Profit issue 06 by Pakistan today

WELCOME

NEVER SETTLE! he strike price was more than twice the floor price. Yes, the book building prior to the year’s first IPO (Roshan Packages, which is set to be open to the public on the 30th of this month) went really well.

I’ve known Tayyab Aijaz, the CEO of Roshan Packages, for more than a decade now. I admire the enthusiasm in his business style. His story from a relatively humble beginning to becoming the CEO and controlling shareholder of one of the fastest growing packaging companies in Pakistan is inspirational, to say the least. However, the success story indicated by the IPO road shows and the presentations made by the company does not mean that all his endeavours have been just as successful. Take, for example, the joint venture negotiations he had with the India-based Khanna Paper Mills in 2011. That plan fizzled out despite Tayyab’s multiple visits to Amritsar, as well as many within Pakistan to potential customers of the Indian paper mill. But what sets him apart from a lot of other businessmen is his persistence and an unending supply of energy . He just doesn’t seem to settle. Every time I have met him, he would be planning something new to expand his business interests. And mind you, most of the times he is able to execute his plans well. While preparing for the IPO, he feels that what he has learnt over the past three months beats all the learning he has had in the last two decades. “It’s like you rediscover yourself as an entrepreneur, as a

CEO, and as a company. Earlier, we were usually thinking about the internal condition of the organization. Now, we need to manage what people from outside our organization think about our company. You need to start seeing your organization from the eyes of others once you go public.” Personally, Tayyab comes across as a humble and friendly person; someone with great interpersonal skills. This quality allows him to work well, not just with other business partners but also his extended family members. And while he is doing all of this, he hasn’t forgotten his family roots. Even now, he somehow finds the time to personally look after the editorial and operational matters of Urdu Digest, from where it all began. In this issue, we also profile the high-street fashion brand Outfitters. The story of Outfitters and its CEO Kamran Khursheed is, in some ways, even more inspirational than that of Roshan Packages. It is a classic rags-to-riches story of a hardworking, self-made man. Last, but definitely not the least, is the story of Mr. Burger, Pakistan’s first ever burger joint, which is in the process of making a comeback in the fiercely competitive fast food market. A must read for business students. Hope you enjoy reading this...

Babar Nizami

Publishing Editor: Arif Nizami l Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Editor Reporting: Farooq Baloch Reporters Karachi: Aisha Arshad l Nida Jaffery l Arshad Hussain and Usman Hanif l Reporters Lahore: Syeda Masooma l Abbas Naqvi and Hassaan Ahmed l Reporters Islamabad: Amir Sial l Ahmed Ahmedani Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) Design & Layout: Rizwan Ahmad l Illustrator: ZEB Photographers: Zubair Mehfooz & Imran Gillani Contact: profit@pakistantoday.com.pk

FROM THE MANAGING EDITOR

8 Weekly Roundup 12 Beefing up a one time giant 18 Offline strength greatest determinant of online success Qasim Awan

20 20 Pakistan’s Newest Billionaire 28 Outfitters’:How a mold-breaking business model caved in to Pakistani patriarchy

32 Shabbir Tiles: Stiling homes for decades 35 It’s not just about the Salary! 38 Breaking glass ceilings the PTC way!

44 44 Rafay Baloch: The Digital Exterminator 46 A beauty-full idea 49 Talking Heads

CONTENTS

“France has had a long-standing relationship of mutual cooperation with Wapda” French Ambassador Martine Dorance

Rs18,000 crores incentive package for export sector has been announced by the Prime Minister. The package includes the removal of customs duty and sales tax on the import of cotton. Customs duty on man-made fibres other than polyester and sales tax levied on the import of textile machinery has also been scrapped. The new duty drawback rates for textile garments will be 7%; textile made-ups 6%; processed fabric 5%; yarn and grey fabric 4%; while sports goods, leather and footwear will be taxed at 7%.Finance Minister Ishaq Dar, in his address to the gathering, said the government is providing liberal incentives to the business community and it is now their responsibility to increase Pakistan’s exports significantly.

QUOTE

BRIEFING

“Work is in progress at the Kurram-Tangi Dam and renowned contractors are completing Phase-1 of the project” Former Federal Minister Salim Saifullah Khan

$80 million

plant order has been place by Maple Leaf cement to Danish firm FLSmidthfor engineering, procurement and supply of equipment for a complete cement production line with a daily capacity of 7,300 tonnes. The company said it had signed a contract on Monday with the Danish company for supply of equipment for the new clinker line3“The project is expected to begin trial production in February 2019,” the MLCF company secretary said in the statement.

Chinese hydropower project will be exempt from sales tax At least three major hydropower projects with cumulative generation capacity of over 2,700 megawatts among the priority list of CPEC would qualify for the GST waiver worth over Rs50 billion to facilitate their implementation. Similar exemption has already been given to the Orange Line Project in Lahore. Early last year, the Sindh government withdrew GST on services on construction of power projects to be run on Thar coal.Clause 4 of the CPEC framework agreement requires that Pakistan would ensure all preferential conditions to China that it may have extended to any other investor.

Rs2,700 crores fertiliser subsidy has been discontinued as the entire amount from the 2016-17 budget has been exhausted. The subsidy was being provided on urea, diammonium phosphate (DAP) and single superphosphate. The agricultural sector, particularly the farming community, took full advantage of the scheme, hence the allocations were fully utilised. On the other hand President of Pakistan Kissan Ittehad Khalid MahmoodKhokhar has described the decision as hostile towards farmers and the agriculture sector.Later In the week however the subsidy was restored on the Prime Minister’s directive.

BRIEFING

Rs120 crore

tax case against K-Electric is to be reopened by the FBR. The three year old case is being reopened after objections were raised during a meeting of the Public Accounts Committee (PAC). The FBR’s decision comes at a time when the Abraaj Group is in the process of getting regulatory approvals to sell its stake in K-Electric to a Chinese company for $1.77 billion. The Auditor General of Pakistan (AGP) had objected to the FBR’s decision to set aside Rs1.19 billion tax demand against K-Electric. After the AGP’s objections, the issue was discussed in a meeting of DAC, which comprises representatives of the audit department and FBR.

QUOTE

“PIAF has received a number of complaints of FBR officials using arm-twisting tactics against businessmen” Pakistan Industrial and Traders Associations front (PIAF) Chairman Irfan Iqbal Sheikh

fake tax refund cases have been detected by federal auditors. The issues of fake sales tax refunds and non-levy of minimum income tax highlight two problems in the Federal Board of Revenue (FBR) – inefficiency and corruption.“During a special audit of 200,000 refund cases for the period January-June 2016, we have found that 1% of the cases were fake,” said Director General Audit Inland Revenue South, Nisar Memon, in a meeting of the Public Accounts Committee (PAC).In another audit objection, the Auditor General of Pakistan (AGP)unearthed 455 cases where the FBR did not levy the minimum income tax on certain persons, causing a loss of Rs4.3 billion to the exchequer, said DG Audit Inland Revenue North, IrfanWattoo.“It seems that FBR officers were deliberately making these mistakes and the pattern showed that some high officials allowed this to happen,” said Syed NaveedQamar of the Pakistan Peoples Party.

2,000

was the decline in remittance for the period July to December 2016. According to data released by the State Bank of Pakistan (SBP) on Tuesday, remittances received in December alone amounted to $1.58bn, which reflects a decline of 2pc on both monthly and annual basis.Inflows from overseas increased 6.4pc year-on-year to almost $20bn in 2015-16 but growth in remittances turned negative in the beginning of the current fiscal year, with the transfer of funds from the Gulf region, United States and United Kingdom registering notable declines.As for remittances from the United Kingdom, the central bank noted the “sizable depreciation” in the British currency post-Brexit means inflows from the European nation will be lower in dollar terms even if Pakistani workers keep sending the same amount.

2.4%

8.02pc

was the increase in Pakistan’s trade deficit as exports continued to fall in December 2016 coupled with double digit growth in imports. The report by Pakistan Bureau of Statistics (PBS) stated that the trade deficit was alarmingly 71% of the annual projections of $20.5 billion, suggesting that the government will face serious problems in meeting its external account targets, according to experts.Exports plunged 3.82% to $9.9 billion during the July-December period of this year, which was $394 million less than the exports made in the comparative period last year. Compared to this, the import bill increased 10.2% to almost $24.4 billion in the same period. In absolute terms, the import bill was $2.24 billion more than the previous year.

was the expansion in large scale manufacturing on a year-on-year basis. With the higher-than-expected growth in LSM, the government is expected to achieve the GDP growth target of 5.7pc for 2016-17. The production data of 36 items received from the Ministry of Industries and Production and that of 65 items received from the provincial bureaus of statistics contributed to LSM growth by 4.89pc and 1.11pc, respectively. However, the production data of 11 items received from the Oil Companies Advisory Committee (OCAC) contributed negatively to LSM growth by 0.25pc in November. The official industry-specific data shows that food, beverages and tobacco recorded the highest growth of 25.46pc followed by iron and steel products at 20.64pc.

$14.5 Billion

BRIEFING

Dr Muhammad Irshad

“The purpose of setting up industrial zones is to take the country’s economy towards value addition” Minister for Planning and Development, Ahsan Iqbal

QUOTE

has been appointed as the new chairman of the Federal Board of Revenue (FBR). The position became vacant after incumbent chairman Nisar Khan reached the retirement age. Dr Irshad, a BS-22 officer Inland Revenue Services (IRS), will look after the work of the FBR chairman in addition to his own duties as member operation IRS. Last year, the Inland Revenue surpassed its target.

“Pakistan got attractive LNG supply offers as no other major tender was floated across the world” Petroleum and Natural Resources Minister Shahid Khaqan Abbasi

was the number of cars sales from July-December 2016. This is an increase of 14% year-on-year if sales counted under the Punjab Taxi Scheme are to be excluded, signifying strong growth within the limited number of manufacturers in the country.“We expect car sales, including imports of 60,000 units, to clock in at 270,000 units in FY17” said HashimSohail, an analyst at Topline Securities.PSMC volumes remained strong (ex-Taxi scheme) due to robust sales volumes of Wagon-R and Bolan in 1HFY17.Indus Motors witnessed contraction during the half-year under review “due to operational issues during Jul-Oct and phase-out of old Hilux and Fortuner.Honda Car sales stood strong during the period as euphoria of new Civic continues.

97,532

was the amount of housing finance extended by all banks and development finance institutions (DFIs)on Sept 30, up 13.5 per cent from a year ago. Fresh disbursements and new loans given by banks and DFI’s amounted to Rs410 crore to 851 borrowers which is 12.7% down for the same 3 month period last year. Category-wise, Islamic banks remained the largest players with 39pc share in outstanding loans. In a regional perspective housing finance remains unusually low in Pakistan in spite of notable growth in the last two years. The mortgage-to-GDP ratio was only 0.5pc at the end of September last year, nominally higher than 0.48pc recorded a year ago.As opposed to businesspeople, the salaried class relies more on housing finance, SBP data shows. In July-Sept, 68.5pc of loan disbursements were to the borrowers who declared ‘salary’ as their primary source of income.

Rs6,580 crores

92% was the jump in the current account deficit in the first half of 2016-2017. The State Bank of Pakistan (SBP) reported that the deficit had reached $3.585 billion. The deficit in October was $381 million, which jumped to $839m in November and further rose to $1,083m in December. This shows the current account deficit is getting out of hand in 2016-17. All sources of foreign exchange, such as remittances and exports, are showing a declining trend. Remittances decreased 2.4pc year-on-year in July-Dec as thousands of Pakistanis lost jobs in the Middle East. The only improvement was in the case of foreign investment, which increased 10pc in six months. However, it also depended on a one-off inflow from the Netherlands that invested $459m in December.

BRIEFING

retail

Mr. Burger, which is known for introducing the concept of burgers in Pakistan, has opened for franchising for the first time in its 36-year history – the move comes as a fresh attempt to regain the past glory of what was once the best burger joint in Karachi. Owned by the Raza family, the Karachi-based burger chain has entered a franchising contract to expand its footprint across the country. It opened its first franchised outlet at Khayaban-e- Badr, Defence in August 2016 and looks set to launch another at Sindhi Muslim anytime this month. The franchisees Imran Sheikh, Mohsin Abbas, Zubair Mansha and Faisal – who were all bankers previously – will open three more outlets within two years. Later on, the owners plan to expand into other cities of Pakistan by 2018 to grab a slice of what experts say is the world’s eighth largest fast food market. Taking the franchising game a step further, the family has also finalized franchising deals in

Houston, U.S and Toronto, Canada. Although Ashfaq Raza, Managing Director of Mr Burger, did not disclose specific details of the deal but in a telephonic conversation with Profit he confirmed that the burger chain’s outlets will be functional in both the countries in next three to six months. Raza himself will be travelling to U.S and Canada sometime next month in order to settle the paperwork for the deals. Once a darling for all burger lovers in Karachi, Mr. Burger had been in trouble since the early 2000s with its popularity diminishing. It has opted for the franchise model at a time when the market has already become very competitive because of a strong presence of multinational and local chains. According to an estimate by Al-Jazeera English, Pakistan’s fast food market is expected to grow 30% by 2017. The market, which industry experts estimate at approximately $1 billion a year, is dominated by the likes of international players

STRATEGY

such as McDonald’s, KFC and Burger King. On the other hand, local names, such as Burger Inc., Burger Lab, and Burger Shack, which are comparatively newer entrants, are giving tough competition to the pioneers of burgers in Pakistan that are trying to make a comeback. “Back in 1999 there were security issues and we had to move to the United States; we handed over the management to some people but they didn’t do well thus the business suffered,’’ said Raza, one of the nine brothers who own the company. The MD and his brother Iqbal Raza – who conceived the idea of a burger joint during his international travels of 1970s as crew member of the national flag carrier – returned to Pakistan 11 years ago to save the falling burger empire of the family. Reviving an old business after it has hit rock bottom is tougher than establishing a new one, Raza acknowledges. “It is like introducing Mr. Burger again, as we did in 1980.” Starting from scratch once more, the Raza brothers are determined to take their family business back to the glory days –

“A WOMAN RECENTLY VISITED US WITH HER TEENAGE CHILDREN. SHE TOLD US THAT SHE USED TO VISIT THE TARIQ ROAD BRANCH EVERYDAY WHEN SHE WAS IN PECHS COLLEGE, AND SHE WAS INTRODUCING MR. BURGER TO HER KIDS HERE” Ashfaq Raza, MD, Mr. Burger

they are betting on the “taste Mr. Burger has maintained over the years”. Can Mr. Burger make a comeback amid strong competition both from local and international burger joints? Raza is confident it can. If history is any guide, one can’t rule

out this brand, which taught Karachiites the difference between a burger and a bun kabab. Mr. Burger is said to be the pioneers of burgers in Pakistan – and rightly so: after international burger chains McDonald’s and Burger King had turned down the Raza brothers’ requests for operating a franchise in Pakistan, the latter took the matter into their own hands and decided to open a local burger chain in Pakistan. After spending some time in the kitchens of McDonald’s in Connecticut, USA, where the nine brothers worked as employees, Razas learnt the basics of the fast food business from the international burger chain itself. From cleaning, to waiting, to working as kitchen staff, the nine brothers practiced well on the international pitch. As opposed to international chains, which believed Pakistan was not ready for burgers, the Karachi-based burger joint,

which opened its Nazimabad outlet in 1980, made a market of its own and that too quite quickly. “At first, when we gave our customers wrapped burgers they did not know how to eat them! We actually had to tell them not to take off the whole wrapper, it will be easier and cleaner to eat like that,’’ Raza said recalling the struggles of initial days. ‘’People did not know what a burger was, they only knew ‘bun kabab’ (a local version of a burger),’’ says the first generation owner. Mr. Burger introduced fast food trends to ordinary Pakistanis at a time when the most modernized citizen was defined as one who had been to Europe or America – and there were not many of them. In a country where Tikka and Bun Kabab ruled the restaurant business, Mr. Burger embraced globalization: a French artist designed their logo – depicting a burger itself with ‘Mr. Burger’ replacing the patty, they imported cheese slicers from the U.S., and produced raw material at a factory in Nazimabad. Despite the unfamiliarity of masses with burgers, trials and errors to find the perfect recipe, and lack of technical support and staff at the burger joint, Mr Burger’s first outlet in Nazimabad received better than expected response from Karachiites and people from all walks of life became Mr. Burger’s fans.

“MR. BURGER’S OVERALL STRATEGY IS REVIVING AND WE ARE NOW OPERATING WITH THEM THROUGHOUT KARACHI FOR ALL OF THEIR OUTLETS. THEY ARE DOING WELL” Nauman Sikandar Mirza, CEO of EatOye and Foodpanda

According to an article published in AlJazeera English, the current Prime Minister Nawaz Sharif and former President Asif Ali Zardari have also been Mr. Burger’s visitors and fans of its chicken burger. However, things started to change for Mr. Burger when McDonald’s and KFC entered the market in the late 90s. Soon after, the market, which once knew Mr. Burger as its only go-to fast food restaurant found more options to experience the fast food taste. Seeing the popularity of international burger chains, many local investors also jumped the bandwagon and by mid 2000s, the fast food industry itself expanded many folds. Today, KFC reportedly leads the fast food market with its largest 37 percent share,

IN LAST 10 YEARS, THE BURGER JOINT WAS EITHER CLOSING ITS OUTLETS OR REMAINED AT A STAGNANT POSITION BUT SINCE THE FRANCHISING CONTRACT, MR BURGER HAS BEEN ABLE TO OPEN TWO NEW OUTLETS WHICH HAVE ENABLED THE FAMILY TO FURTHER REVAMP AND RESTRUCTURE THE BUSINESS

it is followed by McDonald’s with 26 percent, whereas other foreign franchises such as Hardees etc. hold 6 percent of the market share. By contrast, the market share of Pakistan’s first local joint had been shrinking rapidly. From its peak of 14 outlets, the business reduced to only eight as of today. Although its flagship store of Nazimabad and the Boat Basin outlet, one of its oldest and most profitable branches remain operational, the famous Tariq Road outlet and the fancy Gulshan e Iqbal outlet, once a cash cow, were closed after suffering heavy losses. After coming back from the US in 2005, Raza and his elder brother Iqbal were continuously in efforts to regain the lost business. However, due to the stiff competition and inclusion of numerous local chains in the market it was seemingly difficult for Mr Burger to survive. Raza says, in the end franchising seemed to be a viable option for sustainability and expansion. ‘’Most of the family is in the US now, we don’t have as much manpower as we had in early 80s, franchising was one way we could expand the business and it shares the burden with the franchisee,’’ says the Managing Director.

STRATEGY

In last 10 years, the burger joint was either closing its outlets or remained at a stagnant position. However, since the franchising contract, Mr Burger has been able to open two new outlets which have enabled the family to further revamp and restructure the business, Raza says. Franchising has also provided the burger joint with extra cash-flow as it will get up to 5%

of monthly revenue from each franchise outlet, and a (one-time) royalty fee. Moreover, opening up of new franchises will expand its footprint but the investment of over 1 crore will come from the franchisee’s pocket to take care of the outlet’s land, equipment, and staff etc. Other than franchising, Raza says the family is also keen to upgrade the burger joint’s brand image. This is also an attempt Raza is making on various fronts. As one walks into Rahat commercial outlet, which is owned by Mr. Burger, he finds a drastic contrast between the present day burger joint and the one from the 1980s. The dull orange and white have been replaced by dark grey, yellows, and funky greens and pinks to suit today’s vibrant palettes. The burgers, which once were sold on the basis of their ‘juiciness’, according to Raza, are now displayed better than before on the large pan flexes hung around the outlet. All this in an effort to regain what was lost to competition.

“We sell around 500 burgers daily at this outlet,’’ Raza said of the aforesaid outlet, which they opened over a year ago – this overwhelming response is, perhaps, the reason why they opened their first franchise outlet within three kilometers of this outlet, a practice that is usually avoided in the franchise model. ‘’Internationally, a minimum distance of five kilometers has to be maintained between two outlets of the same flagship,’’ says Raza. Adding, ‘’However, our franchisees had a good location just three kilometers away and we were confident that it won’t affect sales of either of the Mr. Burger branches, that has proven correct so far, both

the stores are making more or less the same sales.’’ “We have got many loyal customers who are visiting us regularly and are very happy that the brand is back in the market with the right approach,’’ Imran Sheikh, one of the franchisee partners, told Profit. Apart from reopening of closed outlets, franchising and rebranding of the joint, Mr. Burger has also outsourced its social media marketing campaigning to Blue-ex, a digital service agency. ‘’It’s social media’s era, everything is on the internet especially Facebook, we are also focusing on that,’’ Raza said pointing towards his smartphone.

There are already indications of a comeback as this sustainability and rebranding has also brought Mr. Burger back on the leading food delivery portals Foodpanda and EatOye, the same food portals, which had discontinued business with Mr. Burger after complaints of substandard quality and services. “Mr. Burger’s overall strategy is re-

viving and we are now operating with them throughout Karachi for all of their outlets. They are doing well,” said Nauman Sikandar Mirza, CEO of EatOye and Foodpanda. All these efforts have resulted in 100% growth in sales in the last one year and the delivery orders via online food portals have increased the business four folds, Raza says. Pakistan’s oldest burger chain is likely to face stiff competition amidst many new names, but Raza says he has full faith in his ‘loyal customers’ who have been coming to Mr. Burger since its inception. Some, he says, are so loyal that their love for Mr. Burger has been passing on from one generation to the other. “A woman recently visited us with her teenage children. She told us that she used to visit the Tariq Road branch everyday when she was in PECHS college, and she was introducing Mr. Burger to her kids here,’’ Raza said – and this transition is taking place on both sides because the 53-year- old himself plans to hand over the business to the family’s next generation once it’s back on track. ‘’Our second generation is excited and ready to join the business any day, we have told them to wait a little till things are running more smoothly; and from there they can take things forward,’’ says Raza.

STRATEGY

OPINION

Qasim Awan

online shops with the first among them being manufacturers-they are doing well owing to their complete control of the value chain right from inception of product design till completion of manufacturing. Clothes and shoes manufacturers for example are doing well in this segment because of how they are in complete control of margins-many of these entrepreneurs tend to be 2nd-3rd generation scions of a business family who have setup online selling subsidiary as a means to diversify revenue streams-hence positioning remember when the brightest kids from Pakistan used to themselves as a financially viable non-core asset within a manufacdream of being stockbrokers in New York-a time that preturing setup. Being made in Pakistan also enables these manufacceded the global financial crisis of 2008. Financial services turers to engage in cross border e-commerce activities with has in my opinion lost some of its luster as the go-to profesclientele in overseas markets and deliveries being catered to sion for bright young minds both in Pakistan and abroad. As through the likes of United Parcel Service (UPS). the internet has taken over our lives it is now no coinciA second business model which an effective means of selling ondence that tech companies are now employers of choice for line is through wholesalers who(like manufacturers)sell competiyoung go-getters and upwardly mobile millennial. In Paktively priced products-the difference is that while manufacturers istan this has been echoed in the migration of bankers towards e-comsell products online which have been made locally the wholesalers merce companies and the clout of CTOs in the management tend to sell products online which have been imported from abroadcommittees of multinationals and domestic companies in many secdoing so at healthy margins that cover their costs. Rather than tors-all companies are now tech companies and the correct degree of building an online platform to become a wholesaler these enterautomation in business processes can determine your success. prises have been wholesaler’s first and online sellers second-meanWithin the trend of tech companies gaining prominence is the ing that the attraction of going into e-commerce is that of the higher tremendous curiosity & press coverage of the e-commerce industry in per unit margin they earn from selling directly to consumers as opthe country. Black Friday spread so far this year that pizza companies posed to being stuck in B2B cycles. A third business model of onwere offering deals and traditional shopping malls saw enormous line shops is the pure play digital retailer-which exist solely on the footfall, stealing some of the market share away from online platbasis of selling online. They do not have the history of an estabforms that had started the trend in the first place. In addition to curioslished business group, hence have to build their wholesale strength ity and media coverage lays a coterie of investors who are willing to from scratch. The ability to negotiate healthy margins with partner plough capital into online shops with a view towards profitable recompanies and stimulate consumer demand for them is of critical turns. Is this euphoria real? Perhaps-but does it have solid foundaimportance. This in turn can lead to more deals and better margins tions? What sort of qualities determines the success of an online which if executed well, will lead towards entering ‘the golden cycle shopping operation? of e-commerce’. It is worth noting that many of the world’s most There are three sorts of business models that make up the majority of prominent online shops are pure play digital retailers-namely Amazon(US), JD.com(China) and Lazada(Indonesia)and this is the case in Pakistan as well. Rather than concentrate on profitability the Qasim Awan game plan is to concentrate on building customer bases which can give it higher enterprise value. JD.com for example had never turned a penny in profit but yet managed a $25bn valuation at the time of its public is member Advisory Board TCS listing in 2014-the finance and professionalism of such setups hence can dwarf those of manufacturers and Solutions wholesalers because if the core function of a pure play digital retailer is to sell online then all of your people, assets and infrastructure will be focused towards that and effectiveness in being a commission agent. As part of my job at TCS, my mission has been the creation of an entrepreneurial ecosystem for the growth of e-commerce in Pakistan-a sector that is a buzzword about the new economy. Ironically however it’s still the old stuff that will create a winning formula-product quality at competitive prices.

oﬄine strength greatest determinant of online success

e-commerce

FROM URDU DIGEST TO ROSHAN PACKAGESâ&#x20AC;&#x2122; IPO: THE SUCCESSFUL EVOLUTION OF A FAMILY BUSINESS

COVER STORY

The market’s response to 2017’s first IPO has set the bar quite high. With a final price nearly 2.5 times the floor price, Tayyab Aijaz’s RPL beat even the highest predictions made by analysts. Is there a method in the market’s madness?

By Farooq Tirmizi, Farooq Baloch, and Abbas Naqvi New York/Karachi/Lahore

COVER STORY

iven the quantitative nature of financial analysis, it is easy to forget that investing is fundamentally about understanding people. You can stare at the numbers all day, but if you neglect to look at the people who make the business what it is – its owners, managers, employees, and customers – you will have missed most of the story. And when it comes to the initial public offering (IPO) of Roshan Packages Ltd (RPL), it is most certainly easy to get blown away by the numbers. By virtually every measure, RPL’s listing was a smashing success, blowing well past analysts’ expectations of the strike price in the Dutch auction used in the book-building phase of the offering, with the final price clocking in at Rs86.25 per share, nearly 2.5 times the Rs35 per share floor price, and 21.5% higher than the highest strike price of Rs71 per share predicted by market analysts. Most analysts had predicted a price of between Rs50 and Rs60 per share. At that high a price, RPL will raise Rs210 crores just from institutional and high net-worth investor Heads. So, what is it about RPL that analysts like? In a note issued to clients on Friday, January 13, shortly before the book-building process of the IPO, Ali Shah Jumani, a research analyst at Alfalah Securities, a brokerage firm, summarized the case succinctly: “Our liking for the scrip is backed by Roshan’s robust expansion strategy, planned backward integration into liner and fluting business through its investment in Sun Tao Paper Mill, and strong financial performance indicators (FY2011-16 revenue and profit growth of 21.1% and 27.1% respective, and an average return on equity of 20.8%).

“WE ARE IN AN INDUSTRY WHERE TECHNOLOGY CHANGES RAPIDLY, AND IN ORDER TO KEEP UP, BORROWING ALONE AS A SOURCE OF CAPITAL IS NEITHER SUSTAINABLE NOR SUITABLE. AND WHEN WE LOOKED AT OUR COMPETITORS, WHETHER LOCAL OR INTERNATIONAL, THAT WAS THE ONE EDGE THEY ALL HAD OVER US: CAPITAL” Tayyab Aijaz, CEO Roshan Packages

Moreover, the overwhelming price performance seen in recent listings keeps us confident on short term price performance.” But while the numbers are impressive, and the market certainly seems to have faith in the company, for the long-term investor, what matters much more is the people who run the business. On that score, the truly remarkable aspect of Roshan Packages is not its revenue growth or rising profitability numbers, but the fact that its founders are the family that made their original fortune as the publishers of Urdu Digest, a magazine that started off as a Readers’ Digest imitation in 1959. Why is that important, you might ask. Because to go from publishing a magazine to starting, running, and successfully growing an industrial enterprise reflects a degree of entrepreneurial vision and zeal that few family businesses in Pakistan possess.

BY VIRTUALLY EVERY MEASURE, RPL’S LISTING WAS A SMASHING SUCCESS, BLOWING WELL PAST ANALYSTS’ EXPECTATIONS OF THE STRIKE PRICE IN THE DUTCH AUCTION USED IN THE BOOK-BUILDING PHASE OF THE OFFERING, WITH THE FINAL PRICE CLOCKING IN AT RS86.25 PER SHARE 22

An unlikely beginning he story begins nearly six decades ago, when the founder of the Roshan Group, Aijaz Hassan Qureshi, graduated with a PhD in History in 1959 from a German university, and returned to Pakistan to launch an Urdu imitation of Readers’ Digest that same year. While Readers’ Digest seeks to remain ideologically unaffiliated, Urdu Digest reflects the political and religious views of its founder, which in turn were informed by his affinity with the Jamaat-e-Islami, a right-wing religious political party. What makes this story relatively unusual is that unlike most family businesses

where each successive generation manages the business worse than the last, Qureshi’s children had the good sense in 1989 to invest the wealth created from Urdu Digest and the family’s other publications into other businesses. Specifically, they decided to enter the fruit export business, focusing on selling Pakistani mandarins around the world. That business was named Roshan Enterprises, and came to become the dominant commercial interest owned by the family by the early 2000s. But the family was not done with their growth aspirations. In 2002, they created Roshan Packages Ltd (RPL), initially as an attempt at backward integration for Roshan Enterprises. The goal was to manufacture the packaging material used by the fruit export business. In order to set up a viable business, however, Roshan Packages was set up with a much higher capacity than Roshan Enterprises could use on its own, and hence RPL began selling to other fruit exporters and, eventually, to food and consumer goods companies.

It would have been tempting to keep operating RPL as a subsidiary of Roshan Enterprises, and effectively never develop it as an independent business. Many Pakistani family-owned conglomerates, including some of those considered among the most sophisticated in the country, have a habit of doing that: creating subsidiaries that could become independent businesses in their own right, but are starved of management talent, capital, and vision thus effectively stunted at birth. The Qureshi family, however, had other intentions for RPL. Since its founding, RPL has grown to become a business in its own right, with a relatively small share of its total revenues being generated by sales to its related entity, Roshan Enterprises. Its largest customers are now the who’s who of the local and global food and consumer goods business: PepsiCo, Unilever, Lotte Kolson, Continental Biscuits (Kraft Foods’ local affiliate), Tapal, and Coronet Foods, among others. That base of large food and consumer goods companies is what has allowed RPL to grow its revenues by an average of 31% per

year since 2009, and its profits by an average of 48% during that same period. However, that growth has come at the cost of increased risk: the proportion of revenue coming from its top seven clients has jumped from 40% in 2011 to 58% in the financial year ending June 30, 2016.

Inspiration at Harvard or all their success at creating a large and successful industrial business out of a relatively small publishing house, the turning point for the family’s ambitions appears to have come around 2010, when Roshan Packages was ranked 23rd among Pakistan’s top 25 fastest growing companies by the AllWorld Network, an organization founded by the legendary Harvard Business School Professor Michael Porter to identify and make visible rapidly growing and scalable private companies across the world. Tayyab Aijaz, the CEO and largest

COVER STORY

shareholder, attended a conference at Harvard after being included in that list and found the experience inspirational. “Nobody thinks well of entrepreneurs or their employees in Pakistan. Michael Porter made us realise how important we are, that global growth, especially growth in employment opportunities, would come from small and medium enterprises like our company,” said Aijaz, in an interview with Profit. Until that time, Aijaz had been running his business without having a full appreciation of how big of an achievement it was to attain the high growth rates his company saw in a security-constrained environment like Pakistan. Porter’s perspective as an outside observer helped him see that differently. “Porter said he was surprised to see 40%+ growth rates in a country like Pakistan. He said ‘imagine what wonders you can unfold if conditions in Pakistan improved’. He appreciated our efforts. That day we realized: ‘oh, we are actually doing something worthwhile.’,” said Aijaz. The conference also got Aijaz thinking about the necessary components of scaling up his business. While organizational structure

“I WOULDN’T HAVE BEEN SURPRISED IF IT HAD ACHIEVED A STRIKE PRICE OF RS90 CONSIDERING AN EPS OF RS5 TO 6 NEXT YEAR, POSITIVE INVESTMENT CLIMATE, AND THE LIQUIDITY GUSH” Zeeshan Afzal, Head research analyst, Insight Securities

and human capital were key considerations for Roshan’s growth strategy, ultimately, Aijaz kept coming back to the necessity of having a relatively unleveraged capital structure and a larger base of permanent capital than the company had at the time. The more he thought about it, the more it made sense to think about raising equity from outside investors through

an IPO. “We were working with banks, but they will only lend you so much to keep your leverage ratios low,” said Aijaz. “We are in an industry where technology changes rapidly, and in order to keep up, borrowing alone as a source of capital is neither sustainable nor suitable. And when we looked at our

competitors, whether local or international, that was the one edge they all had over us: capital.” While Aijaz had decided six years ago that he wanted to list his company’s shares on the stock exchange, he wanted to have a good reason to come to the market, and to have a project that would make optimal use of the funds RPL would seek to raise from the public. That reason came along in 2015, when the company ran up against its manufacturing capacity as a constraint in growing its business. RPL operates two divisions: one that makes corrugated packaging and another that makes flexible packaging materials. Both divisions are operating at higher than 90% of capacity and the company has struggled to grow its revenues in FY2016 largely due to capacity constraints. The money raised from the public markets will primarily be used to increase the capacity of its corrugated division from 36,000 tons per year to 60,000 tons per year and to increase its flexible division’s capacity from 10,800 tons per year to 12,240 tons per year. And somewhat surprisingly for a familyowned business, it appears that the current owners of RPL are willing to give its minority shareholders who invest in the IPO and thereafter “negative control”. Minority shareholders will have 30% of the post-IPO shares of the company, which means they will have more than the 26% they need to have the ability to block the appointment of a CEO by the majority shareholders.

Going further back in the supply chain nd it appears that the Roshan Group is not done with its backward integration efforts yet. As Aijaz explains, his current suppliers of paper have been less than adequate, and so the company has been forced to go into backward integration to manage both quality and control costs of its inputs. “Our major cost is the paper that we buy either locally or import. Local manufacturers in places like Gujranwala, Sheikhupura, etc. are facing severe power outages lasting up to twelve hours a day,” said Aijaz. “Because we were dependent on our suppliers for raw materials, our production levels in the summer plummets because our suppliers fail to provide the paper on the agreed schedule or quality.

Continuous load shedding deforms the paper quality, with folds, joints and cuts in the papers, rendering them useless for us. We used to bear that cost. We didn’t have a choice but to buy from the same suppliers because there were no others.” The management’s current stop-gap measure has been buy in bulk during the winter, when power outages are considerably shorter and more predictable, and use that stock during the summer. This strategy preserves quality, but has the disadvantage of tying up large amounts of working capital for the company. To more permanently solve the problem, RPL has entered into a joint venture with a Chinese paper manufacturer Shandong Yongtai Paper Mill Company to set up its own plant that will manufacture fluting and liners, two key raw materials for corrugated packaging materials. “This will enable RPL to source high quality raw material locally at a relatively lower price, replacing expensive imported and low quality local raw materials,” said Muhammad Ibadur Rahman, an analyst at Elixir Securities, in a note issued to clients on Monday, January 16. Rahman notes that RPL will have a 60% stake in the joint venture, to be named the Roshan Sun Tao Paper Mill (RSTP). The remaining 40% will be owned by Shandong Yongtai. The paper mill, expected to cost Rs400 crores to set up, will be financed by a combination of debt and the free cash flows generated from the newly expanded RPL manufacturing facilities. When finished, the mill will be able to generate 137,000 metric tons of paper and will also have a 12megawatt, coal-fired power generation unit to ensure that it has its own uninterrupted power supply throughout the year.

COVER STORY

The blockbuster IPO o the company appears to have a strong growth record and a management that appears to be thoughtful enough about the challenges it faces and innovative enough to seek to implement long term solutions. But does that justify the Rs86.25 per share price that its IPO achieved? The market appears somewhat divided on that question. IPOs in Pakistan generally tend to set absurdly low floor prices and Roshan Packages was no different, setting its floor price at Rs35 per share, just 8.6 times its latest 12 months’ (LTM) earnings per share (EPS), compared to a 16.1x average LTM price-to-earnings (P/E) ratio among its publicly listed peers.

“THIS WILL ENABLE RPL TO SOURCE HIGH QUALITY RAW MATERIAL LOCALLY AT A RELATIVELY LOWER PRICE, REPLACING EXPENSIVE IMPORTED AND LOW QUALITY LOCAL RAW MATERIALS” Muhammad Ibadur Rahman, Analyst Elixir Securities

Prior to the IPO, analyst opinion on the upcoming listing is overwhelmingly positive and unanimous in its verdict that the floor price was very low. Of the nine research reports surveyed by Profit, all had a buy rating, with average recommendation for investors to buy the stock at up to Rs55 per share, approximately a 58% premium from the floor price set by the IPO’s sole underwriters – Arif Habib Ltd. After the IPO priced at Rs86.25 per share, however, analysts appeared conflicted on whether that price was too high or just right. Among the most bullish on the listing is Zeeshan Afzal, the respected head research analyst at Insight Securities. “I wouldn’t have been surprised if it had achieved a strike price of Rs90 considering an EPS of Rs5 to 6 next year, the positive invest-

ment climate, and the liquidity gush,” said Afzal, in an interview with Profit. “I think they have not received very unfair valuation, though the strike price is on the higher side, in the book building process.” Other analysts were somewhat more skeptical, suggesting that the valuations achieved were too frothy to be justifiable. “Based on a strike price of Rs86.25, the company’s P/E multiple for fiscal year 2017 comes to around 22, which is much higher than that of the blue chip stocks in the same sector,” Taurus Securities’ equity analyst Adnan Sami Sheikh said. He was referring to Packages Limited, Cherat Packaging Limited and Tri-Pack Films Limited that have PE multiples of 16, 12.2 and 12 respectively. “This is too expensive, as the most optimistic earnings forecasts for FY17 range between Rs3.8 and Rs4.0 per share, which would imply a PE of around 22, making it one of the most expensive scripts in the packaging space,” the analyst said. Sheikh said the expansion would take some time to be operational and “for it to reflect in earnings growth, maybe, the high valuation would be justified a couple of years down the line, but not right now”. How high the P/E ratio should be for a stock be considered fairly valued depends on a variety of factors. While a comparison with its publicly listed peers in the same sector is usually a good starting point, other factors can include things like higher growth rate, more stable revenue stream, market-leading position, respected management team, etc. Each of these factors, when present, can justify a company’s stock price having a higher P/E ratio than other companies in the same sector. Nonetheless, the fact that Roshan Packages has been listed at this high a price does mean that the market has reposed a high degree of confidence in the company’s management and its growth prospects, a fact that Aijaz does not deny, though he did seek to downplay somewhat, in part by pointing out that his competitors have higher valuations than may initially appear. “I believe P/E multiple of Packaging Industry will remain higher than the market multiples due to direct relationship to consumer industry and it is evident from the fact that both Packages Ltd (taking just the core operations) and Century Paper are trading at P/E multiple of around mid 20s. Further our pro-

jections for earnings growth in FY2017 is much higher than other players that should justify higher multiple”, said Aijaa.

Post-IPO trading predictions he stock price went up dramatically in part because of a large number of high net-worth individuals bidding the price up in order to seek allocations. The issue was oversubscribed by 6.8 times the total number of shares made available to institutional and high net-worth individuals. That dynamic of a large number of individual investors holding the bulk of the free float, has led to conflicting predictions from analysts on what the post-IPO trading might look like. Sheikh thinks the high strike price means the stock will decline in post-IPO trading, citing the example of Al Shaheer Corporation’s August 2015 IPO. Al Shaheer was oversubscribed at a strike price of Rs95 against a floor price of Rs43, Sheikh said it is now trading at Rs60 per share with a negative return of around 25% since its listing of August 2015. Salman Rashid, a research analyst at Topline Securities seems to agree. “We believe it [RPL share] is overvalued. Based on current EPS, their P/E multiple is 25, which is even higher than that of Packages Limited that has more than 50% share in the market,” Rashid says – Packages’ current P/E multiple is 21. As far as growth prospects are concerned, the company has already taken care of some expansion in its flexible packaging division and setting up a paper mill as well. Both these projects will come online by mid-2017, Rashid says adding they will bear fruits in the last quarter of 2017 or the first quarter of next year. So, from prospective, it is expensive. He believes Rs65 would have been a fair valuation. However, Afzal of Insight Securities, seem to have a different take on that particular judgment. “As far as question of overvaluation is concerned, anyone’s judgment could be wrong. But, people have said such words in the past as well,” Afzal says. Hascol’s March-2014 IPO is a case in point. “The company had set floor price at Rs20 but received strike price of Rs56.50 per share. People said it was expensive, and it initially fell, but then appreciated and is now trading at Rs350 per share.”

“BASED ON A STRIKE PRICE OF RS86.25, THE COMPANY’S P/E MULTIPLE FOR FISCAL YEAR 2017 COMES TO AROUND 22, WHICH IS MUCH HIGHER THAN THAT OF THE BLUE CHIP STOCKS IN THE SAME SECTOR” Adnan Sami Sheikh, Equity Analyst Taurus Securities

The sorry state of Pakistan’s equity capital market erhaps it should not be surprising to see such astoundingly high returns on IPOs in Pakistan, considering the fact that very few companies even make it to market. Since the year 2000, there have been an average of about six equity capital markets transactions each year in the Pakistan Stock Exchange. Investors are starved for new companies to invest in, so small wonder then that when a new company does come along, they leap at the chance.

That, in turn, pushes up stock prices and increases the amount of money companies are able to raise during each transaction. Since 2000, the average amount by which a company was able to increase the asking price during its IPO bookrunning process was 116.5%. If one excludes privatization transactions from the government, which tend to see smaller ‘bounces’ than private sector issues, the jump goes even higher: to a whopping 151.2%. Over time, as the number of IPOs increases and investors have more choices, that number will surely come down. But for now, investors with the minimum Rs10 lakhs needed to participate in the first round of bookbuilding in IPOs will likely continue to enjoy outsize returns.

COVER STORY

TEXTILE

By Abbas Naqvi

The clothing retailer has been successful in marketing Western clothing to Pakistani men, but has had to open a localized clothing brand to succeed in the female apparel market 28

t started off with a bold idea born of an important insight: young middle class men and women in Pakistan’s urban centers aspired to live like their counterparts in the United States and Europe and would therefore have a demand for Western clothing. A local brand seeking to serve that niche would likely do well and grow as that middle class grew in both size and importance. Outfitters is one of the largest retail clothing brands in Pakistan, and claims to be the largest that focuses on Western clothing for the country’s urban youth. Its management pride themselves on being what they consider to be the closest Pakistan has to Zara, a fast-fashion brand that has a certain “cool” cache among fashion forward young people. In a country rapidly urbanizing and with a rapidly growing middle class, Outfitters’ core business model should be a recipe for success. Yet over the past five years, about half its growth in stores and revenue has come from Ethnic, a brand it launched in 2011 to sell Pakistani-style women’s apparel. The reason for Ethnic’s launch and growth? While Outfitters has been wildly

successful in marketing and selling its core Western clothing line to men, its ability to sell to Pakistani women has been severely hampered by the country’s patriarchal social structure where what women wear is dictated not by their own preferences but by what their families deem “acceptable”, a factor acknowledged by the company’s founder, Kamran Khursheed. “We had been observing since the inception of our brand, that the sales in women’s wear were much lower than our sales in menswear,” said Khursheed, in an interview with The Express Tribune in 2011. “The trend is understandable given that many young girls don’t get permission to wear western clothing [from their families]. Therefore, we wanted to offer a range that is ‘cool’ and trendy, yet eastern, so their families don’t have an issue with their attire.” Outfitters currently operates a total of 60 stores across 17 cities in Pakistan and one in Dubai, and Ethnic now has 27 stores across the country. Over the past five years, the company has opened 34 stores, half of

which are Ethnic stores, according to Abdul Malik, the Chief Operating Officer of Outfitters Stores, the holding company for both brands. The late entry into a market for

“OUR AIM IS TO PROVIDE THE BEST CUSTOMER SHOPPING EXPERIENCE AND AMBIENCE. ALSO, SUCCESS COMES FROM AMBITION AND THE LEVEL OF AMBITION NEEDED FOR OUR BRAND TO SUCCEED CAN ONLY COME WHEN OPERATED AND MONITORED OURSELVES” Abdul Malik, the Chief Operating Officer

women’s clothing that would be considered culturally acceptable is reflected in the company’s revenues: men’s clothing accounts for the lion’s share of sales, followed by children’s clothing, sold through a third

brand called Outfitters Junior, launched in 2008, followed by women’s apparel. While urban Pakistani men have been wearing Western clothing since the founding of the republic, local retail chains that sell their own brands of Western clothing are still a relatively recent phenomenon. Outfitters was the third such brandt, launching in 2003, following in the footsteps of Leisure Club (1997) and Crossroads (2002). The cultural aspects of aspiring to wear Western clothing and what that can represent to its customers, or at least what its management perceives it represents to its customers, is reflected in the company’s decisions with respect to marketing and adver-

RETAIL

tising campaigns. Outfitters’ clothes are marketed to Pakistani audiences using white Caucasian models, while Ethnic uses Pakistani models. When asked about this decision, Malik told Profit: “We use foreign models because we want to have a global presence, and that is in line with our brand image. But this is about to change and we will start using a mix of Pakistani and foreign models very soon.” Khursheed founded the company in his house and bootstrapped its growth all the way to becoming the recognizable retail brand that it is today with virtually no debt on its balance sheet. The company’s strategy is dependent on offering chic clothing at prices affordable to most of Pakistan’s urban middle class. “It’s all about fast fashion at affordable prices for us,” says Malik. The mission statement of the company says pretty much the same: “Be the customers’ preferred apparel choice for upcoming trends and fashion, in an affordable price range”. In order to be able to control its pricing and margins, the company relies on inhouse manufacturing for the vast majority of its products. “More than eighty per cent of the manufacturing and logistics is done in-house, excluding the transportation of goods from the unit to our stores,” says Malik. “It’s very important to have your own manufacturing unit in the apparel industry,” says Malik, and adds, “The efficiency of manufacturing, quality of designs, and an accomplished human resource team enable Outfitters to fulfill its promise of ‘good value for money’, and thus outperform its rivals.” The only products it does not manufacture on its own are heavier jackets and woven sweaters, which are outsourced to producers in China. The outsourced clothing accounts for some of Outfitters’ highest margin products. The company’s management appear to have an unusual mix of confidence and paranoia when it comes to their competition, simultaneously considering everyone and no one to be their competitor. “Anybody selling apparel is a competitor. By no competition, we mean that the other players don’t offer the same product range that we do, neither do they operate on such a huge scale to be considered a competitor,” says Malik, adding that Outfit-

ters only considers Levi’s a true competitor. The company was unwilling to disclose revenue or market share details, though it did state that it seeks to conduct a market sizing and opportunity research exercise with the help of a global consulting firm, which would help the management assess growth opportunities and trends. The company also says that its fastest growing segment is its children’s wear brand. “We look forward to hiring an international company to carry out an in-depth research of the Pakistani apparel industry in 2017, which would focus on how many people know us, what they really want, and the market share of each player,” says Malik. Initially, Outfitters franchised a few outlets to bolster expansion but realized the perils of doing so early on and stopped franchising. The few franchised outlets that still exist are owned by the franchisee but operated and managed solely by Outfitters. “Our aim is to provide the best customer shopping experience and ambience. Also, success comes from ambition and the

level of ambition needed for our brand to succeed can only come when operated and monitored ourselves,” says Malik. Outfitters is expanding to smaller cities across Pakistan, and it aims to exploit what it sees as the inevitable transition from eastern to western wear in these localities. It has already opened stores in cities like Rahimyar Khan, Mardan, and Jhelum. “Smaller cities have a huge untapped potential – they are the places to be in today,” says Malik. In the larger cities, meanwhile, the company is adapting to changing shopping habits of consumers. For instance, it is increasing its store sizes from an average of 2,000 square feet to 6,000 square feet, with some of its flagship stores as large as 20,000 square feet each and opening locations in malls or relocating some of its stores to malls with high foot traffic. The company is also gearing up for the rise of e-commerce in Pakistan. In addition to selling clothes directly through its own website, the company is also partnering with daraz.pk, Pakistan’s largest online retailer, to sell its products.

RETAIL

The ceramics and tiles market of Pakistan has been facing intense competition due to cheap imports being dumped into the market by Chinese firms. Profit talked to Murtaza Lalan, Business Unit Head of Shabbir Tiles to understand what the company is planning to do in order to become competitive once again By: Arshad Hussain

habbir Tiles and Ceramics Ltd (STCL/Stile), in the past few weeks has invested over Rs 20 crore in its production plants to bring innovation in the Pakistani tiles market and it plans to invest Rs 800 million more to compete with the rising competition in the tiles and ceramics industry. “‘Stile’, one of the subsidiaries of House of Habib Group of Industries, will invest the amount to modify tile manufacturing equipment, techniques and machinery which can help in reducing its rising energy and production cost,” said Murtaza Lalan, Business Unit Head of the company in an exclusive interview with Pakistan Today. Both of our plants have been converted to European technology as the demand of those tiles is rapidly increasing in the local market, he said. The ‘Stile’ plants, based in Karachi (Landhi and Port Qasim areas), incorporate the latest European technologies & techniques to manufacture high class products that conform to European standards. The company is manufacturing porcelain and ceramic tiles of international quality in different sizes and colours. House of Habib, the umbrella company of ‘Stile’ also own and run successful businesses like Indus Motor Company (assemblers of Toyota cars), METRO Cash & Carry Pakistan, Habib Metropolitan Bank, Agriauto Industries, AuVitronics Ltd, Habib Insurance Company, Makro Habib Pakistan Ltd among others. ‘Stile’ was founded in 1978 as a result of a strategic and technical collaboration with Agrob Anlagenbau GmbH of West Germany. It was the first private sector enterprise in the ceramics field in Pakistan and following which many other ceramic tile producers came into existence. “The total demand of ceramic and porce-

SHARE PRICE OF ‘STILE’ IS ALSO MOVING UPWARDS BECAUSE OF THE GROWTH IN THE CONSTRUCTION INDUSTRY WITNESSED IN THE LAST FEW YEARS AND THIS YEAR AS WELL 8-10% GROWTH IS EXPECTED WHICH HAS APPARENTLY INCREASED STAKEHOLDERS INTEREST lain tiles in Pakistan is around 70 million square meters annually,” Mr Lalan said, “out of which 25-30 percent is produced locally while 70 percent of the tiles are being imported from other countries.” Around 90 percent of the total import of tiles in Pakistan are from China. Only 10 percent of is coming through Iran, Turkey, Malaysia, UAE and Spain, he explained. The main reason behind this import is under-invoicing, dumping, and inferior quality products, he said, but the importers are unable to meet the demand of big projects as they import various designs in low quantities. Large scale projects require larger quantities of tiles which is difficult to meet for importers whereas the local manufacturers can meet this demand.”Actually, the local dealers import the outdated designs from Iran and China on which the sellers have already earned profits from their local markets. In other words the companies sell their unsold stock at cheap rates to Pakistani’s dealers,” he claimed. “These type of different design tiles can only be used on small houses and shops etc,” he said. “The Chinese companies also dump their tiles and ceramics in neighbouring countries

THE LOCAL INDUSTRIES SHOULD NOT BE HURT FROM CPEC AND THE GOVERNMENT SHOULD PROVIDE A LEVEL PLAYING FIELD FOR BOTH TYPES OF PRODUCERS (LOCAL AND FOREIGN). IF THE LOCAL INDUSTRIES WILL NOT BE PROVIDED A LEVEL PLAYING IN TERMS OF TAXES AND DUTIES, OUR INDUSTRY WOULD COLLAPSE

which makes Pakistani products less competitive in the international markets,” Mr Lalan said. We have submitted an application before the National Tariff Commission (NTC) to impose anti-dumping duty on Chinese Tile import, but unfortunately the country’s NTC is not effective owing to the absence of its head, he explained. Mr Lalan hopes that their heavy investment in inkjet printers - used to print on ceramic tiles - will not go to waste if the anti-dumping duties are placed on Chinese imports. According to Murtaza Lalan, more than 1,000 manufacturers in China produce around six billion square meters of tiles and ceramics annually while in Pakistan only six manufacturers are working who produce 30-33 million square meters out of a total demand of 70 million square meters. Locally manufactured tiles are expensive due to 21 per cent sales tax, high wages of labourers, power and gas prices. We have to run our plants 365 days a year and therefore consistent demand is required from the market to make it cost effective, Mr Lalan explained. The company has also recently made different agreements with local builders and the Association of Builders and Developers (ABAD) for supplying high quality tiles and ceramics which will definitely give a boost to sales considering over 250 dealers throughout the country who are part of ABAD. Under the agreement with ABAD, Shabbir Tiles will supply their products at discounted rates on priority basis to ABAD members. Around 50% of the members of ABAD are purchasing from ‘Stile’

INSIGHT

directly. Replying to a question, Mr Lalan said, “importers cannot provide bulk quantity to the builders and developers at a short time so they prefer coming directly to the company instead of going to the dealer.” Share price of ‘Stile’ is also moving upwards because of the growth in the construction industry witnessed in the last few years. This year we are expecting 8-10% growth which has apparently increased stakeholders interest, said Lalan. “In last two years, the company declared losses in its financial statements but earlier it was in profits,” he claimed. Apart from higher gas prices, production and laborer charges, some material prices have also gone up during the period. We have to import a few materials but while most of our raw materials are locally sourced.

He further added that the company is looking at long term profits as the government will have to impose anti dumping duty on Chinese tiles import or bring the taxes down. ‘Stile’ had filed a proposal to the federal government, but the National Tariff Commission (NTC) was not active since last two years in Pakistan. On Dec 27th 2016, the Lahore High Court (LHC) vacated a stay order granted to commercial importers against Anti-Dumping Proceedings initiated by NTC on the request of Tiles and paper industries. Speaking about China Pakistan Economic Corridor (CPEC), he said that the local industries should not be hurt from CPEC and the government should provide a level playing field for both types of producers (local and foreign). If the local industries will not be provided a level playing in terms of taxes and duties, our industry would collapse.

If the government provides extra ordinary incentive to CPEC industries then Pakistani products would become expensive in the local market and non-competitive, he claimed. He said, “so far there is no clarity on CPEC decisions, either they (CPEC) will make and sell to us or they will work with us.” Local industries are one of the government’s tools to provide jobs to the local workers and ‘Stile’ is providing jobs to more than 10,000 employees directly or indirectly working in our industry. During the last few years, the manufacturing of ceramic and porcelain tiles has been cut down by 30 percent as few plants of other companies have closed down or are operational only for few days or weeks in a month owing to the market being flooded with imported tiles. To a normal customer and consumer it seems like an economical solution top buy cheap imported tiles but what they are buying is a shiny wrapper, destined for early trash. The Company is listed at Pakistan Stock Exchange and is also member of Karachi Chamber of Commerce & Industry, Pakistan Ceramics Manufacturers Association, and Landhi Association of Trade & Industry.

cAreerS

By: nida JaďŹ&#x20AC;ery

personal finance

ccording to a research study by The American Institute of Stress (AIS), 80 percent of employees working in the corporate sector feel stress at their workplaces. A lot of this pressure comes from inadequate facilitation by the line managers they report to. Another study that was carried out by Forbes Magazine in 2012 apprises that out of a sample of 1,000 workers, 65 percent of employees prefer a better boss over a raise. These studies and many others are cognitive evidences of stress faced by individuals at their offices.

The lack of awareness in the corporate sector, especially at the management and executive level, further intensifies the severity of the issue. Most importantly, studies have proved that stress decreases the productivity of a worker. Stress-affected employees have lower engagement and higher absenteeism levels. According to the Global Benefits Attitudes Survey, over half of the 22,347 workers who were claiming high levels of stress reported disengagement. By contrast, only one in ten employees who claimed low stress levels said they were disengaged or uninterested in their work. “Human Resource Departments need to design policies that cater to the interests of the employees,” said Rahila Narejo, Lead Consultant and CEO of Narejo HR – one of the top human resource consultancy firms operating out of Karachi. “Line Managers should be trained into implementing the policies for the benefit of the employees.” The designing and implementation of such policies can only be achieved if there is enough awareness in the corporate sector regarding the issue. One of the major causes behind the escalation of stress-related issues at workplaces is the` lack of awareness among officials and personnel in the corporate sector. Employees are overworked and executives are unable to cater to the psychological needs of the employees. Whether it is the stress generated by workload or the feeling of un-productivity, execs at higher levels hold the responsibility of keeping their employees satisfied. Magazines like the quarterly publication by Narejo HR, titled, “HR Toolkit” – that amalgamates topics related to talent acquisition, recruitment and employee contentment at work –provide immense aid in battling this issue by educating both the workforce and the recruiters. “It became a popular publication. Long after we stopped issuing it, companies and officials kept asking us for copies,” said Narejo. The magazine served its purpose for five years before the management stopped publishing it in 2007. A lot more initiatives like this must be

CURRENTLY, ONLY THREE HIGH-END CONSULTANCY FIRMS – NAREJO HR, GRANT THORNTON LLP AND PRICE WATER HOUSE COOPERS, WHICH OFFER SPECIALIZED HR SOLUTIONS – ARE OPERATING IN THE MARKET taken to ensure workplace prosperity for employees. In the last few years, some multinational companies and other large local giants like Pepsico, Coca-Cola, Unilever, Nestle, National Foods, Engro foods etc. have taken lead in understanding the importance of the mental serenity of their employees. Professional human resource consultancy firms, such as that of Narejo, are now hired to appease the trainee programs and employee assessment needs of the company. However, employees working at small-scale companies are not privileged enough to enjoy this advantage. Among oth-

ers, one fundamental cause after the lack of awareness is the lack of availability of specialized services. The California University graduate said the human resource departments, especially, that of small-scale companies, consider themselves responsible for the sole function of hiring employees and calculating salaries at the end of the month. “Employees need more than that. They need specialists who can help soothe their mental and emotional discord through neuroscience and psychology,” said Narejo. Currently, only three high-end consultancy firms – Narejo HR, Grant Thornton LLP and Price Water House Coopers, which offer specialized HR solutions – are operating in the market. For an arcade this huge, three firms are sure not ample. Additionally, companies with lower budget cannot afford the facilities provided by the given HR firms as the rates they charge are competent to that of the international market. Moreover, among many others, one pivotal reason behind the dejection and strain faced by employees is the lack of career counseling they receive during their schooling years. People tend to opt for specific careers that they deem safe as, according to common belief, these careers guarantee job acquisition. This results in a feeling of malaise and downheartedness at work. Also, some degrees that were of para-

“WE BUY A FOOD PROCESSOR WITH SEVERAL FUNCTIONS BUT ONLY END UP USING THE JUICER OR THE BLENDER AS WE’RE UNABLE TO UNDERSTAND THE UTILITY OF THE OTHER SECTIONS. SIMILARLY, IF WE UNDERSTAND THE NEEDS OF AN EMPLOYEE, HE CAN PROVE TO BE VERY PRODUCTIVE IN MORE THAN ONE ASPECTS” Rahila Narejo

mount value before are not considered very useful now which propels the stress-level of the holders of these degrees. “Degrees like BBA and MBA are dying down,” said Narejo. She added that generic degrees are of no value these days. "There’s a natural flux in the job market which has increased the demand of specialization. Only acquiring a degree is not enough. One needs to re-educate himself and cultivate extra skills to get jobs and raises in this market full of competition.” Each year more than 50,000 graduates enter the job market. Companies have open vacancies for months which thousands of degree holders are unable to fill as they do not meet the necessary requirements. The feeling of not being good enough to get the desired job instigates abnormal behavior like ardent temperaments and self-pitying demeanors in employees. The common belief that reputable companies hire from specific institutes is also increasing stress in both job holders and seekers. “There’s a false notion that multinational companies like Unilever hire graduates from specific universities only,” said Narejo. “Anyone can apply for the position.

MANAGERS ARE UNABLE TO MAKE THE MOST OF THE ABILITIES OF THEIR SUBORDINATES BECAUSE THEY FAIL TO KEEP THEIR EMPLOYEES HAPPY. SHE EXPLAINED THIS BY COMPARING AN EMPLOYEE TO A FOOD PROCESSOR

However, students from some specific top tier universities are usually competent enough to get the job.” Bilal Saeed, a graduate of IBA and the Channel Manager for International Modern Trades at Unilever explains this further by telling the tale of his own hiring procedure. He said 7,000 candidates applied for the Management Trainee Program throughout

LUMS graduates for Unilever, LUMS graduates for Nestle, IBA and LUMS graduates for P&G and international university graduates for Coca Cola (Export Corporation which deals with the branding not the bot-

Pakistan and tests were taken irrespective of schools. The applications were screened stepwise – test, screening interview, assessments and interview with the CEO – and 12 candidates were selected. “You must understand that the HR personnel (at least at Unilever) are good at what they do. More or less, 80 times out of 100 they know that a student from a top-tier school will be a better-suited candidate than a student from a second- or third-tier school but of course there are exceptions,” Saeed said. However, Maha Khalid, Career Advising Head at Career Counseling Portal Pakistan, defied the diplomatic approach to this matter and said, “MNCs like Unilever, Nestle, P&G, Coca Cola do hire specifically from certain universities, namely IBA and

tling.)” Furthermore, neuroscience specialist Narejo said that managers are unable to make the most of the abilities of their subordinates because they fail to keep their employees happy. She explained this by comparing an employee to a food processor. “We buy a food processor with several functions but only end up using the juicer or the blender as we’re unable to understand the utility of the other sections. Similarly, if we understand the needs of an employee, he can prove to be very productive in more than one aspects.” Overall, it is the need of the hour to understand the importance of neuroscience and assessment training for both the mental peace of the employees and the better working of the organization.

PERSONAL FINANCE

PROFILE

akistan Tobacco Company (PTC) is one of Pakistan’s first foreign investments and since 1947 has proven to be one of the most successful as well. Over the years the organisation has developed a remarkable and diverse workforce that is allowed and encouraged to realize its full potential. Pakistan Today spoke to PTC’s first Pakistani Managing Director, Mr Syed Javed Iqbal who himself is proof of British American Tobacco’s (BAT) commitment to investing in its workforce.

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Profit: As a person who has achieved so much being the first ever Pakistani Managing Director of Pakistan Tobacco Company (PTC, part of the British American Tobacco group, BAT) what was that one moment in time that you can look back to that shaped your career and developed you into the leader you are today? Javed Iqbal: For a boy hailing from a small town, without any of the advantages that a prestigious local degree or foreign educational exposure offers, the turning point was getting selected for and choosing the right workplace. As a son of working parents a strong commitment to education was inculcated in me since childhood and that brought me to a point where after graduation I had to choose between offers from four different organizations. As

any young man, I was gravitating towards job offers with positions based in metropolitan cities. However, my University’s Head of Department advised me to pick Pakistan Tobacco Company Limited’s (PTC) offer for a position with the Jhelum Factory. True to the traditional family dynamic I had at home, I valued the advice offered to me by my teachers and parents and went with their choice. And here we are today. Profit: What do you believe sets you apart in terms of management style or philosophy from the traditional CEO? Or are you more of a traditionalist? JI: I often talk about how different I am from the perceived ‘CEO material’. You would typically expect an Anglo-Saxon, Alpha male, Personality A type CEO and yet here I am against all odds. All because of BAT’s commitment to drawing strength from diversity which allowed me to be as diverse, and

as far from the stereotypical CEO as I was and still be an effective, successful leader. My management philosophy is to stay true to one's’ roots and to bring one's’ values to work because eventually that is what keeps you grounded and sets you apart at the same time. Profit: The corporate community is increasingly talking about glass ceilings and the lack of a diverse board room at most companies. For someone as diverse as yourself, how difficult was it to break through that ceiling? To be the most different one in the room or in the business and to make people see beyond the things that made you different? JI: The first step in that process is to reach a level of self-awareness and confidence where you believe that you can enter a board room or the top

cadres of leadership without giving in to stereotypes and retaining your sense of self. Once you are confident in your own skin, the next step is to look at what unites you instead of what divides you. As opposed to thinking about how different I was, I started thinking about how much in common I had with all of these people. They may not share my race, religion or background but we all had the same love for our children, issues dealing with the generation gap at home, ambition to grow in our careers and so on. I found that these common themes connected us across cultures and this realization helped me overcome the barrier of ‘differences’. I strongly feel that when you are good at what you do and you have the support from your organization there is no ceiling you can’t break. Profit: While we are on the topic of diversity and inclusion, there is a growing awareness around diversity and inclusion and we know BAT has won accolades

“I AM AMAZED BY THE ABILITY OF THIS ORGANIZATION TO TEACH ME SOMETHING NEW EVERY DAY SINCE I JOINED AND ON A LIGHTER NOTE IT MIGHT MEAN THAT I AM A SLOW LEARNER BUT I HAVE ALWAYS ASKED MYSELF THE QUESTION; HAVE I LEARNED SOMETHING NEW TODAY AND THE ANSWER HAS NEVER BEEN NO” globally for its inclusive policies. How far do you think PTC has come and how far along the journey do you believe you are? JI: As Pakistan’s oldest multinational, the challenge of catching up for PTC was much greater than others. Whereas technology-based younger companies got to build as per todays’ norms, we had to undergo a complete paradigm shift and so it has taken us longer but I am confident that we are on the right track. PTC today has female representation on its board; we have female managers working across the supply chain from factories to trade teams to quality labs who are defying all stereotypes of what women can achieve. We are comparable to any of the top organizations in the country in terms of our gender diversity policies and support frameworks. But are we there yet? No. I believe we have just covered the first twenty yards and we have 80 more to go on diversity and inclusion. But what I am proud of is that of these twenty yards, while we may have come only 5 in the previous ten years, we have covered 15 in just the past two years and I intend to keep the momentum going. Profit: As the British American Tobacco South Asia Cluster’s MD, what advantages or strengths do you believe you have in terms of South East Asian talent? JI: I believe our biggest strength is the hall-

INSIGHT

“WE STRONGLY URGE THE GOVERNMENT TO INTENSIFY LAW ENFORCEMENT TO CURB THE DUTY EVADED SECTOR. IF THEIR GROWTH IS NOT ADDRESSED, IT WILL LEAD TO FURTHER DETERIORATION OF THE LEGITIMATE SECTOR WHICH WILL IMPACT GOVERNMENT REVENUES, EMPLOYMENT AND OVERALL ECONOMIC ACTIVITY GENERATION ASSOCIATED WITH THE INDUSTRY”

mark passion that is distinctive of South Asians. We are emotional, passionate people and I believe we channel it very well as well. Our people deliver in the toughest of times and have shown unprecedented loyalty to BAT across the cluster markets be it in Sri Lanka, Myanmar or Pakistan. It comes as no surprise then that we at PTC are one of the strongest exporters of talent both to the BAT Group as well to the overall corporate market. As we speak, we have over 50 employees placed in senior positions across BAT in different regions from Africa to Europe. At present, around 10 individuals who have been developed by PTC throughout are now working in senior leadership positions in Pakistan’s corporate sector like countless others before them. It gives me immense pride and satisfaction to see our talent footprint increase. Profit: Focusing on Pakistan specifically, PTC is known to have established corporate management practices across the supply chain by virtue of the strength of its

process. How do you feel about this accomplishment? JI: It is of course a matter of pride for PTC to have made such a huge impression on the management practices that the corporate sector follows in the country today. Our trade and distribution process is recognized not just within Pakistan but across the world. Our Marketing Director Sacha Cotting, who has worked in Africa, Europe and has over 22 years of experience under his belt says PTC has the best trade marketing & distribution organization that he has seen. So it is not just within the Pakistani market that our management practices are so well recognized but also across the BAT Group. To me things have worked out the way they have because we have hired the best people who were in turn trained by the best, highly experienced professionals. It’s a legacy we are proud of at PTC. Profit: Having worked in many markets across the world, what is the one area you feel all of us as Pakistani’s need to work

on in terms of our work ethic? JI: After having spent well over a decade abroad, I feel we as Pakistani’s need to work on our tendency to procrastinate. I understand we are confident people and we feel we can deliver on the 11th hour but personally while Miandad’s sixer on the last ball was a nailbiter and very exciting, I would have rather won the match five overs earlier! Winning in the 46th over rather than in the last ball of the 50th over allows you to deliver better results and with much professional excellence! Profit: You’ve talked about working on and developing the South Asia talent brand. What are your plans for delivering that dream? Do you feel that the socio-political uncertainty in the area will be an impediment to talent export? JI: We have been living with uncertainty for a long time in Pakistan and in the area as general. Our friends from Sri Lanka have gone through much more trying times. But these circumstances have made our people very resilient. The South East Asian talent brand

“MY MANAGEMENT PHILOSOPHY IS TO STAY TRUE TO ONES’ ROOTS AND TO BRING ONES’ VALUES TO WORK BECAUSE EVENTUALLY THAT IS WHAT KEEPS YOU GROUNDED AND SETS YOU APART AT THE SAME TIME”

therefore is known for its passion and resilience. If our people can deliver in an unsteady, volatile environment imagine what they can do in a stable environment. Personally my plans are to make sure that we capitalize on all available opportunities to give our people the best possible exposure; not just with long term international assignments but also need-basis, short term development opportunities. While some may overlook opportunities like these, I like to capitalize on any opportunity that gets another stamp of approval on the Pakistani talent brand. Profit: You are not new to international assignments given your diverse professional background. How would you say

BAT has contributed to this aspect of your development? JI: A boy from Multan running a Global company and one of the biggest areas in the BAT Group is testament enough to BAT’s talent development focus. I personally owe a lot to PTC for consciously working on the development of its talent. I had been posted around various Asian markets before BAT decided to send me to the most developed country in the western world; Switzerland. In spite of many other contenders for the role, the organization believed it was important to round off my experience before I was sent back to Pakistan and it is this kind of conscious, dedicated effort to developing people that sets BAT miles apart.

Profit: What does it mean to work at BAT? What should be the expectation? JI: That you will get the chance and freedom to deliver up to your full potential! I always give an example to the young trainees who join that the ground is so big; it’s up to the horses how fast or far they want to run. This company respects your diversity and I am not just talking about gender here but diversity of personality, background, leadership styles. In the BAT world there are all kinds of leaders and managers; all of them doing well in their own spheres. So you can celebrate your diversity and you can live up to your potential because this Company gives you that freedom. Despite having spent years here, I continue to learn every day. I am amazed by the ability of this organization to teach me something new every day since I joined and on a lighter note it might mean that I am a slow learner but I have always asked myself the question; have I learned something new today and the answer has never been NO. Profit: Work-life balance has been debated to death in management circles and yet it still remains an area where leaders have vastly divided opinions. Some propagate flexi arrangements, others believe remote working arrangements are the way forward while a large majority believes these policies are mere ‘fads’ that distract the employee and lessen productivity. Which side of the debate do you stand on? JI: I believe more than balance; it is a choice. There’s absolutely no denying that in today’s workplace, the once strong barriers between work and life have to be taken down. An employee cannot operate without the flexibility of knowing that there can be times where they can work from home, times when they can manage their work hours and compensate for overtime with a few hours taken off early. I believe this is the bare-minimum that any modern-day organization needs to be mindful of for their employees’ well-being. However, looking at the big picture, every employee needs to know what will it

INSIGHT

take to go where. You must reflect and reach a realization as to what your aspirations in life are and then to find a balance that suits you in the nature of a job you opt for. The paths and lifestyles of an aspiring CEO willing to sacrifice personal time will always be different from an employee who wishes to lead a life where family gets priority. And you shouldn’t let anyone tell you otherwise; your work-life balance is in your control and you should call the shots. Profit: How has your family coped with the change? What is the toll that a leadership position like yours takes on the family and how are you balancing it? JI: On the home front, I have been extremely lucky. First with my parents, who gave me the freedom to experiment and explore in the early days of my career. After getting married, I was blessed with an exceptionally strong support system in the form of my wife who gives me the comfort of knowing that our very busy household is exceptionally managed between us and our four kids. I believe the reason our lifestyle has worked is because we have shared goals and dreams and she has helped me stay on course even in the toughest of times. In return, I make a conscious choice to make time for my family, to prioritize a walk with the kids over another dinner with friends, to show up for all the important milestones and be an involved father, husband and son. It’s not easy, but as with any relationship, it takes effort and commitment. Profit: What are your aspirations for the Company you lead today? What does the future hold for PTC? JI: PTC is one of the best companies in Pakistan and South Asia and has been recognized as one of the best run companies of BAT that operates in over 180 markets across the world. My aspiration is to make sure that the company is handed over as top performer to my successor as it was handed over to me by my predecessor. The future holds many challenges for PTC as we work in a perplexing environment that is highly regulated, but the future is also exciting and full of promise because eventually the tougher it is, the more rewarding it will be. Profit: What is your overview of the Pakistani market? JI: Looking at macroeconomic indicators, the Pakistani market is definitely out of its earlier ‘crisis’ stage. We have managed to

turn around our economic growth and the fiscal deficit has reduced while the issue of inflation has been addressed. However, the key here is to note what the IMF Chief has told us; they endorse Pakistan’s economic recovery but urge the country to continue key structural reforms if it wants to consolidate these gains. And on the top of the list of structural reforms required at this stage is to widen the tax net so that a level playing field is established. Currently the country collects only little more than half of what it should and that is a worrying prospect because it allows billions to be pilfered from the national exchequer and harms the tax-paying industry and individual both.

PTC AND PHILIP MORRIS PAKISTAN ARE THE ONLY LEGITIMATE PLAYERS IN THE COUNTRY AND COLLECTIVELY WE HAVE LOST LEGITIMATE SHARE FROM 72% TO 60% IN THE PAST YEAR ALONE. PAKISTAN FACES A HUGE CHALLENGE OF ILLEGAL TRADE IN CIGARETTES Profit: What challenges and opportunities do you see operating in Pakistan? JI: Pakistan is a land of immense opportunities in terms of the quality of our people and the resilient brand of workforce that is distinctive to the country. However, operating in the country comes with a set of challenges. On a macro level, while the security situation has stabilized in comparison to previous years, we are still on the road to progress when it comes to the safety. The Company continues to incur high security expenses to safeguard its people and assets, due to the vulnerable situation. The energy crisis is an-

other area that manufacturing concerns like ours are affected by and have to invest to offset through alternative methods. However our people at Pakistan Tobacco Company Ltd. (PTC) have made huge inroads in developing indigenous clean manufacturing systems for our factories to address the energy deficit. This right here is an example of why I see our people as the biggest strength; they have the grit and commitment to turn around any situation because of their passion to deliver. Profit: What do you have to say about the tobacco industry in Pakistan? JI: There are two industries; the legitimate tax paying industry and the illegal tax evading industry. The tobacco industry in Pakistan is at a defining stage where the legitimate tobacco industry is under immense pressure from the exponential growth of the duty evaded cigarettes. PTC and Philip Morris Pakistan are the only legitimate players in the country and collectively we have lost legitimate share from 72% to 60% in the past year alone. Pakistan faces a huge challenge of illegal trade in cigarettes. In 2015, the share of illegal cigarettes in the total market amounted to 27.7% and today it has crossed the 40% mark which shows the alarming pace at which the illegal segment is growing. While a product manufactured by the legitimate industry will pay due taxes, ensure fair tobacco prices to the farmers and comply with the legal and regulatory requirements, illegal products run scot free. The Government is being cheated of revenues in excess of an estimated Rs.30Bn+ annually and the legitimate industry is rapidly losing volume, all the while illegal operators continue to sell a sub-standard, un-regulated and tax-evaded product in broad daylight. We strongly urge the Government to intensify law enforcement to curb the duty evaded sector. If their growth is not addressed, it will lead to further deterioration of the legitimate sector which will impact Government revenues, employment and overall economic activity generation associated with the industry. Profit: Tell us about your future plans? Does your company have any expansion plans in Pakistan? JI: The operating environment poses numerous challenges, however, Pakistan Tobacco Company Ltd. remains committed to enhance shareholder value and is confident that it will continue to do so through continuous productivity initiatives, a strong brand portfolio and its people.

INSIGHT

PROFILE

By: Nida Jaﬀery While surfing his social media account in 2008 on the now-defunct Orkut, Rafay Baloch, then 16, came across a software application meant for increasing the number of scraps – Orkut’s equivalent of Facebook posts. To appear “cool” among his friends by accumulating a pile of scraps, the young lad clicked a link to the software only to witness his computer going through random wallpaper flips and screensaver changes. His inquisitive nature led him to research this to find out that his computer was affected by a virus, controlled by an IP address from Russia. Baloch might not have thought that the curiosity arising from this incident would one day lead him to become one of the world’s most recognized security researchers. Featured in various national and interna-

tional publications as the leading security researcher of 2014, Baloch stepped his way up the ladder of success at a very young age. The young ethical hacker recently exposed a vulnerability in Chrome and Firefox which essentially says that the way these browsers render website addresses could expose users to malicious websites which otherwise appear to be legitimate. He received a $5000 reward for this endeavour. He also attended Black Hat Asia 2016, the world's premier technical security conference, held in Singapore to read his paper on Android Security. The Black Hat Conference is one of the world’s most prestigious conventions on security research and ethical hacking. “The auditorium was jam-packed during my session,” said Baloch. “My paper on Android Security was very well-received by international researchers.”

The Black Hat Conference has been featuring IT professionals mainly from USA and India for their work in the field of information security, but Baloch got the honor to represent Pakistan at this forum and his research work received excellent response worldwide. Owner of the blog rafayhackingarticles.net, Baloch rose to fame when he helped several organizations find security vulnerabilities in their products. He made responsible disclosures about security flaws and landed in the hall of fame of PayPal, Google, Facebook, Microsoft, Twitter, Dropbox and several other global technology companies and internet corporations. Professional penetration tester and author of the book ‘Ethical Hacking and Penetration Testing Guide’, Baloch found remote code execution vulnerability in PayPal – an online payment transfer service – in 2012 when he was just 19. The money transfer service extended its gratitude by rewarding him with $10,000 in cash and a job opportunity which he had to turn down because he was still pursuing his bachelor’s degree. However, the PayPal bug wasn’t his biggest disclosure. “The privacy bug I found in Android browser is my greatest achievement by far,” the twenty-three-year-old said referring to a massive privacy bug he found in Android browser (Android Stock Browser Address Bar Spoofing) that earned him global recognition in 2014. Among many others, Infosec Institute – one of the finest institutes for information security training – added Baloch to its list of fifteen most famous bug bounty hunters. He was also featured in an article titled, “10 famous bug bounty hunters of all time” by hackread.com – a website dedicated to discussion and news provision on core topics re-

“NEW SOFTWARE, TOOLS, AND WEB APPS ARE LAUNCHING EACH DAY. TILL THE DAY THERE IS INTERNET, ETHICAL HACKING AND SECURITY PENETRATION WILL REMAIN CRUCIAL AND RELEVANT”

lated to technology, cyber security, warfare, and hacking. Currently, Baloch is working as an independent consultant for an international client in Dubai. Prior to this, he was working as Information Security Manager at PTCL headquarter in Islamabad. Baloch believes that ethical hacking and security researching is a field with great potential and growth opportunities for young individuals. “The Pakistani youth is divided into two segments; one that is passion-driven and the other that is driven by ground realities,” Baloch said. He added that people with passion for security researching must not worry about the ground realities as the market is vast and is growing each passing day. “New software, tools, and web apps are launching each day. Till the day there is internet, ethical hacking and security penetration will remain crucial and relevant.” He added that this career path is not dying anytime soon as law enforcement agencies, cyber terrorism combating firms, and IT companies are recruiting ethical hackers and analysts every day. Baloch himself took the unconventional path and opted for a career in a field where there is not much training available in Pakistan. “I studied bachelors in Information Technology from Bahria University,” said Baloch. “Yet, I chose to become a security researcher and studied bug researching and fixing on my own.” Staunchly against cyber crimes, Baloch covets to contribute as much as possible for the elimination of internet crimes from Pakistan and the rest of the world. Talking about the controversial cybercrime bill, which the senate has recently passed, the information security expert was of the opinion that the bill is crucial to ensure the security and privacy of the people. In the same breath, he stressed that the law should be formed and enforced with responsibility, and both the government and FIA (Federal In-

vestigation Agency that deals with cyber crimes) should play a responsible role in this regard. The draft bill has received severe criticism and opposition from rights groups for some of its clauses that are seen as a threat to civil liberties. Talking about those drafting the bill, Baloch said only people with knowledge of IT and cyber crimes should decide penalty and punishment for cybercriminals in the country. “[Information security] experts should be involved in the hearing of such cases for accuracy,” Baloch said, adding that awareness campaigns should be initiated to educate people on the repercussions of cybercrimes. He deems such awareness essential for the safety of the users because if the people won’t have knowledge about the matter, they will never adopt precautions to save themselves from scams and other privacy related issues. Baloch says that he has extensive plans for further advancement of this field in Pakistan. He claims that he has proposed a plan to the Government of Pakistan for a cyber security unit which is under consideration for approval. This cyber security unit will not only provide basic cybercrime related help like FIA does, but will also work for the eradication of cyber terrorism from Pakistan. “Criminal elements are recruiting people through internet for terrorist activities,” Baloch said. “My security unit will work to rule out such attempts from the internet in Pakistan.”

TECH

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inDuStRy

The wedding season in Pakistan has become longer and more extravagant which has made all the industries related to it grow, become more expensive and profitable. High end beauty salons and makeup artists are becoming increasingly unaffordable for a the middle class which has allowed new smaller and cheaper salons to come into the market.

By: Afreen Khan and Aisha Arshad

he maroon and gold themed reception; expensive chandeliers hung on the glittery paneled roof; lavish decoration; dramatic background music; velvet sofa arrangements; a wall covered with LED screens may sound like a scene from a wedding hall, but it’s not. Rather, call it a sneak peek of the “Bollywood-returned” artist, Kashif Aslam’s beauty salon famously known as Kashee’s Salon.

Kashee’s is counted among the highend salons namely Allenora, Sabs, Depilex, Ather Shehzad, Natasha and Tariq Amin owned by the makeup artists themselves and known to be trend setters in the beauty industry of Pakistan. In a country where wedding is the fifth season – in addition to four given by nature – beauty salons have emerged as a profitable business in recent years. According to a market research by Pakistan Today, Lahore is the most expensive to buy serv-

ices of a salon or makeup artist. On average, high-end salons’ can charges start from Rs 75,000 that can double in case of makeup artists – for example, Lahore’s most sought-after artist Ather Shehzad charges Rs135,000 for a bridal makeup, which includes a few services other as well. With such a passion for makeup artists and their salons, customers belonging to the

upper-class spend hefty amounts on their special occasions and do not mind spending somewhere between Rs 1,500 to Rs 4,000 for a regular haircut or blowdry at a top-tier salon. However, the demand for makeup services is not limited to the tier-one salons or top-notch makeup artists, more and more women from lower and middle-income families are increasingly consuming these services thus fueling the growth of small and medium size beauty parlors that are less pricey. This growing demand for makeup, especially in the wedding season, has allowed many women to launch themselves as ‘beauticians’ who are aspiring to become ‘artists’ at some point in future. One such aspiring beautician is Noreen; a single mother of two, running a small beauty parlor for the last 14 years in a populated neighborhood housing lower income families. Noreen, is an expert for all makeup and hairdo related services that has been a unique selling point for the parlor. Her home-based parlor has provided her enough investment to open a new branch in Gulistane-Jauhar, a growing market for such businesses. “During the peak season, I earn up to Rs 200,000 to 300,000,” Noreen said of the profitable season which usually spans over three months after Eid-ul-Fitr. Although, when it comes to the regular earnings, the monthly income does not exceed even 30 percent of what she earns during the season; the customers, however, remain the same throughout the year. As opposed to opening a full-fledged salon like Noreen did, many aspiring beauticians are also taking another route to make a place in the beauty industry. These young beauticians undergo training at dif-

LAHORE IS THE MOST EXPENSIVE TO BUY SERVICES OF A SALON OR MAKEUP ARTIST. ON AVERAGE, HIGH-END SALONS’ CAN CHARGES START FROM RS 75,000 THAT CAN DOUBLE IN CASE OF MAKEUP ARTISTS – FOR EXAMPLE, LAHORE’S MOST SOUGHT-AFTER ARTIST ATHER SHEHZAD CHARGES RS135,000 FOR A BRIDAL MAKEUP, WHICH INCLUDES A FEW SERVICES OTHER AS WELL ferent beauty institutions, along with guidance of renowned makeup artists to set up home-based makeup studios. Such is the case of Nida Jamal, a young makeup enthusiast who decided to convert her passion into profession by opening a small makeup studio in her home; since then she is offering affordable makeup services to her clients all over Karachi. “I took a makeup course from Kanwal Batool, then a hairdo course from Femina Institute and another makeup course from Natasha Salon and Musarat Misbah at Depilex Salon,’’ said the 21-year-old makeup artist who aspires to make a career in the industry. “On an average I have Rs 6,000 to 7,000 daily earning during peak seasons,” said Jamal who is one of the most reasonably priced makeup artists currently. This has so far proved to be a successful venture for most of the artists as the customers are lured by the fact that these artists – having training and knowledge of renowned salons – offer the services at rates much lower than that of high-end beauty salons. However, despite being one of the largest and growing industries in the coun-

INSIGHT

“I TOOK A MAKEUP COURSE FROM KANWAL BATOOL, THEN A HAIRDO COURSE FROM FEMINA INSTITUTE AND ANOTHER MAKEUP COURSE FROM NATASHA SALON AND MUSARAT MISBAH AT DEPILEX SALON,’’ SAID THE 21-YEAR-OLD MAKEUP ARTIST WHO ASPIRES TO MAKE A CAREER IN THE INDUSTRY. “ON AN AVERAGE I HAVE RS 6,000 TO 7,000 DAILY EARNING DURING PEAK SEASONS Nida Jamal

try, the beauty salon business largely remains undocumented and is often accused of evading taxes. In order to protect their interests, small salons, which are fearful of heavy taxation, remain unregistered. The major expense of a salon is rent and salaries of the staff. Industry representatives find the current taxation system to be a major problem hindering the industry’s formalization. “We want government to make categories in salons. A+ salons should give 17 percent sales tax because they have that sort of money coming in, but a small beauty parlor hardly earns a profit after all the expenses and running costs, and should therefore be

given a little relaxation,” said Haji Muhammad Shafiq, President All Pakistan Hairdressers and Beauticians Federation – a private association of beauticians in Lahore. The federation, which has been working for the last 25 years in order to make the beauty industry easily accessible and reputable for its millions of employees, is of the view that the sector can be brought under the tax net if only 5 percent sales tax is levied on small salons. Since this industry provides work opportunities to many women who wish to work with limited resources, Shafiq said their association aims to expand the industry. Currently, Shafiq’s association is in

talks with Federal Board of Revenue and other government authorities to reduce the sales tax. If the representatives of salon businesses and the national exchequer are able to reach an understanding, this growing industry will not only expand further but also make a significant contribution to the economy, say observers. If one needs to understand the industry’s impact on employment and the lives of those involved in the business, Noreen’s case is, perhaps, a good case study: the entrepreneur’s home-based venture helped her provide a living for her family, support her children’s education, and fund business expansion without depending on any relative.

INSIGHT

TALKING HEADS

“At times there can be a disconnect between what the brand perception promises in a communication vis-a-vis the actual delivery on ground and we are fully aware of these challenges. Only when you have that kind of realisation and you are not complacent, can you draw up a roadmap aimed at bridging those gaps” Naveed Asghar

CMO, HBL

“There is going to be an influx of cheap goods coming in as a result of CPEC which can negatively affect our own industry, and may leave millions in Pakistan jobless. So what is our policy to address that?” Atif Bajwa CEO, Bank Alfalah

“In retail business, technology is levelling out the playing field. So it's not just the increasing efficiencies of local banks, but also of non-bank entrants with whom foreign banks need to now compete” Farhan Faruqui Group Executive International, ANZ Bank

TALKING HEADS

“The greatest concern on the fiscal side is confirmation of how far public finances have sunk into a debt trap. For the first quarter of the current fiscal year, interest payments (Rs414 billion) have exceeded net revenue Sakib Sherani receipts (Rs369bn)” CEO, Macro Economic Insights

“The major chunk of growth in the mutual fund industry has come from increase in the value of the stock market and other assets held by mutual funds. The growth of new investors in the mutual fund industry, has been under 4 percent per annum in the last decade” Amjad Waheed CEO, NAFA

“CPEC needs a clear-cut identification of national economic opportunities along with a comprehensive cost-benefit analysis. It will need new institutional arrangements to make it into an economic game-changer for Pakistan” Dr. Salman Shah former Finance Minister

TALKING HEADS