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.
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 Management expertise
Loan Technical expertise
Market access Marketing expertise
Sub contracting Technology transfer
Buy – back arrangement Joint R&D
Equipment purchase Other :- Franchise

Studies Available Feasibility study Project description

Other Specify

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 Flatti’s, Lahore.
• Amer Hotel, Lahore.
• Dream Land Motel, Islamabad.
• Flashman’s 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 project’s 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.
Days in
Accommodation Price Reservations Amount Rooms 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

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.

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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 (hotel’s) customer value.

4.5 Human Resource Requirement.

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

Monthly
salary for Total
the monthly
Description/designation Number position 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
Monthly
Total 119 salary 1,405,000

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.

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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