COMMUNITY BASED LIVELIHOODS RECOVERY PROGRAM (CBLRP) FOR EARTHQUAKE AFFECTED AREAS OF AZAD JAMMU AND KASHMIR

AND NWFP

CBLRP-UNIDO

INVESTMENT OPPORTUNITY PROFILE FOR

3 STAR HOTEL IN

NWFP

SEPTEMBER 2007

SUBMITTED TO AYESHA KHAN CHIEF TECHNICAL ADVISOR Community Based Livelihood Recovery Program (CBLRP) United National industrial Development Organization (UNIDO)

BY Sardar Shahid Farid Chartered Accountant

Disclaimer

All material included in this document is based on data/information gathered from various sources and certain assumption. Due care and diligence has been taken to compile this document. The document may contain human, mechanical error or non accuracy of the information at the source. No liability for error, or omission or unintentional misrepresentation will be accepted. We reserve the right to make correction and changes wherever desired in this document or its subsequent versions.

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1. PROJECT EXECUTIVE SUMMARY

1.1 PROJECT BRIEF This document is being prepared for the establishment of a three star hotel. The object of establishing a three star hotel is to facilitate the internal and external tourist and provide them with the best boarding and lodging facilities.

The hotel will provide accommodation facilities for 150+ guests at any time. Apart from the usual guest entertainment facilities and the banquet halls; restaurants and club facilities would also be available to non occupants. The competitive advantage of the current project would be its prime location and provision of excellent and competitive services to occupants and non-occupants.

The project is proposed to be located at Manshera providing comfortable facilities to the tourist and donor community. Manshera is considered a gate way for all the tourist activities of the locality. The region has access to all public amenities including water electricity and telecommunication facilities. The completion time for the project is two years and six months.

The capital cost is Rs 118 million while the initial working capital required would be Rs 30 Million, thus the total cost would be 148 million. The sale at full occupancy i.e 150 double rooms and allied services is Rs 370 Million. The human resource requirement is 119 personal in the managerial, skilled and semi skilled level. There will also be numerous jobs created indirectly. There is no problem of entry into the market as the people here are known to be very friendly and there are no monopolies in this area of the economy.

1.2 FINANCIAL SUMMARY Sales Rs 370 Million

Gross Profit Margin 46%

Net Profit Margin 36%

Internal Rate of Return 21%

NPV @ 10% 137 Million

Pay back period 03 and Half year Foreign collaboration sought

Joint Venture Loan Market access Sub contracting Buy back arrangement Equipment purchase

Management expertise Technical expertise Marketing expertise Technology transfer Joint R&D Other :- Franchise

Studies Available Feasibility study Other Specify

Project description

Date: 25 October 2007

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2. PROJECT RATIONALE

Manshera is the gateway to some of the most scenic and traditional beauty spots in this part of the country, namely: Balakot, Showgran, Kaghan, Naran. All these places are renowned tourist havens, with some key tourist attractions like Lake Saif-ul- Maluk and Sirree Paye. Among the fresh food delights, the fruit and fresh water trout fish of these areas is considered to be the best in the country.

This area has an established tourist market in which the number of internal tourists shows increasing trends over the past five years. The occupancy and visits show some decreases at times, however the overall availability of the guests is constant in the market throughout the year.

There is a fair presence of internal and external tourists and guests flowing to the area. This is due to the fact that this city is gateway to all tourist sites of the area. This area is renowned for its natural beauty and friendliness of the residents makes the market of the Manshera favorable for this type of project.

The competitive forces on the project are not very strong at the moment; the government policies are inclined towards foreign investments and inflow of funds in the economy. There is a big gap in the tourist market of our identified location. The large capital requirement of the project raises significant barriers to entry which constrains new entrants into the market. However, since there is a presence of alternative accommodation providers in the area, there will still need to be a focus on capturing a substantive market share, particularly when vying for external tourists. There are no other 3 star hotels available in the market, so the project is differentiated on the basis of services, costs, facilities, linkages with the international chains and market standing. As most of the services are being provided by the hotel itself, therefore, the dependence on subcontractors is reduced. Furthermore, the raw materials required for the operations of the project are widely available in the market and there is no need to be dependent on any particular supplier or manufacturer of a commodity.

Because of its inclusion and linkage with the international chain of hotels the project will enjoy the privileges of the international market by itself. To attract the local market there is a need of strong personnel to take charge of the marketing activities and attract the local and internal customers through good relationships, extra value added services and discounts. The employees should be treated as the main assets of the project. The policies and incentives for the employees will be set in such a way that the retention will be easier for the organization. The management will be in an advantageous position as they will get maximum support in their strategies and policies from the international chain. The project should be able to fully leverage its international linkage the project, thereby providing its service quality image and ranking in the market a distinct advantage.

The external factors usually applicable to a project are political pressures. Since, the project is of a non-political in nature in the local market; therefore, no negative effects are perceived on its viability due to this aspect. As the project will be providing employment opportunities for the local people, therefore, its risks are considered as further reduced. The trends in the local economy and the government and international community efforts of revival and recovery further provide a favorable environment for such an initiative.

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3. MARKET INFORMATION

The hotel industry is the backbone of tourism activity everywhere in the world. It is an industry of huge dimensions in its own right. The hotel industry is both capital as well as labor intensive. In Pakistan, the Ministry of Tourism of Pakistan supports the Hotel industry and makes plans to cover various operational aspects of the industry. The statistical highlights of the hotel industry in Pakistan are as follows.

S.No. Components Years % Change 2005-06 2006-07 1. Private Sector Hotels / Motels Hotels / Motels 1605 1729 7.7 Rooms 37590 10519 7.8

2. Public Sector Hotels/ Motels Hotels 1 1 0 Rooms 47 47 0 Motels 27 31 14.8 Rooms 546 580 6.2

3. Private Restaurants AC only Restaurants 187 226 20.9 Seats 22989 25814 12.3

The information on hotels has been arranged province wise as reflected in the following table

Provinces Hotel Establishments Rooms 2006-2007

Islamabad (ICT) 66 2222 Punjab 604 14445 Sindh 161 7196 NWFP 570 10235 Balochistan 155 3453 Northern Areas 120 2024 Azad Jammu and Kashmir 53 944

1729 40519

Following is the list of three star hotels currently operating, in Pakistan.

Sarbon Hotel, Abbotabad. Gulf Hotel, Karachi Beach Luxury Hotel, Karachi Hotel Jabees, Karachi Hotel Days Inn, Karachi Hotel Mehran, Karachi Hotel Flattis, Lahore. Amer Hotel, Lahore. Dream Land Motel, Islamabad. Flashmans Hotel, Rwalpindi. Margalla Motels, Islamabad United Hotel, Rawalpindi. Swat Serena, Swat

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Hidatgat Hotel, Peshawer. Shezan Residence, Multan. Sindbad Hotel, Multan. Hotel East Inn, Faisalabad. Shalimar Hotel, D. G. Khan. Hotel Humere, Bahawalpur

Currently there are 13 Hotels in Mansehra with the capacity of 10-25 rooms each.

4. BUSINESS PLAN

Non- availability of three star hotels creates a profitability margin window for the first time investor. If clean and comfortable stay is provided to the customers, then with a very conservative estimate, the first year of the projects expected occupancy would be 50% room occupancy with an annual growth of at least 10% anticipated.

4.1 Product sales.

Main customers would be the seasonal tourists, the business houses and the donor community with their conferences and seminars. Other major customers include trade bodies and international adventure tourists. There will be one time and regular commission for the sales people.

4.2 Raw Materials

The basic requirements for running the hotel business are the amenities, water and utilities. All the requirements are easily available at low costs. Furthermore, the raw materials required for the operations of the project are widely available in the market and there is no need to be dependent on any particular supplier or manufacturer of a commodity.

4.3 Services provided

The services provided will be rooms for night stay, laundry, restaurant, halls for seminars and parties.

4.4 Distribution/Marketing Channels.

Accommodation Price Reservations Amount Rooms Days in

year Per Double bed room 5,000 54,750 273,750,000 150 365 Food and Beverages Room Service 1,000 10,950 10,950,000 Room Refreshments 500 7,665 3,832,500 Parties Restaurants 2,000 21,900 43,800,000 60 365 Parties 50,000 365 18,250,000 1 365 Out Side Service 30,000 365 10,950,000 1 365

87,782,500 Other Operation Departments Telephone 300 9,125 2,737,500 Laundry 200 9,125 1,825,000 Pool, Club and others 300 9,125 2,737,500

7,300,000 Shop License Fees Number of Shops 125,000 10 1,250,000

1,250,000

Total Sales 370,082,500

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Marketing and related promotional activities will require a well thought out strategy and full advantage of international chain of hotels may be taken. Although, the promotional activities should start from the first year of the project, the main sales pitch will be taken from the second year of establishment. This may include awareness-raising among the potential internal tourists, linkage with international chain of hotels, discount campaigns, and provision of various added attractions to increase the (hotels) customer value.

4.5 Human Resource Requirement.

The Human resource requirement directly associated with the hotel is listed below.

4.6 Project Financials

4.6.1 Operational data

The capacity of the hotel is 150 rooms and allied services. It is expected that the room occupancy would be 50% in the first year and will increase gradually; the allied services are expected to increase like wise.

4.6.2 Fixed costs

The project capital cost is detailed below. (RUPEES)

Land (10 kanals) 20,000,000 Building and Equipment 72,000,000 Furniture Fixtures and Computers 20,000,000 Vehicles 2,000,000 Crockery Lenin and Others 3,300,000

Total 117,300,000

4.6.3 Working Capital

Initial working capital required for the project is Rs 30,000,000.

Description/designation Number

Monthly salary for the position

Total monthly salary

Operating Management 8 50,000 400,000 Cooking Staff 20 15,000 300,000 Waiters, Bell boys 50 10,000 500,000 Drivers 6 5,000 30,000 Janitors 20 5,000 100,000 Guards and others 15 5,000 75,000

Total 119 Monthly salary

1,405,000

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4.6.4 Overhead cost

In the first year following overhead cost are estimated.

Admin and marketing Salary 750,000 Heat Light and Power 340,200 Communications 513,000 Printing and Stationary 340,200 Traveling and Conveyance 1,512,000 Entertainment 172,800 Office Supplies 196,560 Repair and maintenance 178,200

4,002,960