snapshot of umt for investment

UMT-Investment Opportunity 1

Transforming Pakistan into a Knowledge EconomyAn Investment Opportunity

2010

University of Management & Technology P.O. Box 10033, C-II, Johar Town, Lahore-54770, Pakistan

Tel: 0092-42-35212 801-10 E-mail: [email protected], Website: www.umt.edu.pk

mailto:[email protected]

UMT-Investment Opportunity

Education in Pakistan

Pakistan has a total population of 163.76 million, growing at a rate of two per cent, with a greater concentration in the rural areas of 65 per cent.

The GDP for the year 2009-10 is forecasted at three per cent. Pakistan’s per capita real income has risen by 2.5 per cent in 2008-09 compared with 3.4 per cent last year. Per capita income in dollar terms rose from $1,042 last year to $1,046 in 2008-09, thereby showing a marginal increase of 0.3 per cent. Real private consumption is rising by 5.2 per cent compared with negative growth of 1.3 per cent attained last year. However, gross fixed capital formation could not maintain its strong growth momentum and real fixed investment growth contracted by 6.9 per cent competed with the expansion of 3.8 per cent in the last fiscal year.

Public expenditure on education as a percentage of GDP is lowest in Pakistan due to the fiscal resources constraint that paved the way to synchronization in terms of GDP allocation. The trend of investment in education in terms of GDP has been 2.5 per cent and 2.47 per cent in the years 2006 -07 and 2007 -08 respectively, whereas it is estimated to be at 2.1 per cent during 2008 -09. According to Pakistan Social and LivingMeasurement (PSLM) Survey data (2007-08), the overall literacy rate (age 10 years and above) is 56% (69% for male and 44% for female) in 2007- 08 compared to 55% (67% for male and 42% for female) in 2006-07. Literacy

remains higher in urban areas (71%) than in rural areas (49%) and more in men (69%) compared to women (44%).When analyzed provincially, literacy rate in Punjab stood at 59 % followed by Sindh (56%), NWFP (49%) and Balochistan at 46%. The literacy rate of Punjab and Balochistan has improved considerably during 2006-07 to 2007-08. The overall school attendance (age 10 years and above) is 58% (71% for male and 46% for female) in 2007-08 compared to 56% (68 % for male and 44% for female) in 2005-06. According to the Ministry of Education, there are currently 227,243 educational institutions in the country. The overall enrolment is recorded at 34.49 million with teaching staff of 1.27 million.

As part of education reforms, the Government is also investing in capacity building of local institutions through collaboration and various other initiatives, including faculty exchange and foreign faculty hiring. Currently, there are 68 public universities and 56 private universities. Eight public and 18 private institutions have degree awarding status. The average expenditure on education as a percentage of GDP has been little more than two per cent from 2006 to 2008.

Te budget allocation has increased by 8.6% in 2008-09 as against an increase of 17% in 2007-08. The budgetary allocation for education since 2000-01 is highlighted in the below given table

Table: Expenditure on Education1

1 Source: Provincial and Federal Budget Documents ,Ministry of education

UMT-Investment Opportunity 1

Year(In Billion Rs.) Exp. On

Education

Current

Dev.

Public Sector

Exp. On Education

As % of GDP

% of Total Exp.

00-01 69.5 6.4 75.9 1.82 10.6

01-02 70.4 8.5 89.9 1.79 9.5

02-03 79.5 10.4 89.9 1.86 10.0

03-04 94.3 29.9 124.2 2.2 13.0

04-05 106.6 33.4 140.0 2.15 12.5

05-06 128.9 41.9 170.8 2.24 12.2

06-07 159.9 56.6 216.5 2.50 12.0

07-08 190.2 63.5 253.7 2.47 9.8

08-09 200.4 75.1 275.5 2.10 11.5

For 2007-08 an allocation of Rs. 6508.78 million was made in Public Sector Development Programme (PSDP) for Ministry of Education. However the original allocation was reduced to Rs. 4,384.94 million, whereas Rs. 3,788.06 million were got released. In addition to this, government has also released Rs. 525 million, which made the total release as Rs. 4,313.6 million for the financial year 2007-08. PSDP2

allocation for the current financial year (2008-09) stood at Rs. 6,269.65 million but due to financial constraints it has been reduced by 33% to Rs. 4,162 million.

UMT-An overview:

The University of Management and Technology (UMT) is fast coming up as a leading top class privately funded

2 Economic Survey of Pakistan 2008-09

educational institution of higher learning. Since its establishment in 1990, UMT has displayed exceptional performance in building educational and training capacity on progressive lines. The key objective in sponsoring such efforts was to create professional skills among enrolled students in line with the national policies and the available indicators of domestic and global job market conditions.

The UMT offers a wide range of educational degree programs in the fields of management sciences, information technology, commerce and economics, textiles, educational management, media and communication. These programs are offered under four Schools and an Insititute; School of Business and Economics, School of Science and Technology, and School of Social Sciences and Humanities, School of Professional Advancement and Institute of Audit & Accountancy. Apart from degree programs, UMT has a very well recognized training institute (Centre for Management and Development) and a highly professional research and consultancy wing (UMT Consulting).

With a humble start of less than 50 students’ intake in 1990, this Institution has grown to provide quality education with innovative curricula to 3,200 students today. The most outstanding feature in raising educational standards of the


Future Plans:

On account of its visionary governance and competent management, UMT is capable of growing rapidly and winning the title of a leading institute. Based on a vigilant institutional assessment and analysis of the external environment, UMT has planned to maximize its outreach by introducing diversified portfolio of academic programs.

It is essential for UMT to undertake construction of a purpose-built campus to house all academic departments in a campus worthy of its status as a premier institution for higher education. The first phase of the 160 kanals purpose built campus in Johar Town, Lahore has been completed and all academic as well as administrative departments and faculties have been shifted to the new campus. The campus master plan incorporates all the essential features of a modern University meeting international standards and offers excellent facilities for teaching and learning. However, University plans to purchase another piece of land (100 kanals) to construct new academic blocks and centers to expand its horizon.

Investment Schedule:

Particulars Amount (USD)(Million)

Investment To date 6.52

Land to be purchased 7.11

Cost of New Academic Block Construction

56.60

Installation of Technology Equipments

3.32

Medical & Non-medical Equipments

13.63

Procurement of Resource Facilities 1.18Staff and Faculty Capacity Building Program

5.92

Purchase of Vehicles 1.90

Contingencies 3.82

Total Investment 100.00

Project Planning & Financial ModelingQuality knowledge seeker (scholars)

University will attract quality knowledge seekers by introducing international best standards. Quality services will ensure increase in no of knowledge seekers and ultimately it will give a positive effect on cash inflows. The below given graphs show that in 2008-09 university had only 3,200 no of students, however by introducing new education programs, research laborites and other allied facilities university is managing 11,984 no of students at the end of 2024-28.

Kno

wle

dge

See

ker

s Existing

2009-12

After 3year

2012-16

After 7Year

2016-20 After

11Year

2020-24 After

15Year

2024-28

After 19Year

3,200 5,209 7,594 9,339 10,159 11,984

The below given graph shows that university will expand the horizon of its existing educational programs and will attract students to get admission in various disciplines. Whereas at the end of 2028 approximately 12,000 students will be studying at the university under multiple educational programs, for PhD, Business Administration, MBBS, MBDS, Nursing, Pharmacy, etc.


Growth in Income

The project life has been broken down to 5 slabs of equal term to more comprehensively understand the underlying trends in income and its growth. Separate graphs have been prepared for Gross Income and Net Income. As indicated in the graph, gross as well as net income of the institute will show a consistent continuous upward growth. Such trends have been illuminated in more detail in the section of Ratio Analysis. The aggregate of Gross income is projected to Rs. 53 billion and that of Net income is Rs. 42 billion.

Increase in Faculty membersWith the increase in capacity and knowledge seekers the institute desires to increase its knowledge economy and human capital. Resource mobilization budgets have been

prepared for that purpose and incepted in our projections. Besides the faculty members, quantum of management staff and administrative personnel will also amplify to maintain the existing operations and efficiently manage the intended growth in facility.

Availability & utilization of funds:A sum of Rs. 500 million will be set aside at inception of the project on account of Research and Development Fund. These funds would than be invested in a realm of portfolios to ensure a secure and risk averse return on the available funds. By the end of the forecast period, fund is expected to reach a volume of Rs. 835 million. The rate of return on funds placed on term and demand deposits is expected to be 8 % per annum on average. However, a reserved rate of only 5% has been taken into account to represent the transfers to the R&D fund against surplus for the period on annual basis. 95% of such returns have been planned to be utilized for R&D, whilst, the rest could be credited to the R&D fund account.

Internal Rate of ReturnThe internal rate of return, received for an investment consisting of expenditure (capital outlays) and net annual income. The project under thought is envisaged to generate net annual cash flows that will eventually result into an IRR as shown above. The cost of capital over the life of the project would be 8%.


Throughout the preliminary 3 years of the venture, as shown on the graph, negative cash flows represent the capital outlay impact. As the project flourishes, net cash flows revert to positive figures and take a stable position by the end of 6th year. Therefore, a steady net return can be seen over the rest of the project life. As indicated, the internal rate of return of the project is 9%.

Return on Total Average

Return on total average investments shows the percentage that is surplus before charging depreciation. As shown on the graph it carries a steady prone growth pattern over the project life. In initial years, however, the growth has been on the lower side due to the fact that institute would be launching new programs and campus would be in operation at lower than its rated capacity.

Debt to Equity Ratio:As the graph shows, capital structure will transform into that of a pure equity by the end of the forecast period of 19 years. Debt portion will be paid off as per the repayment schedule whereas the residual income from operations will add to the equity capital. A steep growth in equity fund can be seen from the graph in the later stages that is attributable to growth in income and reduction in financial calculations.
