reverse brain drain caused by returning Pakistani entrepreneurs who see the relatively less competitive and virgin market at home as a tremendous opportunity for setting up a Pakistan based company.

There are quite a few hundreds of software houses in Pakistan and the count is increasing rapidly. These software houses are working to make Pakistan a bright mark in the world of IT. They are producing many useful products which have modernized the processes of traditional industries and also increased their productivity. As we see, computer has become a significant part of every walk of our lives and many processes have become automatic now. All the big shopping malls have computerized billing system now. Almost every organization keeps its data in computerized form. Computer and internet awareness is also increasing and the trend of e-commerce is emerging fast. People, whatever field they belong to, consult internet for any queries which come into mind.

Most of the Pakistani companies are working for financial institutions, automobile, call centres and miscellaneous services sectors in different countries.

The demand in the market exists for the following solutions and services



Table 6-1 Market Demand

• Financial and Leasing Solutions • Banking, ATM Solutions • Inventory, Payroll and Marketing • Retail Store Systems • Mortgages, Portfolio Management • Call Center Automations • Health Care Solutions • VOIP Billing• Manufacturing and ERP Solutions • Traveling & Hotel Management • Project Management & Business • Human Resource Solutions

Table 6-2 Services Available in the Market

• ZRG – Call Center & Telephony Solutions

• Softech Systems–Financial & Trading Systems

• TPS – Banking and Switching Solutions • Genesis Solutions–ATMs, Info &Vending Kiosks

• Lumensoft – ERP & Inventory Systems • Alchemy Technologies – Risk-Mgmt Solutions

• Yevolve – Software for Handheld in Transport/SCM

• AppXS – Financial & Trading Systems

• 2B Technologies – Call Center Solutions • Oratech – Oracle-based Applications

• SI3– System Integration & Back-Office Outsourcing

• Askari Info Systems – ERP, Financials-Accounting

• Acrologix – ERP, Archiving, foreign-language OCR

• Concept – Communications Systems

• LMKR – Large DBs, GIS, Petrochemicals etc.

• CARE - Telecom Eqpt., ASICs, EDA Tools etc.

6.2 Opportunities in Market The following opportunities are present in IT Sector of Pakistan:

• Development of packaged software

• Quality training and development of specialized human resources

• Re-engineering and computerization of government/public sector and private sector organizations installation of network (LANS, WANS, etc)

• E-information switch over to Urdu as a computer language

• Reorganization and growth of communications infrastructure

• Foreign exchange earning potential utilization of available educated human resources pool unlimited e-commerce potential

• Global and domestic Internet explosion

• World-wide growth and lowering of cultural barriers due to the use of the internet and globalization will drive IT usage

• Government drive for documentation will provide growth opportunities

• Entertainment potential of IT and the internet

PREF-93/June, 2010/ Rev 2 10


77 QQUUAALLIITTYY MMAANNAAGGEEMMEENNTT 7.1 Managerial Best Practices The proposed Managerial Best Practices (MBP’s) for the project could be as follows:

• Develop effective export-focused operations, to the extent possible, seek a strong expatriate connection (e.g. a founder or co-founder either based abroad or operating equally from home and abroad) and use his/her personal connections and networks to get a “foot-in-the-door” or even acquire first customers.

• Actively pursue alliances with synergistic entities and off-shoring and marketing relationships with past clients

• Engage with software multinationals (e.g. Microsoft, IBM, SAP, NCR, Oracle etc.) in development and marketing arrangements.

• Understand the importance of developing a domain expertise and maintaining a focus. Develop a domain expertise by learning to take the big-picture view of the client’s business operations and look for opportunities to sell business rather than technology solutions. Get domain experts involved, if need be. Avoid the temptation of “on-today-off-tomorrow” type of contracts.

• Focus on better-developed segments of market. Understand requirements and difficulties in “creating” a market single-handedly and plan accordingly.

• Price innovatively.

• Use the financial clout, domain knowledge, and regional network of locally operative multi-nationals (MNCs) to fund start-up.

• Understand where you need help (e.g. management, marketing, institution building, legal, accounting) and seek it.

• Be creative and innovative about projecting Pakistan as a responsible country. Persuade your customers and foreign partners to visit Pakistan and see for themselves.

• Develop strong domain expertise to lock in customers, move towards value addition to avoid being pressed by the pressures of the commodity business, or continually cut costs by automating your own processes.

• Counter the shortage of quality labour by hiring expatriate or returning Pakistanis. Hire people with the right attitude, not skill-set or coursework.

• Know the land, its people and their customs and, to the extent possible, play by its rules. Make use of connections to get your way around. Make use of facilitation agencies e.g. SMEDA, PSEB. BoI, or P@SHA where possible.

7.2 Object Oriented Design and Quality Assurance Quality design is the foundation of a quality product. The assurance of software quality should start from the design phase. Formal object-oriented design methodology should be followed to ensure code understandability, reusability, extensibility, and maintainability,

The quality assurance process has a lifecycle of its own, which runs parallel with the design/development process, it begins when the specifications are delivered, and continues for the entire life of the project.

PREF-93/June, 2010/ Rev 2 11


7.3 Marketing Strategy If we look the software industry and its various marketing approaches used by software houses and their perception of “successfulness”. The following seven successes of marketing strategies are used by them;

• Word of Mouth Approach (Client referrals etc)

• Advertising in trade local/foreign journals

• Attending local/foreign trade conferences

• Initiate 1-to-1 communication with potential clients

• Use pre established networks/personal relationships

• Alliances and agreements with channel partners

• Depend on a “Captive” client since formation

88 PPRROODDUUCCTT//SSEERRVVIICCEE The project concept is of a software development house, catering to both local and export markets, with corporate presence in Lahore, Pakistan. The company will offer a full range of business application solutions for the corporate, financial and industrial sectors and its international target market will be USA and UK. The project's strategic vision will provide the clients with quality systems to stimulate their growth in the existing competitive markets. Three important aspects are being considered while developing the project:

1. Robust, and extensible architecture and design

2. Good software quality

3. On-time delivery

The strategies required to achieve these objectives are:

• Employing a highly professional and experienced staff in all aspects – project management, architecture, design, development and Quality Assurance

• Ensuring continuous personal and professional growth through on-going training

• Having a well-developed organization structure, and well-defined responsibilities within the company in order to ensure good teamwork, coordination, and timely product delivery

• Providing good customer support and services 8.1 Services The main technological services that will be offered, by category, include:

8.1.1 Systems Integration Due to the dynamic nature of the business environment and the increasing demand for efficiency in today’s world, expertise is required in systems integration at enterprise wide scale.

Systems integration capabilities are required to help minimize risk and maximize security, interoperability and compatibility. For any organization to make the best possible decisions the existing systems should be well-integrated with the new technologies; new technologies that provide the best possible platform to suit any organizations business needs.

PREF-93/June, 2010/ Rev 2 12


The services will include helping organizations successfully plan, customize, implement and deploy the Oracle Applications suites that include Financials, Supply Chain Management, Manufacturing and Inventory. Other offerings specific to the financial industry, include Risk Management, Asset Liability Management and Treasury Management solutions.

8.1.2 Technology Outsourcing Technology Outsourcing solutions will be offered to clients all across the globe by providing technology, processes, domain, resources and management experience and expertise that are crucial to navigate various business environments. There is a high level of competition in the fast-paced IT industry; Technology Outsourcing is a necessity to maximize a company’s potential by outsourcing resource-consuming processes and controllable costs.

However, understandably there are numerous risks associated with this. Using experience and management skills one should ensure that the offshore solution is predictable and cost-effective by successfully managing and mitigating risks associated with outsourcing and hence, enabling the customers greater profitability by extracting maximum reward with minimal risk. Consistent and reliable communication channels aid in virtually eliminating the risk of an off-shore partner by use of state of the art video conferencing equipment and a dedicated high speed fibre optic connection.

8.1.3 Business Process Outsourcing (BPO) The most successful businesses of today have outsourced their processes and saved time and money to focus on customers and marketplaces. Companies are looking for ways to reduce overheads and focus on their core business, thus outsourcing is the best solution available to them. In most countries, the acute shortage of qualified personnel combined with the ever increasing salary levels has placed an enormous burden on firms and businesses alike.

In a recent Accenture survey of more than 800 companies, in the US and Europe, 86% of the companies said outsourcing gives them more control over business results in a variety of critical areas, the most important being the ability to plan. While cost savings are an important consideration the executives also reported a number of other benefits such as reliability and the effective implementation of ideas. Pakistan has an abundant supply of qualified accountants at all levels to undertake the necessary work for clients.

8.1.4 Customized Application Development This service should include creating customized e-business software solutions based on unique specifications to give the competitive edge in an increasingly competitive market. The company's core business principles should include a methodical, solutions-based approach to developing software applications.

8.1.5 IT and Business Processes Consultancy Information technology services are valuable only if they fulfil the business strategy and project objectives set forth. The company's expert consultants should have the technical knowledge and business experience to ensure the optimization of the development process in alignment with basic business principles. The consultants will aim at maximizing organizational efficiencies through enhanced business processes and cost savings measures that cater, not only to the clients’ immediate needs but also to the long-term goals. The company will provide the streamlining, realignment and restructuring of the business processes of an organization that help gain meaningful business value from planned IT implementations.

As the state of affairs of businesses change, organizations feel the need of moving to state-of-the-art IT enabled solutions to survive and participate in the competitive market. This particular service will help organizations to do just that virtually trouble-free.

PREF-93/June, 2010/ Rev 2 13


The company will undertake the following tasks to make software technology work for its clients:

1. Check commercial viability of client's existing technology

2. Determine new technology outside of the client's industry

3. Compare client's technology with the best in its industry

4. Suggest, develop and implement the best solution

5. Integrate and automate client's work flows and business processes

8.1.6 Information Security Information is the lifeblood of all organizations – be it written, printed, electronically stored, transmitted or communicated verbally. In today’s global economy, the success or failure of an organization, from SMEs and large corporations, depends upon the confidentiality, integrity and availability of corporate information. As a result, Information Security has become one of the most important topics for modern organizations.

The information security services will be designed to ensure protection from threats and vulnerabilities while ensuring seamless operations for organizations.

Professional Services: 1. Security Policy Development

2. ISO 27001 ISMS Life Cycle Consulting

3. Penetration Testing and Vulnerability Assessment

4. Business Continuity Planning / Disaster Recovery

5. Secure Network Architecture Design and Deployment

Benefits:

1. Lower operating costs

2. Better regulatory compliance

3. Dedicated expertise allow focus on core business

4. Professional processes

5. Continuous management and support

6. Network and System integrity

8.1.7 Products Based Solutions The company will provide a number of mature and comprehensive IT solutions successfully implemented. These products extend to various domains; standing out in which is LeaseSoft, a comprehensive end-to-end product for the lease and finance industry.

The major products are:

1. LeaseSoft - a suite of four software applications, an end-to-end solution for the lease and finance industry

2. Motor Transport Management Information System - a distributed database system for the complete automation of motor transport information

3. iBanking - A fully integrated solution for the Wholesale & Finance industry

4. KB Vault - A Knowledge Base Management System

PREF-93/June, 2010/ Rev 2 14


8.2 Industries A wide range of potential industries that can be catered include:

8.2.1 Leasing and Finance The constituent software applications are:

i) Credit Application Processing System (CAP)

Automated robust credit application processing: The system is equipped with strong workflow management, integrated link to credit rating agencies, automated point scoring strategy for automatic approval/rejection/referral. Moreover, it can be customized for linking with any point of sale system.

ii) Contract Activation & Management System (CMS)

Automated comprehensive contract management throughout the life of the loan / lease: System provides comprehensive business functionality that enables its users to effectively and smoothly manage and maintain a contract with the most comprehensive details throughout its life cycle. It also provides interfaces with the company’s banks and accounting systems. System also effectively maintains details of all business stakeholders, e.g., customers, dealers, debtors, guarantors, insurance companies, banks, etc.

iii) Wholesale Finance System (WFS)

Automate and manage wholesale finance activities: The system covers credit limit requests, payment of loan, billing, settlement, auditing of stocks, agent/dealer information and ultimately the pay-off function. A Dealer Access System enables dealers/agents and auditors to connect with the system, see relevant information and carry out transactions.

8.2.2 Insurance The services for the insurance industry include business analysis, software quality assurance, configuration expertise, technical publication and analysis & reporting.

8.2.3 Banking The products and services in the banking sector include:

1. iBanking

2. Business Intelligence

3. Electronic Credit Information Bureau (e-CIB)

8.2.4 Government With the help of advanced hardware and technology turnkey solutions can be provided to various government and semi-government organizations. This includes services ranging from software development, data entry, project management, training, implementation, maintenance and support to provision of hardware and network infrastructure.

8.2.5 Defence The domains that can be catered to in the Defence sector are:

1. Command & Control Systems

2. Office Automation Applications

3. Education & Training Institutions

4. Statistical & Analytical Applications

PREF-93/June, 2010/ Rev 2 15


5. Computer Based Training (CBT) Applications

6. Processes Analyses & Reengineering consulting

8.2.6 Manufacturing The services for a Manufacturing concern include System Integration of Enterprise Resource Planning (ERP) applications catering to the different parts of an organization including Financials, Supply Chain Management, Manufacturing and Inventory, Asset Management Software and Services through the dedicated Enterprise Asset Management Solutions of Info Data Stream.

8.2.7 Health The healthcare industry in Pakistan is growing at a huge rate and is one of the areas that have the most urgent need of automation. The requirement is to developed a strategic collaboration with hospitals and medical centres as part of a long term commitment for IT development in Pakistan’s Health Sector.

8.2.8 Education Services for automation of the Education sector involve supply and installation of software licenses of 3 rd party software applications, systems integration, customized application development, deployment, configuration, customization in addition to end user training and maintenance services. Diverse range of IT solutions include computer based training, data management and knowledge sharing, business process reengineering and network infrastructure development.

8.2.9 Information Technology Information technology services are valuable only if they fulfil the business strategy and project objectives set forth. Expert consultants having the technical knowledge and business experience will ensure the optimization of the development process in alignment with basic business principles. IT Consultancy services are extended in domains such as Information Security and Software Process Consultancy.

99 HHUUMMAANN RREESSOOUURRCCEESS The project should have highly educated and skilled manpower to support its software development operations. Success of a software house is mostly dependant on the qualification, experience and dedication of its staff.

The CEO should have Ph.D. / M.S. degrees from leading foreign universities preferably from USA and UK, with experience of export software. The CEO will provide the overall technical and business direction for software development activities.

The Chief Software Architect - CSA, will have a strong background in software design and architecture, with special focus on Object-Oriented Design and implementation. His role will be streamlining the software development methodology and life cycle, and software design processes. Validating object designs and acting as technical consultant for team lead and developers.

The majority of technical team would have full command on methods, tools and technology necessary to develop high quality enterprise software systems and would be capable to generate an idea from scratch, analyze it, form a solution, implement it and then deploy it. Staff should be trained and fully equipped with latest technology and advancement.

This software house will require a total of 35 employees, 23 of which is the technical staff that will be directly involved in revenue generation. The other 12 non-technical employees will be required of office administrative functions.

PREF-93/June, 2010/ Rev 2 16


The details of staff and their salaries for the first year are given in Annexure 4. The annual salary growth rate is taken to be 10%.

Table 9-1 Monthly Staff Salary

Staff No of Employees Salary Per Month (Rs.)Technical Staff 23 1,205,000Non Technical 12 262,000Total Staff 35 1,467,000

1100 MMAACCHHIINNEERRYY && EEQQUUIIPPMMEENNTT 10.1 IT equipment The IT equipment includes Computers, Laptop PCs, Servers, UPS for PCs and networking equipment. The detail list of Computer and equipment is given in Annexure 3. This IT equipment will be re-purchased after every three years. 10.2 Furniture and Fixture The list of office furniture and fixture is given in Annexure 3. 10.3 Vehicle The list of vehicles and other conveyance is given in Annexure 3.

1111 IINNFFRRAASSTTRRUUCCTTUURREE The proposed location in Lahore is Gulberg or Defence Housing Authority and in Islamabad highly maintained available infrastructure areas are Sector E, Sector F, Evacuee Trust Building, and Software Technology Park etc. An office can be rented out in any of these locations. The rent for an office in the proposed areas is estimated at Rs. 300,000 per month.

PSEB has established Software Technology Parks (STPs) in Islamabad, Karachi, and Lahore to facilitate the IT and IT-enabled Services (ITeS) companies operating in Pakistan. Designed with a view to getting business ventures up and running in the shortest possible time, these STPs provide office space with all the modern conveniences in prime business locations in these major cities. These dedicated premises provide a comfortable working environment, high-speed international data connectivity, and an uninterrupted power supply, with minimal regulatory overheads and paperwork, to its registered companies. The STPs in all these cities have facilities for conferences/seminars, business centres, adequate security arrangements, and ample parking space. Investors can lease out office space in an existing Software Technology Park (STP). The contact information for details on leasing office space is given below: Contact Information: Mr. Nasir Khan Afridi Director Infrastructure Pakistan Software Export Board (G) Limited 2nd Floor Evacuee Trust Complex F-5, Aga Khan Road Islamabad - 44000 Telephone: 92-51-9204074 Extension 115, 92-51-9220813 Fax: 92-51-9204075 E-mail:[email protected]

PREF-93/June, 2010/ Rev 2 17


1122 PPRROOJJEECCTT DDEETTAAIILL 12.1 Project Cost The detail of the project cost is as follows. There is an initial licensing fee of US$ 1,900, which is a one time fee.

Table 12-1 Project Cost Rupees

Capital Investment Requirement 9,520,000Working Capital Requirements 6,724,670 Total Project Investment Requirement 16,244,670

Table 12-2 Project cost break down

Project Cost Rs. Rs. Land Project Development cost Equipment 3,332,500 Furniture & Fixture 1,887,000 Motor Vehicles 3,265,000 8,484,500 Preliminary Expenses Copy rights-Licensing & Trade Marks 161,500 Other Expenses 874,000 1,035,500 Working Capital 6,724,670 Intangible Assets Total Assets 16,244,670 Total Capital Employed By: Equity Contribution by Sponsor 50% Loan Bank 50% Total Capital Cost 100% 16,244,670

Table 12-3 Working Capital break down

Year 1Current AssetsReceivables 5,692,960 Advances to Employees 2,000,455 Total Current Assets 7,693,415 Current LiabilitiesUtilities Payable 73,744 Salary Payable 895,000 Total Current Liabilities 968,744 Net Working Capital 6,724,670

PREF-93/June, 2010/ Rev 2 18


12.2 Project Financing Project financing will be done through 50% equity and 50% debt.

Table 12-4 Project Financing Rupees

Debt @ 50 % 8,122,335 Equity @ 50 % 8,122,335 Total Project Investment Requirement 16,244,670

12.3 Project Viability

Table 12-5 Project Viability NPV Rs. 19,896,000IRR 43.5 %Pay Back Period 3.35 Years

12.4 Proposed Business Legal Status The legal structure of the business entity can either be sole proprietorship or partnership. Although the selection totally depends upon the choice of the entrepreneur, this particular feasibility is based on a Sole Proprietorship.

1133 AASSSSUUMMPPTTIIOONNSS 13.1 Revenue Assumptions The potential of each employee for revenue generation is around US$ 19,200 based on 50% capacity utilization during Year-1. This capacity utilization goes up to 95% in Year-10. The project is based on 8 working hours in a day, with revenue generation of US$ 26 per hour. The annual increase in this rate is 5%. 264 days in a year are assumed to be working days. The export vs. local sales ratio is as follows:

Table 13-1 Export-Local Sales Ratio

Year 1 Year 2 Year 3 Year 4 Year 5 0% : 100% 10% : 90% 15% : 85% 20% : 80% 25% : 75%

Year 6 Year 7 Year 8 Year 9 Year 1030% : 70% 30% : 70% 35% : 65% 35% : 65% 35% : 65%

13.2 Operating Expenses Assumptions Operating Expenses for the project and there basis are taken as follows:

Table 13-2 Operating Expenses

YEAR 1 Description Basis (Rs.)Staff Benefit 5% of Payroll 880,200Bonuses and other Allowances 5% of Payroll 880,200Repair & Maintenance 2% of Equipment 2,036,280Insurance 5% of Equipment Cost 166,625Foreign Traveling (a year) 4 trips @ 550,000 2,200,000Traveling & Conveyance 4500 Per person 1,890,000

PREF-93/June, 2010/ Rev 2 19

Pre-fea

PREF-93/June

sibility Study Software House

, 2010/ Rev 2 20

Entertainment 300 Per person 126,000Printing & Stationary 500 Per person 210,000Books & Periodicals 10 Magazines @ 900 108,000General and Administration 300 Per person 126,000Communications Fixed 1,200,000Rent Fixed 3,600,000Utilities Elec. & Diesel expense 884,933Advertising Fixed 60,000Total 14,368,238

13.2.1 Working Capital Assumptions Our working capital for the first year is Rs. 6,724,670 which is also initial working capital. Working capital is calculated on the basis of following assumptions:

Table 13-3 Working Capital

Description Days Basis No of Working days 264 Days Accounts Receivable 40 Sales Advance to Employee 30 Payroll Benefits Utility Payable 22 One Month Bill Salary Payable 30 One Month Salary

13.2.2 Accounting Depreciation on Assets

Table 13-4 Depreciation Assumptions

IT equipment depreciation rate 33%Machinery & Equipment depreciation rate 10%Vehicles depreciation rate 10%Furniture & Fixtures depreciation rate 10%13.2.3 Debt Assumptions

Table 13-5 Debt Assumptions

Debt Tenure 5 YearsInterest Rate on Long Term Debt 16%

Debt Payments Semi AnnuallyWorking Capital Loan 14%

Debt Payment Monthly13.2.4 Miscellaneous Assumptions

Table 13-6 Miscellaneous Assumptions

Inflation Rate 10%Tax rate 25%7

Salaries growth rate 10%Repair and Maintenance growth rate 5%Utilities expense growth rate 10%

7 This tax rate is fixed through out since the income falls in 25% tax deduction slab.


1144 FFIINNAANNCCIIAALL PPRROOJJEECCTTIIOONNSS 14.1 Projected Income Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Revenue

Export - 4,339,743 7,456,468 11,308,977 16,679,795 23,455,962 26,270,677 34,192,929 38,014,491 42,132,728 Local 37,573,536 39,057,691 42,253,320 45,235,907 50,039,386 54,730,578 61,298,247 63,501,153 70,598,341 78,246,494

Total Revenue 37,573,536 43,397,434 49,709,788 56,544,884 66,719,181 78,186,540 87,568,925 97,694,082 108,612,832 120,379,222

Operating Expenses 31,972,238 35,655,986 36,402,742 44,564,784 50,544,066 60,066,012 67,172,783 74,760,215 83,206,749 92,996,198 Depriciation 1,614,925 1,200,496 915,516 2,174,155 1,562,608 1,146,000 2,786,781 1,955,560 1,394,752 3,573,694 Amortization of Deferred Cost 207,100 207,100 207,100 207,100 207,100 - - - - -

33,794,263 37,063,581 37,525,358 46,946,039 52,313,774 61,212,012 69,959,564 76,715,775 84,601,501 96,569,893

Profit before Tax and Interest 3,779,273 6,333,853 12,184,430 9,598,845 14,405,407 16,974,529 17,609,361 20,978,306 24,011,331 23,809,330 Interest on Long term Loan 1,288,744 1,245,425 1,202,106 1,158,786 1,115,467 1,072,148 1,028,829 985,510 942,191 898,872 Interest on short term Loan 941,454 941,454 Profit / (Loss) before Tax 1,549,075 4,146,974 10,982,325 8,440,058 13,289,940 15,902,380 16,580,532 19,992,796 23,069,141 22,910,458 Taxation 187,868 1,291,703 2,712,506 2,111,832 2,827,792 3,156,667 3,066,114 4,789,581 7,373,461 5,678,774 Profit after Tax 1,361,207 2,855,271 8,269,818 6,328,226 10,462,148 12,745,714 13,514,418 15,203,216 15,695,680 17,231,684

PREF-93/June, 2010/ Rev 2 21


14.2 Projected Balance Sheet

YEAR Start up Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

FIXED ASSETSTangible 8,484,500 6,869,575 5,669,079 4,798,938 7,060,341 5,554,100 4,470,105 7,587,051 5,706,517 4,394,293 8,661,953Intangible

8,484,500 6,869,575 5,669,079 4,798,938 7,060,341 5,554,100 4,470,105 7,587,051 5,706,517 4,394,293 8,661,953DEFERRED COSTProject development expenditure 161,500 129,200 96,900 64,600 32,300 - - - - - - Preliminary Expenses 874,000 699,200 524,400 349,600 174,800 - - - - - -

9,520,000 7,697,975 6,290,379 5,213,138 7,267,441 5,554,100 4,470,105 7,587,051 5,706,517 4,394,293 8,661,953CURRENT ASSETSAccounts Recb. 5,692,960 6,575,369 7,531,786 8,567,407 10,108,967 11,846,445 13,268,019 14,802,134 16,456,490 18,239,276Advances to Employees 2,000,455 2,200,500 2,073,363 2,662,605 3,008,726 3,419,406 3,761,346 4,137,481 4,551,229 5,006,352Cash & Bank Balances 6,724,670 9,637,158 19,368,371 20,997,298 23,492,832 33,638,835 45,191,474 53,710,706 68,785,081 83,642,917 94,305,945

6,724,670 17,330,573 28,144,240 30,602,446 34,722,844 46,756,528 60,457,325 70,740,071 87,724,695 104,650,635 117,551,573LESS: CURRENT LIABILITIESShort Term Borrowings 6,724,670 6,724,670.1 - - - - - - - - Utilities Payable 73,744 81,119 89,231 98,154 107,969 118,766 130,643 143,707 158,078 173,886Salary Payable 895,000 984,500 1,082,950 1,191,245 1,310,370 1,441,406 1,585,547 1,744,102 1,918,512 2,110,363Dividend Payable - - - - - - - - - - -

0 7,693,415 7,790,289 1,172,181 1,289,399 1,418,339 1,560,173 1,716,190 1,887,809 2,076,590 2,284,249Working Capital 6,724,670 9,637,158 20,353,951 29,430,266 33,433,445 45,338,189 58,897,153 69,023,881 85,836,886 102,574,046 115,267,325TOTAL CAPITAL EMPLOYED 16,244,670 17,335,133 26,644,330 34,643,404 40,700,885 50,892,289 63,367,258 76,610,932 91,543,403 106,968,338 123,929,278

- - - - - - - - - - - CAPITAL EMPLOYED REPRESENTED BY:

SHARE CAPITAL812,234 Shares @ Rs.10/- each 8,122,335 8,122,335 8,122,335 8,122,335 8,122,335 8,122,335 8,122,335 8,122,335 8,122,335 8,122,335 8,122,335

UNAPP. PROFIT/(LOSS) - 1,361,207 4,216,479 12,486,297 18,814,523 29,276,671 42,022,385 55,536,803 70,740,019 86,435,699 103,667,3838,122,335 9,483,542 12,338,814 20,608,632 26,936,858 37,399,006 50,144,720 63,659,138 78,862,354 94,558,034 111,789,718

LONG TERM LOANS 8,122,335 7,851,591 14,305,516 14,034,772 13,764,027 13,493,283 13,222,538 12,951,794 12,681,049 12,410,305 12,139,560

8,122,335 7,851,591 14,305,516 14,034,772 13,764,027 13,493,283 13,222,538 12,951,794 12,681,049 12,410,305 12,139,560TOTAL 16,244,670 17,335,133 26,644,330 34,643,404 40,700,885 50,892,289 63,367,258 76,610,932 91,543,403 106,968,338 123,929,278

PREF-93/June, 2010/ Rev 2 22


14.3 Projected Cash Flow Statement

YEAR Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

SOURCESFROM OPERATION

Profit Before Tax 1,549,075 4,146,974 10,982,325 8,440,058 13,289,940 15,902,380 16,580,532 19,992,796 23,069,141 22,910,458Add: Depreciation 1,614,925 1,200,496 915,516 2,174,155 1,562,608 1,146,000 2,786,781 1,955,560 1,394,752 3,573,694 Amortization 207,100 207,100 207,100 207,100 207,100 - - - - -

3,371,100 5,554,570 12,104,941 10,821,313 15,059,648 17,048,380 19,367,313 21,948,357 24,463,893 26,484,152OTHER SOURCESShort Term Borrowings 6,724,670 6,724,670 - - - - - - - - Sponsor's Loan -

6,724,670 6,724,670 - - - - - - - - 10,095,770 12,279,240 12,104,941 10,821,313 15,059,648 17,048,380 19,367,313 21,948,357 24,463,893 26,484,152

APPLICATIONCapital Expenditure 0 0 45,375 4,435,558 56,368 62,005 5,903,727 75,026 82,528 7,841,355Repayments - Long term Loan 270,745 270,745 270,745 270,745 270,745 270,745 270,745 270,745 270,745 270,745Tax Paid 187,868 1,291,703 2,712,506 2,111,832 2,827,792 3,156,667 3,066,114 4,789,581 7,373,461 5,678,774Repayments - Short Term Loan - 6,724,670Dividend Paid - Cash - - - - - - - - - - 458,612 1,562,447 9,753,296 6,818,134 3,154,904 3,489,416 9,240,585 5,135,351 7,726,733 13,790,873SURPLUS / (DEFICIT) 9,637,158 10,716,793 2,351,645 4,003,179 11,904,744 13,558,964 10,126,728 16,813,006 16,737,159 12,693,279

INCREASE/(DECREASE) IN WORKING CAPITAL 6,724,670 985,580 722,718 1,507,645 1,758,741 2,006,325 1,607,497 1,738,630 1,879,323 2,030,250NET INCREASE/(DECREASE) 2,912,488 9,731,213 1,628,927 2,495,534 10,146,003 11,552,639 8,519,231 15,074,375 14,857,836 10,663,029OPENING BANK BALANCES 6,724,670 9,637,158 19,368,371 20,997,298 23,492,832 33,638,835 45,191,474 53,710,706 68,785,081 83,642,917CLOSING CASH BALANCE 9,637,158 19,368,371 20,997,298 23,492,832 33,638,835 45,191,474 53,710,706 68,785,081 83,642,917 94,305,945

PREF-93/June, 2010/ Rev 2 23


1155 AANNNNEEXXUURREE 15.1 Annexure 1 Project Cost and Means of Financing Project Cost Rupees RupeesLandLand considered on Rent - Project Development costEquipment 3,332,500 Furniture & Fixture 1,887,000 Motor Vehicles 3,265,000 8,484,500

Preliminary ExpensesCopy rights-Licensing & Trade Marks 161,500 Other Expenses 874,000 1,035,500

Working Capital 6,724,670

Intangible AssetsCapital Work in ProgressInterest during DevelopmentTotal Assets 16,244,670Rs.

Total Capital Employed By:

% RupeesEquity Contribution by Sponsor 50% 8,122,335 Loan Bank 50% 8,122,335

Total Capital including land 100% 16,244,670Rs.

PREF-93/June, 2010/ Rev 2 24

Pre-fea

PREF-93/June

sibility Study Software House

, 2010/ Rev 2 25

15.2 Annexure 2 Revenue Generation Revenue Generation

No. of days in year 264 Working Hrs. per day 8 Hourly US $ Rate 26 US Dollar Rate 85.00 As per SBP on May 24, 2010Increase in Conversion Rate 0%Growth rate in Sales Price 5%

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Technical StaffNumber of Employees 23 23 23 23 24 25 25 25 25 25Total Hours Worked:

Increase in Employees 23 0 0 0 1 1 0 0 0 0Increased hrs. 48,576 0 0 0 2,112 2,112 0 0 0 0Average Employed 70% 70% 70% 70% 70% 70% 70% 70% 70% 70%

Increased Hours 34,003 0 0 0 1,478 1,478 0 0 0 0Total Hrs. 34,003 34,003 34,003 34,003 35,482 36,960 36,960 36,960 36,960 36,960Utilization in Percentage 50% 55% 60% 65% 70% 75% 80% 85% 90% 95%Hours Used 17,002 18,702 20,402 22,102 24,837 27,720 29,568 31,416 33,264 35,112 Hourly Rate USD $ 26 27 29 30 32 33 35 37 38 40 Revenue in US $ 442,042 510,558 584,821 665,234 784,932 919,842 1,030,223 1,149,342 1,277,798 1,416,226 Conversion Rs=US D 85 85 85 85 85 85 85 85 85 85 Total Revenue 37,573,536 43,397,434 49,709,788 56,544,884 66,719,181 78,186,540 87,568,925 97,694,082 108,612,832 120,379,222 Export Selling Ratio-Export - 10% 15% 20% 25% 30% 30% 35% 35% 35% Local 100% 90% 85% 80% 75% 70% 70% 65% 65% 65%Revenue in Break Up

Export - 4,339,743 7,456,468 11,308,977 16,679,795 23,455,962 26,270,677 34,192,929 38,014,491 42,132,728 Local 37,573,536 39,057,691 42,253,320 45,235,907 50,039,386 54,730,578 61,298,247 63,501,153 70,598,341 78,246,494

Total Revenue 37,573,536 43,397,434 49,709,788 56,544,884 66,719,181 78,186,540 87,568,925 97,694,082 108,612,832 120,379,222

Per employee Earning in PKR. 1,633,632 1,886,845 2,161,295 2,458,473 2,779,966 3,127,462 3,502,757 3,907,763 4,344,513 4,815,169Per employee Earning in US$ 19,219 22,198 25,427 28,923 32,705 36,794 41,209 45,974 51,112 56,649


15.3 Annexure 3 List of Fixed Assets EQUIPMENT YEAR 1

Title Units Unit Cost Total CostPCs 29 30,000 870,000Laptop PCs 2 60,000 120,000Servers 2 155,000 310,000UPS for PCs 31 8,500 263,500UPS for Servers/Network Equipment 2 10,500 21,000Network Equipment 1 100,000 100,000Printer (LASER) 2 18,000 36,000Printer (dot matrix – wide carriage) 2 15,000 30,000Printer-Ink Jet 2 3,500 7,000Software (Servers/PCs – Development Tools, Office and Project Management Tools, Database Tools) 1 1,000,000 1,000,000Modems 0 700 0Data Show for On-site Presentations/Multimedia 1 150,000 150,000Power Generator Backup 1 325,000 325,000Miscellaneous 1 100,000 100,000Total 3,332,500

FURNITURE & FIXTURE Items Number Unit Cost Total CostComputer furniture 22 25,000 550,000Office furniture 2 35,000 70,000Furniture CEO 1 100,000 100,000Furniture senior staff 5 30,000 150,000Furniture reception area 1 50,000 50,000Furniture conference room 1 120,000 120,000A/Cs Split 12 36,000 432,000Telephone exchange/phones 1 50,000 50,000Facsimile 1 15,000 15,000Photo Copier 1 100,000 100,000Library (Books) 1 150,000 150,000Miscellaneous 1 100,000 100,000Total 1,887,000

MOTOR VEHICLES Items Number Unit Cost Total CostCEO 1 1,350,000 1,350,000Chief Software Architect 1 850,000 850,000Office Vahicle 1 1,000,000 1,000,000Motor Cycle 1 65,000 65,000Total 3,265,000GRAND TOTAL 8,484,500

PREF-93/June, 2010/ Rev 2 26

Pre-feasibility Study

15.4 Annexure 4 Staff Salaries Technical Staff YEAR 1

Personnel No.Monthly Salary

Annaul Salary

Chief Executive Officer 1 150,000 150,000 1,800,000Chief Software Architect 1 100,000 100,000 1,200,000Senior Software Architect 1 75,000 75,000 900,000Senior Analyst 2 55,000 110,000 1,320,000Analyst 4 40,000 160,000 1,920,000Database Administrator 2 50,000 100,000 1,200,000Senior Software Engineer 2 55,000 110,000 1,320,000Software Engineers 8 40,000 320,000 3,840,000System Administrator (facility management) 2 40,000 80,000 960,000Total 23 645,000 14,460,000

Non-Technical Staff YEAR 1

Personnel No.Monthly Salary

Annaul Salary

Operations Manager 1 50,000 50,000 600,000Admin & Finance Manager 1 55,000 55,000 660,000Asstt. Manager Admin 1 30,000 30,000 360,000Receptionist 1 15,000 15,000 180,000Asstt. Manager Accounts 1 40,000 40,000 480,000Accountant 1 25,000 25,000 300,000Office Boy 2 7,000 14,000 168,000Driver 1 10,000 10,000 120,000Security Guard 2 8,000 16,000 192,000Cleaner 1 7,000 7,000 84,000Total 12 250,000 3,144,000Total (Technical + Non Technical) 35 895,000 17,604,000

PREF-93/June, 2010/ Rev 2

27


15.5 Annexure 5 Important Contacts

For Software House Registration: Pakistan Software Export Board (PSEB) Ministry of Information Technology, Govt. of Pakistan Head Office -Islamabad 2nd Floor, Evacuee Trust Building, F-5 Agha Khan Road, Islamabad Tel.: +92-51-9204074, Fax: +92-51-9204075 Lahore Office 5th floor, Admin Block Awain-e-Iqbal Complex, Egerton Road, Lahore Tel: +92-42-6307825-6, Fax: +92-42-6307827 Karachi Office Room 1201, 12th Floor, National IT Park, Ceaser's Tower, Shahrah-e-Faisal, Karachi Tel: +92-21-9217381, Fax: +92-21-9217382 UAN: 111-333-666 E-mail: [email protected], Website: http://www.pseb.org.pk

Pakistan Software Houses Association (P@SHA) P@SHA Secretariat 172/P Najeeb Corner 4th Floor, Block 2 PECHS Karachi, Pakistan Tel: (92 - 21) - 5418121 Email: [email protected] www.pasha.org.pk

IT and office equipment Suppliers: A-Tech Laptop Gallery Grind lays Market, Bank Road Rawalpindi Saddar, Rawalpindi 051-5581458 www.atechcomputers.com FAST Technologies Suit no.4-A, Ist Floor, Mehmood Plaza,Fazal-e-Haq Road, Blue Area,Islamabad.(Near Fresco sweets) Ph: 051-2605818-9 http://www.hrbox.net [email protected] IK Computers Fround Floor No 3 Mezzaine No 1087 w, Abbas Center Blue Area, Islamabad Ph: 051-2875257 Email: [email protected]

PREF-93/June, 2010/ Rev 2 28


Hafeez Centre – Lahore

Hall Road – Lahore

Blue area – Islamabad

Saddar – Rawalpindi

6th Road - Rawalpindi

Furniture Suppliers: Decora Furniture – Lahore Address: 47-Ferozpur Road, Lahore, Pakistan Tel: +92-42-37554862 Interwood Mobel – Lahore Address: 117-E-1,Gulberg-III,Lahore Tel: +92-42-35870222-6549123-5711117 Fax: +92-42-36549126 Email: [email protected] URL: http://www.interwoodmobel.com Javaid & Co. – Lahore Address: 29130-Nishter Road, Lahore Tel: +92-42-37653007 Master Fibre Glass – Lahore Address: 47-C,3 Miraj Building, Ferozepur Road, Lahore Tel: +92-42-35010010 Koncept Furniture - Gujrat Address: Dheerkay By Pass, G.T. Road, Gujrat, Pakistan Tel: +92-300-6233455 Nisbat Road Market - Lahore

Ferozepur Road Market – Lahore


29


15.6 Annexure 6 Tax deduction income slabs Income Slabs Tax Rate 0.00% 100,000 – 110,000 0.50% 110,000 – 125,000 1.00% 125,000 – 150,000 2.00% 150,000 – 175,000 3.00% 175,000 – 200,000 4.00% 200,000 – 300,000 5.00% 300,000 – 400,000 7.50% 400,000 – 500,000 10.00% 500,000 – 600,000 12.50% 600,000 – 800,000 15.00% 800,000 – 1,000,000 17.50% 1,000,000 – 1,300,000 21.00% 1,300,000 and above 25.00%


30

smeda software house

Documents