Diagnostic Laboratory

Pre-Feasibility Study

DIAGNOSTIC LABORATORY

Small and Medium Enterprises Development Authority

Ministry of Industries & Production Government of Pakistan

www.smeda.org.pk

HEAD OFFICE 4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,

Lahore Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7

[email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE KPK

REGIONAL OFFICE BALOCHISTAN

3rd Floor, Building No. 3, Aiwan-e-Iqbal Complex,

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

[email protected]

5TH Floor, Bahria Complex II, M.T. Khan Road,

Karachi. Tel: (021) 111-111-456

Fax: (021) 5610572 [email protected]

Ground Floor State Life Building

The Mall, Peshawar. Tel: (091) 9213046-47


Bungalow No. 15-A Chaman Housing Scheme

Airport Road, Quetta. Tel: (081) 831623, 831702


June 2008

Pre-feasibility Study Diagnostic Laboratory

BAL-PREF-12/June 2008 1

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 content of the information memorandum does not bind SMEDA in any legal or other form.

DOCUMENT CONTROL

Document No. PREF - 12

Prepared by SMEDA-Balochistan

Approved by Head of Department

Issue Date June 2008

Issued by Library Officer



Table of Contents1. PURPOSE OF THE DOCUMENT ........................................................................................................... 1

2. PROJECT PROFILE .............................................................................................................................. 1

2.1 Project Brief ..................................................................................................................................................... 12.2 Opportunity Rationale...................................................................................................................................... 12.3 Market Entry Timing......................................................................................................................................... 12.4 Proposed Business Legal Status .................................................................................................................... 12.5 Project Capacity............................................................................................................................................... 22.6 Product mix & Test details............................................................................................................................... 2

2.6.1 Bio Chemistry .......................................................................................................................................... 22.6.2 Hematology ............................................................................................................................................. 22.6.3 Serology .................................................................................................................................................. 22.6.4 Histopythology ......................................................................................................................................... 22.6.5 Micro biology ........................................................................................................................................... 22.6.6 Chemical Pathology ................................................................................................................................. 2

2.7 Working Time ................................................................................................................................................... 42.8 Project Investment ........................................................................................................................................... 42.9 Recommended project parameters. ................................................................................................................ 42.9 Suitable Location ............................................................................................................................................. 42.10 Key Success Factors / Practical Tips for Success.......................................................................................... 4

3. MARKET INFORMATION....................................................................................................................... 5

3.1 Introduction...................................................................................................................................................... 53.2 Market Overview & Demand............................................................................................................................. 53.5 Target Customers ............................................................................................................................................ 5

4. BASIC REQUIREMENTS ....................................................................................................................... 6

4.1 Machinery and Equipment requirement .......................................................................................................... 64.2 Office equipment.............................................................................................................................................. 64.3 Furniture and Fixture ....................................................................................................................................... 64.4 Other Equipment Required. ............................................................................................................................. 74.5 Utilities Requirement ....................................................................................................................................... 7

5. LAND & BUILDING REQUIREMENT...................................................................................................... 8

5.1 Land ................................................................................................................................................................. 85.2 Covered Area Requirement.............................................................................................................................. 8

6. HUMAN RESOURCE REQUIREMENT................................................................................................... 8

7. PROJECT ECONOMICS ........................................................................................................................ 9

7.1 Project Cost ..................................................................................................................................................... 97.2 Project Returns ................................................................................................................................................ 97.3 Project Financing............................................................................................................................................. 9

8. FINANCIAL ANALYSIS............................................................................................................................. 10

8.1 Projected Income Statement.......................................................................................................................... 118.2 Projected Balance Sheet................................................................................................................................ 128.3 Projected Cash Flow Statement .................................................................................................................... 13

9. KEY ASSUMPTIONS ................................................................................................................................ 14

9.1 Project Capacity Assumptions ...................................................................................................................... 149.2 Revenue Assumptions................................................................................................................................... 149.3 Economic Assumptions................................................................................................................................. 149.4 Expense Assumptions ................................................................................................................................... 149.5 Depreciation Expense Assumptions ............................................................................................................. 14



9.6 Cost of Goods Sold........................................................................................................................................ 159.7 Cash flow Assumptions................................................................................................................................. 159.8 Financing Assumptions................................................................................................................................. 15



Introduction to SMEDA

The Small and Medium Enterprise Development Authority (SMEDA) was established

with the objective to provide fresh impetus to the economy through the launch of an

aggressive SME support program.1

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 financial aspects, niche marketing,

technology up gradation and human resource development.

SMEDA has so far successfully formulated strategies for sectors including, fruits and

vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear,

textiles, surgical instruments, urban transport and dairy. Whereas the task of SME

development at a broader scale still requires more coverage and enhanced reach in terms

of SMEDAs 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.

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



1. Purpose of the Document

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, and production, finance and business management.

2. Project profile

The proposed project is for setting up a Diagnostic Laboratory. The Laboratory can be established in any major city of Pakistan, primarily in urban district of Balochistan province. The document highlights marketing, management and financial aspects required for the establishment and successful venture.

2.1 Project BriefThis document describes the investment opportunity for setting up a diagnostic laboratory. It provides a range of services relating to medical tests, which includes the Biochemistry, Hematology, Serology, Histophythology, Micro Biology and Clinical Pathology. These tests are based or conducted on the collected sample of blood/urine of the patient. Moreover, due to this particular nature of business, on an average of 100 tests per day are expected initially.

2.2 Opportunity RationaleLack of infrastructure and growing number of population has also increased demand of medical facilities, which has direct impact on public & private sector health care centers. Pakistan is a densely populated country, at least one-third of the population is living below the poverty line, which has no access to clean water and proper sanitation facilities. These handicaps pose a serious threat to the health of the masses. Moreover, the overlapping and harsh climate of Pakistan causes major viral diseases through out the year. This creates a great demand for Diagnostic Laboratories in Pakistan. A big investment opportunity exists in this sector. Introduction of latest technology, hygienic environment and professional staff also contribute to the popularity of private sector hospitals and laboratories. Increasing trend of medical diagnosis through scientific medical tests has increased the need of high capital investment in this sector. Investment in the private sector can, therefore, exploit this opportunity and provide latest and dependable diagnostic services on round-the-clock basis.

2.3 Market Entry TimingAs such there is no specific time required for an entry in health sector. As the need is increasing day by day due to the increase in population and diseases, investment can be made any time during the year.

2.4 Proposed Business Legal StatusA Diagnostic Laboratory can be started as a sole proprietorship or on partnership basis. Although the selection depends totally upon the choice of the entrepreneur, but this financial feasibility is based on a Sole proprietorship. This venture can easily be started. The entrepreneur must have MBBS degree to have a license and hygiene environment is mandatory and inspected by the health department from time to time. Moreover, if the entrepreneur is not a doctor himself, he can hire a doctor for his Laboratory.



2.5 Project Capacity The proposed capacity of this diagnostic laboratory is 150 tests per day. This project is recommended to be established in urban districts at far flange areas from major cities to facilitate the locals in their diagnosis. Furthermore, timely identification of diseases will also reduce motility rate and will also support the public hospital/local doctors for appropriate treatment as per diseases. Patients who at present take great pains to go to other developed cities to have their tests will find the laboratories at hand. Thus, it will generate great business opportunities for the entrepreneur.

2.6 Product mix & Test detailsThe diagnostic laboratory is capable of conducting six categories of chemistry tests, additionally common test under these six categories are as following;

2.6.1 Bio ChemistryThis category includes Sugar/Glucose, Uric Acid, Urea and Cholesterol identification tests.

2.6.2 HematologyHematology includes CBC, Co-ebullition Profile and platelets identification tests.

2.6.3 SerologyIt comprises of Hepatitis A, Hepatitis B & Hepatitis C, HIV, Venereal Disease ResearchLaboratories, Remitted Arthritis Factor and Anti Setuctolycin O Titer tests.

2.6.4 HistopathologyThis includes Biopsies, Pap smear, Malignant Cell and Cytology tests.

2.6.5 Micro biologyAll kinds of Culture and Sensitivity tests are included in microbiology.

2.6.6 Chemical PathologyThe category includes Urine DR, Stool DR and Pregnancy tests.

Average market cost and sale for conducting these tests are described as following;

Bio ChemistryS. No. Description Average Fee Rs. Average

Cost/TestAverage

Tests/Month1 Sugar Glucose 80 40 240

2 Uric Acid 100 50 100

3 Urea 100 50 50

4 Creatinine 100 50 60

5 Cholesterol 150 70 70

6 Triglyceride 100 50 40

7 High density Lepo protein Cholesterol

550 250 50

8 Low density Lepo protein Cholesterol

550 250 60



9 Lever function tests 150 70 70

10 Cardiac enzymes 250 120 100

HematologyS. No. Description Average Fee Rs. Average

Cost/TestAverage

Tests/Month1 Cells related tests 150 70 40

2 CBC 150 70 50

3 CP 150 70 60

4 ESR 50 25 60

5 Platelets 150 70 50

6 Co-egolations profile 150 70 50

7 Peripheral smear 150 70 40

SerologyS. No. Description Average Fee Rs. Average

Cost/TestAverage

Tests/Month1 Hepatitis A 200 80 140

Hepatitis B 150 70 80

Hepatitis C 150 70 80

2 HIV 300 150 120

3 VDRL 200 80 100

4 Typhoid 150 70 110

5 Vidal 150 70 110

6 Remitted Arthritis factor (RA Factor)

150 70 40

7 ASO Titer 150 70 70

HistophysiologiesS. No. Description Average Fee Rs. Average

Cost/TestAverage

Tests/Month1 Biopsies 800 350 50

2 Pap smear 400 200 30

3 Malignant cell 400 200 30

4 Cytology 300 150 40

Micro BiologyS. No. Description Average Fee Rs. Average

Cost/TestAverage

Tests/Month1 Culture and Sensitivity 300 150 100

2 Blood 300 150 160

3 Urine 300 150 200

Chemical PathologyS. No. Description Average Fee Rs. Average

Cost/TestAverage

Tests/Month1 Urine D.R 150 70 200

2 Stool D.R 80 40 100

3 Pregnancy tests 100 50 60



2.7 Working TimeAs per nature of business recommended timings would be 16hrs per day, and 25 days per month. Therefore two shifts would be necessary for smooth operations of tasks/obligations

Project Diagnostic LaboratoryWorking shifts 2 Shifts (1 Shift = 8 hours)Working hours per day 16Per month working 25 days (Excluding holidays) 400 hrs

per month Per annum working 300 Days, 12000 hours.

2.8 Project InvestmentTotal Project cost is Rs. 4.156 million. This includes capital cost of Rs. 3.9 million and working capital cost of Rs. 0.25million

2.9 Recommended project parameters.

Project Parameters

Capacity Human

ResourceTechnology/ Machinery

Location

150 tests/ day (45,000 tests/year) 7 Local / ForeignArea close to the

hospitals

Financial Summary

Project Cost IRR NPV Payback Period Cost of Capital (WACC)

4,156,316 66% 21,253,430 2.0 Yrs 12%

2.9 Suitable LocationA Diagnostic Laboratory should be established at a location that is easily accessible and has population concentration or the appropriate place would be near private or public hospitals.

2.10 Key Success Factors / Practical Tips for SuccessThe commercial viability of the proposed diagnostic Laboratory depends on the following factors: Location of the project is of prime importance. Selection of technical / skilled staff would be very crucial decision to be made by the

management. Continuous efforts should be made for up-gradation of the technology. The most important factor for the success of the project is the quality of service provided

to the patients and clean environment.



3. Market Information

3.1 Introduction Pakistan is the seventh populous country in the world. According to the census of 1998, the population of Pakistan was 132.35 million which rose to 158.70 million (estimated for 2007). This growth rate is a tremendous challenge to the existing infrastructure, which has resulted in high level of environmental pollution, and especially, it affects the health care system in the country. This has given rise to demand of private sector health care facilities.

3.2 Market Overview & Demand The demand for diagnostic laboratory is rising in accordance with the increase in population and diseases. The number of existing laboratories is not as high to meet the growing demand of tests. Government of Pakistan has developed an elaborate system of public health care in the country. This infrastructure consists of Hospitals, Basic Health Units, Rural Health Centers and Dispensaries. In addition to this Specialized Medicare Centers like Maternity & Child Health and TB Centers are also established in the country.The details of various medical & health facilities establishment for the year 2006 are given below.

National medical and health Establishment;Hospitals Dispensaries Rural

health centers

TB Clinics Basic Health Units

Maternity & Child Health Centers

Total Beds Population / Bed

924 4712 560 288 5336 906 102073 1522

It is evident from the above figures that the high population growth rate has rendered the existing health facilities as insufficient to meet the requirement of the existing population. Moreover, rapid technological advances have revolutionized the diagnostic techniques in the medical field. High technology and computerized diagnostic machines are now playing increasing role in overall medical treatment. These technologies are new and therefore,expensive as well. As a result not many public sector hospitals have been able to acquire these new technologies, whereas trend of consulting private sector hospitals, laboratories and medical treatment is on higher side. There are number of diagnostic laboratories, which operate in an organized manner by private sector in Pakistan. However, this industry has not yet been developed to any sizeable extent in the country and as such it is not capable enough to meet the demand of the growing population.

3.5 Target CustomersThe major target market of the facility consists of residential areas in the vicinity of the laboratory. The basic services that will be provided will also be determined by the need of the locality and its adjacent areas.



4. Basic Requirements

4.1 Machinery and Equipment requirement The major cost involved in establishing a Diagnostic Laboratory is the cost of machinery and equipment. The proposed Laboratory would be providing diagnostic services to the patients.The following requirement is estimated for running the laboratory.

Description Number Cost per unit TotalBlood Analyzer 1 400,000 400,000Binocular Microscope 2 90,000 180,000Clinical Water bath 1 6,500 6,500Incubator 1 450,000 450,000ELISA for hormone Analysis 1 60,000 60,000Centrifuge Machine 1 25,000 25,000Photoclorimeter / Chemistry analyzer

1 325,000 325,000

Miscellaneous Lab Equipment 20,000 20,000Total 1,466,500

4.2 Office equipment It includes computers, air conditioners, telephone and fax etc. An amount of Rs. 178,400 has been provided for acquiring the required office equipment. Following are the details of office equipment;

Description Number Cost per unit TotalAir conditioner 2 27,000 54,000Refrigerators 1 18,000 18,000Water Cooler 1 8,000 8,000Computers 2 30,000 60,000Printers 1 12,000 12000Scanner 1 4,000 4,000Telephone sets 2 1,200 2,400Fax Machine 1 20,000 20,000Total 178,400

4.3 Furniture and Fixture Furniture and fixture mainly include Sofa set, tables, chairs, fans & lights, curtain and fire extinguishers. The details are as under;

Description Number Cost per unit TotalSofa Set 3 seat 2 15,000 30,000Counter desk 1 10,000 10,000Waiting sofas 2 12000 24,000



Office Table 1 10,000 10,000Total 74,000

4.4 Other Equipment Required.Electrical nature of equipment, uniform supply is essential therefore, Generator, Stabilizer is mandatory. Following are the recommended equipments;

Description Number Cost per unit TotalElectricity Generator 1 40,000 40,000Stabilizer 3 10,000 30,000Weight Machine 1 2,000 2,000Light and Electricity Appliances 50,000Miscellaneous 5,000Total 127,000

4.5 Utilities Requirement Electricity Telephone Gas Water Waste Disposal



5. Land & Building Requirement

5.1 LandKeeping in view the proposed capacity, approximately 772 square feet is sufficient to set up the diagnostic center. An amount of Rs. 926,400 has been allocated for the acquisition of land. However, cost of land may vary according to location.

5.2 Covered Area RequirementThe covered area requirement for diagnostic laboratory is about 772 sq. feet. The table given below gives a sketch of the area requirement.

Section Number Area Total Area (sq. ft.)

Cost per Sq. ft. Cost (Rs)

Reception hall & partitioned waiting room

1 14x18 252 1200 302,400

Wash room 2 5*6 60 1200 72,000Diagnostics Lab 1 20x18 360 1,200 432,000Store Room 1 10x10 100 1,200 120,000Total covered area cost 772 1,200 926,400Total cost of land 800 Rs. 1,350 per

Sq.ft1,080,000

Total land and building / Construction cost 2,006,400

6. Human Resource Requirement

Total staff of 7 persons is required for a diagnostic laboratory project. Human resource requirement, along with annual cost of salaries for diagnostic unit on the basis of two shifts is given below.

Position Persons Monthly Salary/person

Total Salary/ annum.

Chief Executive (Manager)/Doctor

1 20,000 240,000

Lab Technicians 4 6,000 288,000Receptionist/ accountant 1 8,000 96,000Sweepers 1 1,500 18,000Total 7 642,000



7. Project Economics

7.1 Project Cost

Description Amount in (Rs.)Land 1,080,000Building & Infrastructure 926,400Machinery & Equipment 1,593,500Furniture & Fixtures 74,000Office Equipment 178,400Pre-operating costs 53,500Total Capital Cost 3,905,800Working CapitalRaw Material Inventory 70,841Upfront Insurance Payment 79,675Cash 100,000Total Working Capital 250,516

Total Project Cost 4,156,316

7.2 Project ReturnsDescription Equity Project

IRR 79% 66%MIRR 35% 31%Pay Back Period (Yrs) 1.77 2.05Net Present Value (NPV) 16,935,436 21,253,430

7.3 Project Financing

Description Percentage Amount in RsDebt Financing 30% 1,249,856Equity Financing 70% 2,906,460Total 4,156,316


BAL-PREF-12/June 2008

10

Financial Evaluation of Pre-Feasibility Diagnostic Laboratory SMEDA

Key VariablesTotal Investment in Project 4,156,316 Equity 70% 2,906,460 Debt 30% 1,249,856 Lease 0% - Interest Rate 15%Debt Tenure 5 Total Number of Employees 7

Rs. in actualsYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Free Cash Flow to Equity (FCFE) 1,512,198 1,811,934 2,620,285 3,609,925 4,487,586 5,545,901 6,350,169 7,243,387 8,236,314 9,658,110 Free Cash Flow to Firm (FCFF) 1,843,804 2,149,657 2,965,044 3,962,773 4,849,738 5,545,901 6,350,169 7,243,387 8,236,314 10,959,557

Profit margin on sales 21% 26% 30% 34% 36% 39% 40% 42% 43% 45%ROE 33% 45% 55% 65% 70% 72% 75% 78% 80% 83%Times interest earned 8.85 15.78 27.90 53.13 123.04 - - - - -

Equity ProjectInternal Rate of Return (IRR) 79% 66%Modified Internal Rate of Return (MIRR)* 35% 31%Payback Period (yrs) 1.77 2.05 Net Present Value (NPV) @ 16% 16,935,436 @ 12% 21,253,430

8. Financial Analysis



11

SMEDA

Rs. in actualsYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue 5,495,980 7,053,174 8,866,848 10,972,724 12,740,552 14,014,607 15,416,068 16,957,675 18,653,442 20,518,786Cost of goods sold 3,175,654 3,854,047 4,593,181 5,397,512 5,979,086 6,298,899 6,636,693 6,993,559 7,370,660 7,769,238

Gross Profit 2,320,326 3,199,128 4,273,666 5,575,212 6,761,466 7,715,708 8,779,375 9,964,116 11,282,782 12,749,548

General administration & selling expensesAdministration expense 354,000 388,466 426,288 467,791 513,336 563,315 618,161 678,346 744,390 816,865 Utilities expense 15,700 16,642 17,641 18,699 19,821 21,010 22,271 23,607 25,023 26,525 Travelling & Comm. expense (phone, fax, etc.) 12,390 13,596 14,920 16,373 17,967 19,716 21,636 23,742 26,054 28,590 Office expenses (stationary, etc.) 17,700 19,423 21,314 23,390 25,667 28,166 30,908 33,917 37,220 40,843 Promotional expense 27,480 35,266 44,334 54,864 63,703 70,073 77,080 84,788 93,267 102,594 Insurance expense 79,675 75,691 71,708 67,724 63,740 59,756 55,773 51,789 47,805 43,821 Professional fees (legal, audit, etc.) 27,480 35,266 44,334 54,864 63,703 70,073 77,080 84,788 93,267 102,594 Depreciation expense 138,615 138,615 138,615 138,615 138,615 138,615 138,615 138,615 138,615 138,615 Amortization expense 10,700 10,700 10,700 10,700 10,700 - - - - -

Subtotal 683,740 733,666 789,853 853,019 917,251 970,725 1,041,523 1,119,593 1,205,641 1,300,448 Operating Income 1,636,586 2,465,462 3,483,813 4,722,193 5,844,215 6,744,984 7,737,852 8,844,523 10,077,141 11,449,100

Income from Cash at Bank 22,763 53,622 79,255 108,586 139,635 174,586 213,654 253,115 294,643 345,599 Earnings Before Interest & Taxes 1,659,349 2,519,084 3,563,068 4,830,779 5,983,850 6,919,570 7,951,506 9,097,638 10,371,783 11,794,700

Interest expense 187,478 159,672 127,696 90,922 48,633 - - - - - Earnings Before Tax 1,471,871 2,359,411 3,435,372 4,739,857 5,935,217 6,919,570 7,951,506 9,097,638 10,371,783 11,794,700

Tax 323,812 519,070 755,782 1,042,769 1,305,748 1,522,305 1,749,331 2,001,480 2,281,792 2,594,834 NET PROFIT/(LOSS) AFTER TAX 1,148,059 1,840,341 2,679,590 3,697,089 4,629,469 5,397,264 6,202,174 7,096,158 8,089,991 9,199,866

Balance brought forward 574,030 1,207,185 1,943,388 2,820,238 3,724,854 4,561,059 5,381,617 6,238,887 7,164,439 Total profit available for appropriation 1,148,059 2,414,370 3,886,775 5,640,476 7,449,707 9,122,118 10,763,233 12,477,774 14,328,878 16,364,305Dividend 574,030 1,207,185 1,943,388 2,820,238 3,724,854 4,561,059 5,381,617 6,238,887 7,164,439 8,182,152 Balance carried forward 574,030 1,207,185 1,943,388 2,820,238 3,724,854 4,561,059 5,381,617 6,238,887 7,164,439 8,182,152

8.1 Projected Income Statement



12

8.2 Projected Balance Sheet

SMEDA

Rs. in actualsYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

AssetsCurrent assets

Cash & Bank 100,000 1,038,168 1,642,917 2,319,815 3,109,501 3,872,233 4,857,075 5,825,628 6,830,127 7,902,003 9,377,961 Raw material inventory 70,841 91,120 114,811 142,401 165,720 182,706 201,433 222,080 244,843 269,940 - Pre-paid insurance 79,675 75,691 71,708 67,724 63,740 59,756 55,773 51,789 47,805 43,821 -

Total Current Assets 250,516 1,204,979 1,829,435 2,529,940 3,338,961 4,114,695 5,114,280 6,099,496 7,122,776 8,215,763 9,377,961

Fixed assetsLand 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 Building/Infrastructure 926,400 880,080 833,760 787,440 741,120 694,800 648,480 602,160 555,840 509,520 463,200 Machinery & equipment 1,593,500 1,513,825 1,434,150 1,354,475 1,274,800 1,195,125 1,115,450 1,035,775 956,100 876,425 796,750 Furniture & fixtures 74,000 70,300 66,600 62,900 59,200 55,500 51,800 48,100 44,400 40,700 37,000 Office equipment 178,400 169,480 160,560 151,640 142,720 133,800 124,880 115,960 107,040 98,120 89,200

Total Fixed Assets 3,852,300 3,713,685 3,575,070 3,436,455 3,297,840 3,159,225 3,020,610 2,881,995 2,743,380 2,604,765 2,466,150

Intangible assetsPre-operation costs 53,500 42,800 32,100 21,400 10,700 - - - - - -

Total Intangible Assets 53,500 42,800 32,100 21,400 10,700 - - - - - - TOTAL ASSETS 4,156,316 4,961,464 5,436,605 5,987,795 6,647,501 7,273,920 8,134,890 8,981,491 9,866,156 10,820,528 11,844,111

Liabilities & Shareholders' EquityCurrent liabilities

Accounts payable - 240,392 294,743 354,072 418,042 463,251 487,202 512,431 539,011 567,018 572,073 Total Current Liabilities - 240,392 294,743 354,072 418,042 463,251 487,202 512,431 539,011 567,018 572,073

Other liabilitiesLease payable - - - - - - - - - - - Deferred tax - 176,099 176,913 177,727 178,541 179,355 180,169 180,983 181,797 182,611 183,425 Long term debt 1,249,856 1,064,483 851,304 606,148 324,219 - - - - - -

Total Long Term Liabilities 1,249,856 1,240,582 1,028,217 783,875 502,760 179,355 180,169 180,983 181,797 182,611 183,425

Shareholders' equityPaid-up capital 2,906,460 2,906,460 2,906,460 2,906,460 2,906,460 2,906,460 2,906,460 2,906,460 2,906,460 2,906,460 2,906,460 Retained earnings - 574,030 1,207,185 1,943,388 2,820,238 3,724,854 4,561,059 5,381,617 6,238,887 7,164,439 8,182,152

Total Equity 2,906,460 3,480,490 4,113,646 4,849,848 5,726,699 6,631,314 7,467,519 8,288,077 9,145,348 10,070,899 11,088,613TOTAL CAPITAL AND LIABILITIES 4,156,316 4,961,464 5,436,605 5,987,795 6,647,501 7,273,920 8,134,890 8,981,491 9,866,156 10,820,528 11,844,111

- - - - - - - (0) 0 (0) 0



13

8.3 Projected Cash Flow Statement- - - - - - - (0) 0 (0) 0

SMEDA

Rs. in actualsYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activitiesNet profit - 1,148,059 1,840,341 2,679,590 3,697,089 4,629,469 5,397,264 6,202,174 7,096,158 8,089,991 9,199,866 Add: depreciation expense - 138,615 138,615 138,615 138,615 138,615 138,615 138,615 138,615 138,615 138,615 amortization expense - 10,700 10,700 10,700 10,700 10,700 - - - - - Deferred income tax - 176,099 814 814 814 814 814 814 814 814 814 Raw material inventory (70,841) (20,278) (23,691) (27,590) (23,318) (16,986) (18,727) (20,647) (22,763) (25,096) 269,940 Advance insurance premium (79,675) 3,984 3,984 3,984 3,984 3,984 3,984 3,984 3,984 3,984 43,821 Accounts payable - 240,392 54,350 59,329 63,971 45,208 23,951 25,229 26,580 28,007 5,055

Cash provided by operations (150,516) 1,697,571 2,025,113 2,865,441 3,891,854 4,811,804 5,545,901 6,350,169 7,243,387 8,236,314 9,658,110

Financing activitiesChange in long term debt 1,249,856 (185,373) (213,179) (245,156) (281,929) (324,219) - - - - - Issuance of shares 2,906,460 - - - - - - - - - - Purchase of (treasury) shares - - - - - - - - - - -

Cash provided by / (used for) financing activities4,156,316 (185,373) (213,179) (245,156) (281,929) (324,219) - - - - -

Investing activitiesCapital expenditure (3,905,800) - - - - - - - - - - Acquisitions - - - - - - - - - - -

Cash (used for) / provided by investing activities(3,905,800) - - - - - - - - - -

NET CASH 100,000 1,512,198 1,811,934 2,620,285 3,609,925 4,487,586 5,545,901 6,350,169 7,243,387 8,236,314 9,658,110

Cash balance brought forward 100,000 1,038,168 1,642,917 2,319,815 3,109,501 3,872,233 4,857,075 5,825,628 6,830,127 7,902,003 Cash available for appropriation 100,000 1,612,198 2,850,102 4,263,202 5,929,739 7,597,087 9,418,134 11,207,244 13,069,015 15,066,442 17,560,113Dividend - 574,030 1,207,185 1,943,388 2,820,238 3,724,854 4,561,059 5,381,617 6,238,887 7,164,439 8,182,152 Cash carried forward 100,000 1,038,168 1,642,917 2,319,815 3,109,501 3,872,233 4,857,075 5,825,628 6,830,127 7,902,003 9,377,961



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9. Key Assumptions

9.1 Project Capacity Assumptions

Description Calculation

Maximum Number of Tests/Day 150

Assumed total No. of Business Days in a Year 300

Total Assumed Capacity 150 * 300 = 45,000 Units

Capacity Utilization 1st Year 60%

Growth in Capacity Utilization 10%

Maximum Attainable Capacity 95%

9.2 Revenue Assumptions

Description Calculation

Weighted Average Fee / Test Rs. 203.55

Fee Growth Rate / Year 10%

Capacity Utilization in 1st Year (@60%) 27,000 Tests

Total Revenue in 1st Year 27,000 * 203.55 = Rs. 5,495,980

9.3 Economic Assumptions

Electricity Price Growth Rate 6%

Gas Price Growth Rate 6%

Water Price Growth Rate 6%

Salary Growth Rate 10%

9.4 Expense Assumptions

Communication Expense 3.5% of administration expense

Office Expense 5% of administration expense

Promotional Expense 0.5% of revenue

Professional Fee (Legal, Audit etc) 0.5% of revenue

Operating Cost Growth Rate 5%

Machinery & Equipment Insurance Rate 5%

9.5 Depreciation Expense Assumptions

Depreciation Method Straight Line

Building & Infrastructure 5%

Machinery & Equipment 5%



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Furniture & Fixtures 5%

Office Equipment 5%

9.6 Cost of Goods SoldAll the direct costs that directly affect the revenue of any project are called Cost of Goods Sold (COGS). For a diagnostic laboratory, following are the components and estimated value of COGS in the first year:

Description Daily Cost Total 1st Year Direct Cost in Rs.

Weighted Avg. Cost of Sales/Test in 1st year

104.95 104.95 * 27,000 = 2,833,654

Direct Labor Cost 288,000

Direct Electricity Cost 27,000

Direct Gas Cost 27,000

Total COGS 3,175,654

9.7 Cash flow Assumptions

Accounts Receivables Cycle (In Days) 0

Accounts Payable Cycle (In Days) 30

Initial Cash in Bank 100,000

9.8 Financing Assumptions

Debt 30%

Equity 70%

Long Term Debt Interest Rate 15%

Tax Treatment Sole proprietorship

Discount Rate for NPV (WACC) 12

DIAGNOSTIC LABORATORY_hdiagnostic_laboratory

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Diagnostic Laboratory