Profit E-Magazine issue 40

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12 Weekly Roundup 16 Will the new boss at the PSX clean house?

24 Why funding is no object for Pak-Qatar Investment

27 27 Shan Foods, intent on spicing it up with a listing on the bourse 32 The economy of Punjab’s graveyards

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34 Millions of computers at risk of hacks cracking into their core 39 How investor cash is changing the face of Pakistan’s diagnostic labs

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Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Contributing Editor: Farooq Tirmizi l Business Editor: Agha Akbar Reporters: Farooq Baloch l Kazim Alam l Aisha Arshad l Arshad Hussain l Muhammad Faran l Syeda Masooma l Ghulam Abbass l Ahmad Ahmadani l Shehzad Paracha l Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) l Layout: Rizwan Ahmad l Illustrator: ZEB l Photographers: Zubair Mehfooz & Imran Gillani lPublishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

CONTENTS

welcome

THE RELEVANCE OF FINANCIAL JOURNALISM One of the most common pieces of advice given to young men and women who attend colleges in the United States is that if they wish to have a career in American business, they should start reading The Wall Street Journal. Read the WSJ for a year, it is said, and you will have a stronger understanding of the American economy than most of your competitors. Similar advice is no doubt given to students in Europe, substituting the WSJ for the Financial Times or The Economist, perhaps.

But what would you tell a young Pakistani student, who wishes to make a career in Pakistan, or generally understand the Pakistani economy?

The equivalent newspaper in Pakistan is Business Recorder, which is a useful resource for people who are already market participants in Pakistan’s commodity, industrial, and financial markets, but not very well suited for people who are seeking to learn about how the country’s economic machine works.

That leaves the business sections of mainstream newspapers. Some English newspapers occasionally do good reporting and produce reasonable content, but if you read a full year of the business stories in Dawn, The Express Tribune, and The News combined, you would be only marginally more informed about the workings of the economy than before you started. And the less said about the sad ‘commerce pages’ in Urdu newspapers, the better.

So how did this happen? How is it that a nation of 207 million people, with a $300 billion+ economy, does not have a single mainstream source of daily news on the economy that could do as good a job as such publications in advanced economies? The simple answer: nobody has cared enough yet to try to explore the market.

The working assumption among most editors at news organisations in Pakistan is that political news is all that matters, and sells better than most other forms of news (except entertainment news, which is a highly lucrative business).

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At Profit, however, we believe that a higher standard of business journalism is not simply a niceto-have, but an essential component of the national conversation. The fundamental nature of Pakistan’s economy is changing, and with it, the way we think and look at the world. The ordinary Pakistani has, in the span of just one generation, gone from a grinding, subsistence level of poverty, to one who can dare to dream of a good life for their child.

Consider just a few of the following facts.

On the day this magazine will go into print, my father will retire from a 40-year career in the government. His last salary will equal – in nominal terms – almost exactly 1,000 times his first salary, when he started as graduate of the Pakistan Naval Academy, in 1978. During that time, of course, inflation has decreased the purchasing power of the rupee manifold, but even accounting for that depreciation in the value of the rupee, his last salary is 33 times higher, on an inflation-adjusted basis, than his first one.

That has consequences on the nature of life even within a single family. When I was a child, the

idea of getting a bag of potato chips from the corner store was a luxury for which I would have to save up a whole month in order to be able to afford. My sister, who is 13 years younger than me, on the other hand, thinks nothing of ordering in from the hundreds of restaurants that have opened up over the last decade in Karachi.

try where the government provides very little by way of a social safety net.

The low frequency with which I – and many others – purchased goods just 20 years ago, versus the much higher frequency with which people today can make purchases has enormous consequences. A low purchase frequency translates into lower revenues for the businesses that sell the products and services that consumers would buy. Lower revenues translate into lower capital available for further investment, and thus fewer jobs created, thus lower average incomes and again, lower purchase frequencies for non-essentials. By contrast, the current state of the Pakistani economy is quite the opposite: new industries seem to attract investment every day. (In this fortnight’s issue of Profit, we explore two: diagnostic laboratories, and graveyards.)

Pakistan is still resolving many deeply fundamental questions about its national identity and sense of self. Not having a clearly and comfortably defined identity that everyone agrees upon can be a deeply uncomfortable experience, which many people seek to cope with by looking for markers of identity from history. Typically, this means finding a time in history when their ancestors were doing well.

This manifests itself most commonly in the “we have a glorious past and we need to return to it” syndrome.

Of course, one might argue that my family is nonrepresentative and unusually fortunate by Pakistani standards, and that is indeed true.

But over the same period that my father had his career, the average Pakistani grew richer by seven times, again in inflation-adjusted terms.

Having a more accurate, and optimistic, sense of one’s present reality, by contrast, can help a person engage in a more rational conversation about one’s identity and sense of self. At Profit, we see it as our role to ensure that those rays of optimism that one may feel from the generally positive long-term trend of the economy do not go unreported.

Or consider the fact – explored in this issue’s cover story by Kazim Alam – that the Pakistan Stock Exchange has yielded hefty returns to investors over the past two decades: a person who put their money in the market in 1998 and never sold anything would have 49 times as much money today as they did 20 years ago. In inflation adjusted terms, they would be 12 times richer than where they started.

Those kinds of returns have enormous consequences for the millions of Pakistanis who are looking to build financial security for themselves and their families, especially in a coun-

Knowing and understanding these deeper, longer-term trends that are improving our lives – and the lives of virtually all Pakistanis every day – is important to the national conversation. Here is how.

This attitude can result in wide variety of character traits, which can be mildly annoying at best, and murderously violent at worst (such as ISIS).

This is not to suggest that it will be all sunshine and rainbows here, or that we will not engage in serious investigative reporting that may be unpleasant for those with wealth or power. The annoyed letters and e-mails our editors receive on a regular basis are testament to our willingness to speak truth to power. But we do have a fundamentally optimistic outlook on Pakistan and its economy.

And we hope to share that with our readers in the comings months and years.

Farooq Tirmizi

FROM THE MANAGING EDITOR

Readers Say Do bankers know their business?

This is apropos, ‘Is Dewan Yousuf serious or will he hoodwink everyone yet again?’

Great article. We all used to think that senior bankers are shrewd and must know their business. But it is a myth.

When the amounts (and stakes) are very high, banks dish out billions to big businessmen like Dewan just to fetch interest.

And if the group defaults, who cares, especially when there is no accountability?

Any banker with basic knowledge of credit would know that the business model of Dewan Motors and sugar companies is such that it should not require any working capital financing from banks, as the customers pay in cash. However they will still give huge funding to Dewan Motors, just like they did in mid 2000s, to meet their targets. Bankers will get away with it as both the banks regulator and the shareholders are indifferent.

An Analyst, Karachi.

Commercial auto sales does need liquidity What an interesting article! However, a bit biased towards bankers but yes, truly seen ups and downs of the group and revamping is an interesting situation arising out of the decade. Let’s see how this goes but commercial auto sales definitely do not run on cash and needs liquidity.

Faisal Leghari, Islamabad

How to ContaCt

facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com

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On the back of the banks Very well written. This was exactly the case with Dewan. I had the chance to examine Dewan group closely and in detail back in 2005-06. They were well on their way to build a huge empire – all based on banks funding, with no contribution from their own pockets. The bankers were not vigilant enough, but apart from herd mentality and generally being clueless, there was another reason for such indulgence too – greed. Dewan was simply talking about such high numbers and they never bothered about checking where their money was going, only being concerned about that year’s targets and the boost in income from higher financing. While all this time, all Dewan companies remained thoroughly inefficient, when all borrowed money was used to

buy unproductive debt-laden companies one after another, the writing was on the cards. The fact that banks still trust Dewan is testimony to the fact that they neither learn nor are they bothered bothered to learn.

Fayyaz Siddiqui, Karachi Syed Babar Ali, one progressive gentleman This is with reference to the book review, titled, What makes Syed Babar Ali tick?

Syed Babar Ali is one progressive gentleman; and that's evident from how much his people are taken care of by his organisations. They go out of the way to build people and grow them.

Ayesha Shakoor, Karachi Recount and remember One of the most noble and humble families of Lahore. Their contribution in education and other welfare projects is worth recounting and remembering. People should learn from them how to live and behave. God bless them evermore.

Saeed Ansar, Lahore Best of luck Apropos: Why content is king for Propergaanda, Parhlo and Mangobaaz are doing very cheesy stuff which sometimes we cannot even open in front of our families, stooping to degraded standards while ProPakistani is just doing repetitive stuff, rewriting plain stories of leading newspapers. We truly need an online daily which can provide us with fresh and green content. Congratulations to the team and best of luck.

Sania Asghar, Lahore Wanted: Progressive, unbiased digital publishing Seems like a remedy for ProPakistani, which has touched new lows. We need a progressive and unbiased digital publishing house having true journalistic ethics and values in its content. Bravo and Good luck!

Saif Ullah Khan, Islamabad

COMMENTS

Member National Assembly Asad Umar

QUOTE

“Most of the supplementary budget is related to repayment of foreign debt and debt servicing, which raises a question mark”

“The Soviet Union economy collapsed due to a weak economy.

In the present era, only strong and competitive economies can survive” Minister for Interior Ahsan Iqbal

Rs16b

of damages have been claimed by the government from Chinese contractors and their local partners for delays in commissioning of its two LNG-based power projects of about 1,230MW each in Punjab. A senior official said the National Power Projects Management Company Ltd (NPPMCL) had formally issued notices to the contractors of both the projects for recovery of liquidity damages. Under the contract, he said, the contractors were required to pay 10pc of the Engineering, Procurement and Construction (EPC) cost of the project. The 1,230MW LNG-based power project at Balloki-Kasur, near Lahore was given to Harbin Electric International and Habib Rafique Group as EPC contract at an estimated cost of about $600 million while similar project at Haveli Bahadur Shah in Jhang was given on EPC to Power Construction Corporation of China and Al-Qavi Engineering at $624m. He said the notices had been issued for recovery of more than Rs16bn from the two consortia of contractors including almost $123m as LDs and some other charges. Both the projects missed their commercial operation deadlines (CODs) for combined cycle generation by 4-5 months, causing economic loss and opportunity costs to the government while the entire gas sector supply chain suffered losses.

$164t

is the figure of worldwide debt, according to the International Monetary Fund (IMF). This is equal to equal to 225pc of global GDP and urpasses the previous high of 213pc recorded in 2009.

The database covers both public and private borrowing of 190 countries, which virtually covers the entire world and dates back to the 1950s. In April, the IMF warned that the world economy was more indebted now than before the global financial crisis (GFC) more than a decade ago and immediate action was needed to stop the next downturn, reported a national daily’s Washington correspondent. Pakistan is included among high borrowers of both public and private loans. Although IMF’s report did not have specific data on Pakistan, reports from other sources put the country’s external debt at more than $88bn in the fourth quarter of 2017, from $85bn in the third quarter.

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8pc

growth year-on-year (YoY) was recorded in the exports of textile and clothing products in ten months (July-April) of financial year 2017-18, touching Rs11.2 billion. The partial revival in the export proceeds is the outcome of the cash subsidy offered under prime minister’s exports enhancement package. The growth is recorded despite non-clearance of refunds/rebate of exporters.

A hefty amount of refund/rebate has already been released in 9MFY18. Data show the main driver of growth was the value-added textile sector as exports of ready-made garments went up 11.96pc in value and 13.44pc in quantity while those of knitwear edged up 14.65pc in value and 3.7pc in quantity during these 10 months. Exports of bedwear went up 4.77pc in value and 3.17pc in quantity. The exports of towels posted a paltry growth of 0.52pc in value and 6.7pc in quantity while those of cotton cloth went higher by 1.12pc in value and 4.2pc in quantity during the period under review.

“The financial sector is instrumental in the development of a country” State Bank of Pakistan Governor Tariq Bajwa

QUOTE

35pc

fall in mango production has been predicted this year due to acute water shortage. Mango orchards in some Sindh districts – such as Hyderabad, Tando Allah Yar, and Mirpurkhas districts – are likely to bear the brunt of acute water shortage. It is more or less the same for Punjab where in Muzaffargarh, Multan, Rahim Yar Khan, and Shujabad districts the overall mango production is anticipated to be less by as much as between 30-50pc. Due to increase in demand and significant supply shortages this year, the wholesale price of mango is expected to increase by nearly 25 percent, from Rs2,400 to Rs3,000 per 40 kg.

Rs659.5b

including Rs155.8 billion were released by the government from foreign aid for different development projects under the Public Sector Development Program (PSDP) 2017-18 against the total budgeted allocation of Rs1001 billion – with a broad spectrum of ministries benefitting from these last minute largesse. According to the latest data released by the Ministry of Planning, Development and Reform, the government released Rs160.02 billion (53 percent of total budgeted amount) for development projects of various federal ministries against the total budgeted allocation of Rs301.83 billion. The government has released Rs253.98 billion including Rs101.38 billion foreign aid for the National Highway Authority (NHA) for which Rs324.72 billion was budgeted for 2017-18, whereas for WAPDA (Power) an amount of Rs40.6 billion including Rs39.95 billion foreign aid has been released, out of the total budgeted allocation of Rs60.9 billion.

2.4pc

increase was recorded in foreign direct investment (FDI) during the first ten months (July-April) of financial year 2017-18. The rise comes in the wake of energy and construction projects, but FDI flows declined to $143.7 million in April from $179.7 million in the same period last year (SPLY). The government sees net FDI to touch $3.7 billion by end of the financial year 2017-18. And FDI was recorded at $2.746 billion during FY18 as opposed to $2.305 billion last year.

Data from the SBP disclosed China was the predominant force for direct investment in the country with inflows of $1.414 billion in FDI from Chinese firms during first 10 months of FY 2017-18 compared to $934.8 billion in SPLY.

$91.8b

was the figure of Pakistan’s external debt and liabilities by end of March 2018, according to data released by the State Bank of Pakistan (SBP). This figure of $91.8 billion for external debt and liabilities is 50.6 percent higher or increased by $30.9 billion compared to June 2013 when the PML-N took reins of the government. From the total external debt and liabilities, government’s public debt including foreign exchange liabilities stood at $76.1 billion by end of March 2018. Public debt linked obligations in almost five years’ time has risen by 42.5 percent or $22.7 billion, revealed SBP data.

When PML-N took power in 2013, this figure including foreign exchange liabilities was recorded at $53.4 billion.

Rs114b

equity injection was given go-ahead by the government into two liquefied natural gas (LNG) power plants. The cabinet in a recently held meeting was apprised the government had extended Rs114 billion as cash development loan to National Power Parks Management Company (NPPMC) for a duration of twenty-years, with a fiveyear grace period. Eventually, after goahead by the cabinet, a loan was procured against equity injection by Pakistan Development Fund (PDF). Previously, Rs64 billion had also been injected as equity in end of June last year into NPPMC for funding of two LNG power plants i.e. Balloki and Haveli Bahadur Shah having capacities of 1,233-megawatt and 1,230MW respectively. Again, at end of December last year, Rs50 billion was injected into NPPMC taking the overall investment in the two LNG plants to Rs114 billion.

BRIEFING

“Pakistan’s forex reserves have dropped to an alarming level: they are insufficient for two-anda-half months of imports” JS Global Chief Commercial Officer Khurram Schezad

QUOTE

1.3m

jobs are needed to be generated every year by Pakistan and by by 2035, the number of people attaining working age is likely to rise from current four million to five million, a UNDP report revealed. The report has clearly indicated that current labour force participation and unemployment rates suggest that Pakistan’s working-age population includes around 3.5 million unemployed individuals. An additional 1.4 million or more people of working age will join the labour force every year for the next five years. At the current participation and unemployment levels and considering the number of retirees, Pakistan needs to create 4.5 million jobs over the next five years (0.9 million jobs annually).

Rs50b

loan was approved by the Economic Coordination Committee (ECC) to reduce the circular debt in the power sector. During the last two months, the outgoing government borrowings have touched Rs230 billion for liquidity management purposes.

And the ECC agreed to approve a levy of a debt imposition surcharge on power consumers amounting in the range between Rs1.15 to Rs1.75 per unit to recover the cost of loans procured parked in PHPL, which would touch Rs730 billion after this latest loan. The outgoing government has inserted Rs230 billion into the power sector in the last two months to ensure power plants remain operational as general election loom ahead. Cost of servicing the bank loans obtained by the government for retiring the circular debt will be borne by the consumers and the latest Rs50 billion loan would lead to levying of another surcharge of 55 paisa per unit depending on the go-ahead from National Electric Power Regulatory Authority (Nepra).

$1b

to $2 billion is expected to be received by Pakistan on account of fresh loans from China to avert a balance of payments crisis. Lending to Pakistan by China and its banks is on track to hit $5 billion in the fiscal year ending in June, according to recent disclosures by officials and Pakistan’s finance ministry data. The new Chinese loans that are being negotiated will help bolster Pakistan’s rapidly-depleting foreign currency reserves, which tumbled to $10.3 billion last week from $16.4 billion in May 2017. The talks come only weeks after a group of Chinese commercial banks lent $1 billion to Pakistan’s government in April. The reserves decline and a sharp widening of Pakistan’s current account deficit has prompted many financial analysts to predict that after the general election, likely in July, Islamabad will need its second International Monetary Fund (IMF) bailout since 2013.

$200m

syndicated loan will be raised by UAE banks for Pakistan. The loan, with a one-year maturity, is being arranged by Commercial Bank of Dubai, Emirates NBD, and Noor Bank, said the sources. Pakistan needs to raise funds to offset a drop in international reserves and to fill a fiscal deficit which the International Monetary Fund estimates at 5.5 per cent of gross domestic product this year. Pakistan’s Finance Minister Miftah Ismail confirmed Pakistan was borrowing $200 million and said it would help the country’s debt repayments. “We are raising this money to boost our reserves,” he told Reuters. “As we pay out money to different institutions, we need to rebuild our reserves.”

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2.49pc

stake has been divested by Kuwait’s Noor Financial to foreign buyers in one of Pakistan’s leading Islamic financial institution Meezan Bank. In a notification sent to the stock exchange on Friday, Meezan Bank said, “Noor Financial Investment Company has successfully consummated the divestment/sale of 26,447,000 ordinary shares in Meezan, constituting a total of 2.49% of the total issued and paid-up capital of Meezan pursuant to which the sale shares have been acquired by various foreign institutional investors at a purchase price of Rs70 per share.” It was reported that none of the interested parties would acquire more than 5 percent of Noor Financial’s stake in Meezan Bank in order to ease the approval from the State Bank of Pakistan.

BRIEFING

WILL THE NEW BOSS AT THE PSX CLEAN HOUSE? The new CEO of the country’s only stock exchange has big plans to expand investor participation in Pakistan. But does he dare take on the power of the brokers?

M

By Kazim Alam

any people changed their phone security settings when the ride-sharing company Careem reported a data breach last month. Hackers stole the app users’ personal data like names, email addresses, phone numbers and trip history, according to the company.

Nobody lost their money because of the data breach.

Yet it was a big deal for the company and its app users be-

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cause data has now become as valuable as money.

Businesses make money off stolen data. They buy it to know the spending pattern of their target market and devise their strategy accordingly.

But imagine a situation where data theft has been going on in real time for years on end. Imagine an industry where some players use stolen data to make millions on a daily basis. Imagine a market where thousands of people lose money to a few with access to stolen data while the regulator looks the other way.

Imagine the Pakistan Stock Exchange (PSX)

I

t’s one of those anecdotes that stock market people swap in whispers only. They won’t tell you who steals trading data. They won’t tell you who buys that data. What they do acknowledge, though, is that some of the players enjoy an unfair advantage over others because they have access to real-time trading data of individual market players.

They know which broker is buying what stock at which price and in what quantity. It’s like playing a game in which you literally hold all the cards.

The existence of data theft is the worst-kept secret in the stock market.

“Why don’t you raise a hue and cry?”

I asked one of the brokers who complained of being a victim of market manipulation through stolen data.

“You think I can furnish watertight evidence of data theft? Doesn’t the regulator already know it’s happening? Why should I bear the onus of proof and risk everything I have?”, said he. Plus, an unsuccessful attempt to expose this practice can practically ruin the brokerage of the whistleblower at the hands of the data thieves.

“The SECP [Securities and Exchange Commission of Pakistan] conducted detailed inspection in relation to rumours regarding data leakage and the PSX has implemented various measures to bolster data integrity based on recommendations,” a spokesman for the apex regulator of the capital markets stated in an email to Profit.

The framing of the answer is interesting. The SECP doesn’t deny that data leakage is taking place. It only says it has conducted a “detailed inspection” but doesn’t say what its outcome was. Speaking to Profit in a wide-ranging interview in his seventh-floor office in the PSX complex on I.I Chundrigar Road, newly appointed CEO Richard Morin, a McGill-educated Quebecois Canadian, said it was

‘reasonable’ to believe that there might have been issues like that. “I’m not saying there’s nothing. We have an expression in French: there’s no smoke without fire,” said the Canada-born head of the demutualised and integrated stock exchange.

“We’ve spared no resources – human and financial – in addressing this issue. We’ve worked internally; we’ve worked with an audit team of the SECP; we’ve worked with more than one external auditor addressing this issue. It’s a top priority,” he said.

He also hinted at the possibility of data leakages taking place through ‘other potential sources’. “If the information is available, where does it come from? It could come from brokers; it could come from other organisations in Pakistan,” he added.

From within?

S

ome of the brokers are of the view that the source of data leakage is within the PSX, specifically the IT department. But

‘IMAGINE AN INDUSTRY WHERE SOME PLAYERS USE STOLEN DATA TO MAKE MILLIONS ON A DAILY BASIS. IMAGINE A MARKET WHERE THOUSANDS OF PEOPLE LOSE MONEY TO A FEW WITH ACCESS TO STOLEN DATA WHILE THE REGULATOR LOOKS THE OTHER WAY’

others disagree, saying it’s difficult to steal data from the PSX building in the presence of strict monitoring.

In a background conversation with Profit, a senior official of the PSX stated that the origin of stolen data appears to be the back-office vendors of brokers with access to their database servers. “There’re no eligibility criteria for back-office vendors. They should have been brought into the regulatory framework long ago. These vendors must be approved by the regulator like other similar service providers,” he said.

“Brokers used to send me other people’s trading data almost every day,” said one former portfolio manager at a larger asset management company, based in Karachi, who wished to remain anonymous. “They do it mostly to curry favour. The more you pay in broker fees, the more data you get from them. They get it from the PSX and from the CDC at the end of the trading day, when trades are being sent in for settlement.”

In many ways, the issue of data theft is perhaps a more brazen way of trying to gain an unfair market advantage that is not altogether uncommon even in advanced markets. Both the New York Stock Exchange and the NASDAQ, for instance, allow high-frequency trading firms place their servers right next to the stock exchange servers in order to reduce the microseconds that it would take a trade order to travel through the wires from Midtown Manhattan to the servers across the

COVER STORY

river in New Jersey.

The trading firms pay a hefty fee for this right, and are in turn able to gain extraordinary visibility into the orders being submitted by large institutional investors, and effectively “front run” them, making money in the process. This phenomenon was documented by author Michael Lewis in his 2014 book Flash Boys.

Low investor participation

A

lleged data theft is one of the many reasons that keep retail investors away from the stock market. The approximate number of retail investors – individuals who trade shares for their personal account – is in the vicinity of 280,000, according to data from the Central Depository Company of Pakistan. That’s only a fraction of what it should be, given that Pakistan has a population of 207 million people. With a smaller population and a comparable per capita GDP, Bangladesh has 2.5 million investors, nearly 10 times the number of people investing in the PSX. As a proportion of the total population, only 0.14% of Pakistanis have any kind of investment in the capital markets, compared to 1.5% of Bangladeshis, and 4.5% of Indians.

The comparison with Bangladesh is made especially surprising by the fact that the Karachi Stock Exchange, the largest predecessor of the Pakistan Stock Exchange, was founded in 1949, a full five years before the Dhaka Stock Exchange, which was founded in 1954.

Incidentally, one of the first listed companies on the exchange, the Karachi Electric Supply Company, is still listed on the PSX as K-Electric.

So why do people in Pakistan hesitate to invest in the stock exchange?

Morin believes the perception among investors about the possibility of being ripped off lies at the centre of the whole issue.

“I think the perceived investor

protection issue is a major, major stumbling block,” said he.

He says the objective of the brokerage community should be to take the number of retail investors to four million in the longer term. Morin joined the PSX three months ago. By the end of his three-year term, he expects to grow the number four times to a million retail investors.

A difficult economic equation for brokers

T

hat goal of increasing retail investor participation may be a difficult one to achieve, in part because it would involve changing both the culture and the economics of the business of equity brokerage in Pakistan. Consider the following facts.

There are 394 entities with trading

‘SO WHY DO PEOPLE IN PAKISTAN HESITATE TO INVEST IN THE STOCK EXCHANGE? MORIN BELIEVES THE PERCEPTION AMONG INVESTORS ABOUT THE POSSIBILITY OF BEING RIPPED OFF LIES AT THE CENTRE OF THE WHOLE ISSUE. “I THINK THE PERCEIVED INVESTOR PROTECTION ISSUE IS A MAJOR, MAJOR STUMBLING BLOCK,” SAID HE’ 18

‘WE’VE SPARED NO RESOURCES – HUMAN AND FINANCIAL – IN ADDRESSING THIS ISSUE. WE’VE WORKED INTERNALLY; WE’VE WORKED WITH AN AUDIT TEAM OF THE SECP; WE’VE WORKED WITH MORE THAN ONE EXTERNAL AUDITOR ADDRESSING THIS ISSUE. IT’S A TOP PRIORITY’ Richard Morin, CEO, PSX rights entitlement certificates (TRECs), of whom the PSX estimates 228 are active in the brokerage business, who are all competing to earn commissions on trading activity that takes place on the stock exchange. The total value of trading on the PSX in 2017 was just over Rs3 trillion. That may sound like a lot of money, but brokerage fees in Pakistan tend to be very low.

In fact, most estimates suggest that brokerage fees in Pakistan amount to no more than 10 basis points (a basis

point is one-hundredth of 1%) of the total value of shares traded. Assuming two-sided commissions on every trade (both the buyer and seller have to pay their respective brokers), that puts the estimated total value of brokerage fees paid in Pakistan to just Rs6 billion ($57.5 million) in 2017. That revenue has to be split among all 228 active brokerage firms.

That money is not nearly enough.

The PSX requires each brokerage firm to have at least Rs50 million ($430,000) in paid-up capital to have a TREC. And that value is actually down from the days when the only way to get a TREC was to buy one from an existing TREC holder. Back then, TRECs used to routinely sell for north of $1 million, and in the pre-2008 crisis era used to sell for as much as $2 million.

If a company has to have half a million dollars in capital to compete against 228 other companies for a market for equity brokerage that is less than $60 million (or about $0.26 million per brokerage), that is not a very attractive business to be in at all.

Total costs would have to be less than Rs15 million (about $0.13 million) in order for the business to even remotely approach being an attractive one in terms of return on equity. And it is next to impossible to run a brokerage firm on that little.

Some of the bigger brokerage firms obviously earn a substantial amount of revenue from their retail brokerage operations, but even the largest ones cannot hope to cover their operating costs on brokerage revenues alone. And the smaller ones do not have a snowball’s chance in hell of making a living on serving retail investors.

So then why were TRECs worth so much? Because just earning commissions on facilitating client trades is not even remotely close to being the most important way brokerage firms make money in Pakistan.

The real money spinner for brokerage firms is their proprietary trading

activity, where brokerage firms buy and sell shares using their own money. And here, it appears that illicit tactics are a commonly used tool to make money.

In an academic research paper published in 2005 in the prestigious Journal of Financial Economics, economists Asim Khwaja, a professor at Harvard University’s Kennedy School of Government, and Atif Mian, then a professor at the University of Chicago’s Booth School of Business and now at Princeton University, argue that one of the biggest ways brokerage firms in Pakistan make money is through a technique known as “pump and dump”.

“How costly is the poor governance of market intermediaries? Using unique trade level data from the stock market in Pakistan, we find that when brokers trade on their own behalf, they earn annual rates of return that are 5090 percentage points higher than those earned by outside investors. Neither market timing nor liquidity provision by brokers can explain this profitability differential. Instead, we find compelling evidence for a specific trade-based ‘‘pump and dump’’ price manipulation scheme: when prices are low, colluding brokers trade amongst themselves

‘THE REAL MONEY SPINNER FOR BROKERAGE FIRMS IS THEIR PROPRIETARY TRADING ACTIVITY, WHERE BROKERAGE FIRMS BUY AND SELL SHARES USING THEIR OWN MONEY. AND HERE, IT APPEARS THAT ILLICIT TACTICS ARE A COMMONLY USED TOOL TO MAKE MONEY’

to artificially raise prices and attract positive-feedback traders. Once prices have risen, the former exit leaving the latter to suffer the ensuing price fall.

Conservative estimates suggest these manipulation rents can account for almost a half of total broker earnings.

These large rents may explain why market reforms are hard to implement and emerging equity markets often remain marginal with few outsiders investing and little capital raised,” write the two economists in their paper.

By now, the culture of proprietary trading is endemic at the PSX and trying to get brokers to change their behaviour and chase after retail investors is likely to be exceedingly difficult. (The popular movie The Wolf of Wall Street depicts a brokerage firm that engages in this kind of behaviour.)

Incidentally, the high incidence of “pump and dump” schemes does not actually prevent long-term retail investors from reaping highly attractive returns.

The benchmark KSE-100 index has risen by an average annual rate of 21.5% per year for the last 20 years.

In absolute terms, this means that Rs1 million invested in a fund that matches the performance of the KSE-100 index 20 years ago would be around Rs49 million today. For foreign investors thinking about the effects of currency devaluation, the KSE-100 index has had an average annual return of 16.1% in US dollar terms during that same period.

A foreign institutional investor who invested during that same period, using an index-tracking strategy, would have

COVER STORY

had $19.6 million in 2018 for every $1 million invested in 1998.

A slow start to the change of guard

B

rokers anticipated a surge in turnover – the number of shares traded on the exchange – when a consortium led by Chinese investors, led by the China Financial Futures Exchange Company, acquired a 40% share and management control in the demutualised PSX at the end of 2016.

Before that, the exchange had been 100% owned by the brokerages. One of the objectives of demutualisation was to separate ownership and trading rights. This was supposed to ensure transparency in trading while allowing the foreign investors who bought shares – and management control – to focus on product development.

But after rising slightly in the first year following the acquisition, the total value of shares traded on any given day has dropped significantly after the acquisition of the strategic stake by Chinese investors. Fewer shares now change hands on the exchange than earlier. There’s also a perception among market participants that there’s been

zero improvement in terms of the IT infrastructure. The acquirer has yet to introduce any new products. In short, foreign investors have done little that local investors couldn’t have done.

Some observers may liken the evaporating volumes to the slow death of retail brokerage, but Morin calls it a ‘transformation’. It started with the integration of the stock exchanges of Karachi, Lahore, and Islamabad, he says.

As a result, the number of stockbrokers went down from 400 to 228. “One thing we can say is that (retail brokerage) is not growing at the rate that it should be growing,” he admits.

Here’s a little insight into the turnover trend on the PSX. The average emerging market has a turnover ratio of around 55 percent. It means the value traded on the exchange during the year is 55% of the market capitalisation, or the total value of listed companies.

Illiquid markets have a lower turnover ratio while speculative or unsustainable markets have a higher one. (The turnover ratio of the Pakistani market was 300% just before the 2008 crash.) Currently, it is in the range of 35-40%. There’d be a bunch of happy brokers if the turnover ratio was to rise up to 55%. In percentage terms, such an

‘THERE’S ALSO A PERCEPTION AMONG MARKET PARTICIPANTS THAT THERE’S BEEN ZERO IMPROVEMENT IN TERMS OF THE IT INFRASTRUCTURE. THE ACQUIRER HAS YET TO INTRODUCE ANY NEW PRODUCTS. IN SHORT, FOREIGN INVESTORS HAVE DONE LITTLE THAT LOCAL INVESTORS COULDN’T HAVE DONE’ 20

increase will herald a growth of about 60% in the brokers’ business.

The PSX CEO wants to increase turnover organically, i.e. in line with the rise in the number of retail investors.

But an increase in retail participation is linked to the perception about the lack of investor protection – a view that’s validated by frequent bankruptcies by brokers. “We have to reduce the number of broker defaults in Pakistan,” he said. There was no default last year.

But a number of brokerages ran away with investors’ money prior to that.

On average, two brokers went bankrupt every year in the past 20 years. Every time a broker went bankrupt, between a hundred and a couple of thousand people would lose money.

That left a direct impact on the perception about the stock market. “We have an unenviable track record. (But) it’s improving considerably… The risk of broker default has already gone down considerably,” he said.

On the one hand, the regulatory framework has gradually been improved. On the other hand, the number of brokerages has reduced substantially in the aftermath of demutualisation.

The risk of a broker going bankrupt has gone down because many of the weaker ones have already gone bankrupt.

“The average broker is bigger today and better structured than it was two, three or four years ago. By no means am I saying the problem is over. I’m saying that the problem is easier to address today,” he added.

But the detractors of the PSX CEO claim he’s deliberately overplaying the broker default issue because he has little progress to show on the front of business development, which is the

primary responsibility of the exchange CEO post-demutualisation.

According to PSX data, 85% of almost 11,000 complaints registered between November 2008 and March 2017 have already been settled. More than 57% of investors received 100% of their approved claim amount while the rest were compensated as per the weighted average method.

In addition to trying to minimise the risk of a broker default, the PSX management is also proposing the reform of its investor protection fund, which has Rs3 billion to help investors if their broker declares bankruptcy.

Under the disbursement mechanism currently in place, the fund cannot utilise more than Rs25 million to reimburse affected investors should their broker go bankrupt. “We want to remove that limit. When a broker goes bankrupt, there should be no limit. (The exchange) should be able to use the total amount in the fund. The limit will be on the per-client basis,” he said, noting that the final figure will be at least Rs1 million per client per broker. “So now we’ll be in a position to go to retail investors and tell them to invest in the PSX: your money will be as safe as with a savings account.”

But some senior members of the PSX management have raised objections to the proposed mechanism.

While the suggested changes will help small investors get a better deal, bigger investors are likely to lose out because of the per-client limit, they say. The existing mechanism ensures half of the settlement amount is disbursed on the weighted average basis – a feature that ensures reimbursement proportionately.

This technique has been used in

‘BUT THE DETRACTORS OF THE PSX CEO CLAIM HE’S DELIBERATELY OVERPLAYING THE BROKER DEFAULT ISSUE BECAUSE HE HAS LITTLE PROGRESS TO SHOW ON THE FRONT OF BUSINESS DEVELOPMENT, WHICH IS THE PRIMARY RESPONSIBILITY OF THE EXCHANGE CEO POST-DEMUTUALISATION’ advanced markets in the past: in 1970, the United States government created the Securities Investor Protection Corporation (SIPC), which has a similar, broker-funded investor protection fund to help investors recover their money.

Unlike Pakistan, however, in the United States, the SIPC is allowed to borrow from the US Treasury if the fund falls short of covering the amounts it needs to return to investors.

Despite loud pronouncements about the importance of investor protection by the PSX management, the position of chief regulatory officer (CRO) has remained vacant for the last year and a half. This position is statutory, like that of the CEO or company secretary. The CRO position is unique to the PSX, which happens to be one of the four self-regulatory organisations (SROs) operating in the capital market.

The other three SROs are the Pakistan Mercantile Exchange, Central Depository Company and the National Clearing Company of Pakistan.

Morin says the delay in the appointment of a full-time CRO is deliberate on part of the PSX. The exchange expects the apex regulator to pool the resources of that the new entity will have its own resources, such as audi-

tors, investigators, and adjudicators.

But the exchange will keep a part of its regulatory division. “We’re not exactly sure what’s going to go where. But I must reassure you that we have very senior positions in our regulatory affairs division (RAD). Rest assured, our RAD is well looked after,” he said.

Skeptics are wondering if the proposed move will add another layer of bureaucracy in the capital market. After all, the new entity will only send orders.

The enforcement function will continue to rest within the PSX.

Introducing ETFs to Pakistan

I

n his many public speeches since taking charge, the PSX CEO has repeatedly vowed to introduce investment products on the exchange designed specifically for retail, non-savvy investors.

He’s targeting those 40-50 million members of the Pakistani middle class who have money to invest but lack knowledge about the stock market. He specifically mentions exchange-traded funds (ETFs), a product that ordinary investors can buy and sell on the exchange just like a typical stock.

COVER STORY

But unlike a stock that symbolises the ownership in a single company, an ETF represents the value of a number of listed companies. Like a mutual fund, an ETF allows investors to have exposure to a large number of listed companies through a single transaction. Investors benefit from any price appreciation and dividend declaration from the constituent companies.

Morin wants ETFs to be listed ‘as quickly as possible’ because it’s an ‘easy, accessible investment vehicle’.

It’s safe – a key consideration for retail investors – because it’s a trust similar to a mutual fund.

“We’re reorganising the PSX to devote human and financial resources specifically to this project,” he said.

An ETF listing requires two players other than the exchange. The first player is called an issuer, which is usually an asset management company (AMC). At least three AMCs have shown interest in becoming the ETF issuer, according to Morin. The second player is called an authorised participant (AP), which is usually a broker.

Let’s assume that an asset management firm intends to introduce an ETF that consists of the 30 shares of the KSE-30 Index. Like a mutual fund, this ETF will be a trust that will hold the shares in the same proportion as the KSE-30 Index. The role of the AP (or the broker) will be to acquire those shares from the open market and deliver them to the issuer (or the AMC).

In return, the AMC will create a unit of the ETF and deliver it to the broker. “Nobody has stepped up for the role of the AP so far. Some are interested. But they don’t have the expertise. They don’t know the business. It requires capital. There’re risks involved,” Morin said, noting that the challenge with the ETFs lies mostly in structuring the AP business.

He suggested that listing an ETF may require a transfer of expertise from a developed country. It may also require an injection of capital, he said.

“It’s a huge undertaking. We intend to do it within 2018.”

Streamlining processes and other reforms

I

n its attempt to attract retail investors, the PSX management is pushing for streamlining account opening and know-your-customer

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‘SKEPTICS ARE WONDERING IF THE PROPOSED MOVE WILL ADD ANOTHER LAYER OF BUREAUCRACY IN THE CAPITAL MARKET. AFTER ALL, THE NEW ENTITY WILL ONLY SEND ORDERS. THE ENFORCEMENT FUNCTION WILL CONTINUE TO REST WITHIN THE PSX’ processes. It currently requires 32 signatures to open an account despite the fact that electronic signature is legal in Pakistan.

“The process is paper-based and very cumbersome. I want an investor to be able to go through the account opening process in 15 minutes. I think we need to arrive in 2018 in terms of technology.”

Morin also vowed to ‘completely replace’ the Karachi Automated Trading System (KATS), the online share trading platform, which is known for its limited features and a general lack of user-friendliness.

This new trading platform will support not only equities but also futures and options. The PSX has issued a request for information, the first stage of the procurement process. It expects to receive the new platform by early 2019.

“If there’re data leakage risks within the trading system, it’ll eliminate them,” he said, while declining to talk about the expected cost of the system.

Unlike most people from his part of the world, Morin enunciates his words slowly and carefully. Perhaps he was advised to speak slowly so his Pakistani colleagues could understand him better. He banters with reporters and cracks self-deprecating jokes. Yet his hearty laughs seem to have won him few friends among the brokers’ community so far.

“He’s yet to hold his maiden meeting with the brokers, although he’s been here for months. The impression is that he’s unapproachable,” said one broker requesting that his identity shouldn’t be disclosed.

Perhaps the impression was reinforced when the PSX management allegedly went on a ‘firing spree’. At least two general managers were shown the door along with senior employees from the IT department.

Morin recently conducted a twoday annual strategic planning exercise at a Karachi hotel with senior members of the PSX management. The brokers

objected to the ‘lavish’ offsite meeting, saying that the exchange, which is a listed entity itself, should cut its expenditures amidst dwindling earnings. Net income of the PSX for the nine-month period through March dropped 55% year-on-year to Rs65.5 million.

“The brokers’ community is, I’d say, half right. There’s been no comprehensive meeting with all of them,” he said, adding that there’ve been forums where he met brokers individually or in groups. “I’d say not a week goes by without my meeting three, four, five brokers. Sometimes individually, sometimes in groups. I’ve never ever once refused to meet a broker. I’ve never said I’m too busy.”

As for holding an off-site meeting, Morin said it was to ensure that people didn’t run back to the office during the exercise. “At the last minute, we decided to do it downtown Karachi as opposed to a remote place because I needed to be in Karachi that Sunday,” he said, emphasising that the only body to which he’d justify himself was the PSX board of directors.

In a similar unapologetic vein, he said some of the senior PSX employees left because the exchange needed transformation to achieve its ‘very ambitious objectives’ in the next three years. “I’d hope that you talk at least as much about the people we’ve hired than the people who’ve left the PSX,” he said, adding that the board of directors has accepted a new organogram for the exchange.

The PSX is hiring a chief operating officer besides a head of marketing and business development – a position that doesn’t currently exist. Under that head will be specialised teams tasked with attracting new listings and retail investors. The PSX is also hiring a head of product management and research who will oversee the resources dedicated to ETFs. “We’ve set an objective for 20 new listings a year 2018 onwards. These are just equities, not debt listings,” he said.

COVER STORY

WHY FUNDING IS NO OBJECT FOR

PAK-QATAR INVESTMENT

Backed by very strong sponsors, from amongst Qatar’s royals, the company has never faced any issue in calling capital

E

By Kazim Alam

xpanding beyond Islamic insurance, the Pak-Qatar Group is planning to enter real estate, asset management and microfinance sectors, a senior official told Profit in a recent interview.

“We’ve received the greenlight from Qatar. We’re doing feasibility studies to grow beyond Islamic insurance. Our sponsors are willing to inject capital,” said Muhammad Kamran Saleem, CEO of Pak-Qatar Investment Company.

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Saleem also serves as chief financial officer of Pak-Qatar Family Takaful, one of the two Shariah-compliant life insurance companies operating in Pakistan.

The Pak-Qatar Group has remained focused on takaful, or Islamic insurance, since it began operations in 2007. Unlike the usual seven-year gestation period for insurance companies, Pak-Qatar Family Takaful achieved breakeven in five years. And it turned a profit in 2013, got rid of accumulated losses by 2015 and has maintained a positive book value since 2016.

Its net income was Rs127.1 million in 2017, up 3.6 percent from a year ago.

“Getting into asset management makes sense because we have sufficient funds available. It’ll create synergy and lead to vertical integration,” he said. Asset management companies take money from individuals and institutions to invest in listed shares, corporate bonds and government papers through mutual funds and voluntary pension schemes.

Getting into real estate

A

s for investing in the property business, Saleem said the group is keen to set up a real estate investment trust (REIT),

‘GROWTH HASN’T BEEN RAPID BECAUSE INSURANCE IS A PUSH PRODUCT, NOT A PULL PRODUCT. THERE’S LITTLE ACCEPTABILITY OF INSURANCE IN PAKISTAN AS IT’S A MUSLIM-MAJORITY COUNTRY. PEOPLE THINK IT’S AGAINST TAWAKAL. THEY CONSIDER IT HARAM’ Muhammad Kamran Saleem, CEO, Pak Qatar Investment Company

an specialised entity that develops a property by raising funds through retail and institutional investors. In return, investors receive dividend-based income and benefit from any price appreciation in publicly traded REIT units.

The penetration of insurance in Pakistan is less than 1% of GDP as opposed to the regional average of up to 4%. Apart from two dedicated takaful companies, four conventional insurers currently operate ‘takaful windows’ i.e. sell Islamic and conventional insurance products simultaneously.

Gross premiums of the overall

takaful sector constitute less than 7% of total premiums collected by the insurance industry.

“Growth hasn’t been rapid because insurance is a push product, not a pull product. There’s little acceptability of insurance in Pakistan as it’s a Muslim-majority country. People think it’s against tawakal. They consider it haram,” Saleem said.

Gross premiums collected by conventional life insurers grew at an annualised rate of 44.8 percent between 2012 and 2017. In contrast, contributions received by Pak-Qatar Family Takaful increased at an annual average of 19.9 percent over the same period.

Contributions received by the company amounted to Rs8.2 billion in 2017 while those by Dawood Family Takaful, the only other dedicated Islamic insurer, equalled Rs1.3 billion.

Islamic insurers went to court against the Securities and Exchange Commission of Pakistan (SECP) after it allowed conventional companies to launch Islamic windows in 2012. The Shariah-compliant players held that allowing conventional insurance firms to sell takaful without having to incorporate a separate company was against the spirit of Islamic insurance.

After an out-of-court settlement, conventional insurance companies started setting up Islamic windows in 2014.

This is the reason Saleem believes that the Shariah-compliant insurers are at a disadvantage in Pakistan. “If you look at it in purely commercial terms, I’d say there’s is no level playing field.

My competitors can operate in both segments, but I can’t.

I can’t get a licence to do conventional business, but my counterparts can receive a licence to do takaful,” he said, adding that the regulations governing the insurance sector must be ‘equitable’.

‘ANOTHER REASON THAT ISLAMIC INSURANCE HAS NOT GROWN BY LEAPS AND BOUND – DESPITE THE PERCEPTION OF ITS CONVENTIONAL COUNTERPART BEING UN-ISLAMIC – IS THAT SHARIAH SCHOLARS HOLD A DIVIDED OPINION ABOUT TAKAFUL. THERE’S LITTLE UNANIMITY AMONG RELIGIOUS EXPERTS ON IT BEING 100 PERCENT SHARIAH-COMPLIANT’

Divided opinion amongst scholars

A

nother reason that Islamic insurance has not grown by leaps and bounds – despite the perception of its conventional counterpart being un-Islamic – is that Shariah scholars hold a divided opinion about takaful. There’s little unanimity among religious experts on it being 100 percent Shariah-compliant.

Saleem said the company plans to hold an initial public offering (IPO), which means it will become the first Islamic insurer in Pakistan to have its shares listed on the stock exchange.

“We plan to go public,” he said while refusing to divulge the time or size of the listing. However, he noted that the IPO will likely be a small one. “The IPO of an insurance company isn’t extraordinarily large because it doesn’t need that much money from the public,” he said, noting that the life insurance business self-sustains once it turns profitable.

Moreover, Saleem said the company isn’t desperate for funding from external sources. “We’re backed by very strong sponsors. We’ve never faced any issue in calling capital for Pak-Qatar Family Takaful,” he said.

Sheikh Ali bin Abdullah al-Thani, chairman of the company, is a member of Qatar’s royal family. Major sponsors include Qatar Islamic Insurance Company and Qatar International Islamic Bank.

Saleem’s statement is borne out by the fact that the company has increased its paid-up capital for the last two years.

The purpose of the capital injection by the Qatari sponsors was to enhance the company’s solvency ratios: having assets in excess of liabilities improves a firm’s ability to meet its obligations and ensures a better assessment by credit rating agencies. The objective of the planned listing, according to Saleem, is price discovery. The IPO will help the sponsors determine exactly how much their company is worth. Moreover, the IPO and the subsequent share trading will create a buzz in the market and help grow the brand, he said. He ruled out the possibility that the sponsors were looking to exit the Pakistani market after holding the IPO. “One big loss can hurt the earnings of a general insurer for years. But a life insurer keeps earning once it goes in profit,” he said, adding that it’s time for the sponsors to sit back and enjoy the returns.

INSURANCE

SHAN FOODS INTENT ON SPICING IT UP WITH A LISTING ON THE BOURSE

With disposable incomes on the rise, the Pakistani international spices giant not just doubles its size in the last three years, but with new products and an acquisition part of its expansion plans, the family-run business is evaluating tapping into funds from the capital market

A

By Farooq Baloch

fter nearly four decades of successful operations as a family-run business, Shan Foods is now considering an initial public offering (IPO) to execute its expansion plans – including a possible acquisition, and new product launches.

“We are definitely considering an IPO,” Sikandar Nawaz Tiwana, Chief Executive Officer, Shan Foods told Profit during an interview at the company’s headquarter at Korangi Industrial Area.

Tiwana, who joined the company in December 2015, is part of the new Shan management that came about as a consequence of a major policy shift a couple of years hence – turning the family business to a corporate with professional managers conducting the business.

Until recently, the company had been almost single-handedly managed by the family patriarch, Sikandar Sultan – the majority owner, and present chairman.

FOOD & SPICES

Evaluating the advantage

“W

e are evaluating the advantage of an IPO. Do we need the funds, is the question”, said the CEO. Shan has previously shied away from conventional banking as a financing source owing to Sultan’s conservative interpretation of Islam, that prohibits interest-based borrowing.

Tiwana refused to disclose any timeline or further details, but Shan has been publicly musing about an IPO since at least Jan 2014, when it participated in Pakistan IPO Summit. The induction of professional, non-family managers into its corporate leadership was an integral part of that strategy, said one source familiar with the matter. The company would indeed have already been listed had conditions in the equity markets not deteriorated, added the source.

Earlier this year, Muneer Kamal, chairman of the PSX board, had told Dawn that companies were lining up for IPO in 2017 when the market was bullish, but most of them had to put off their plans fearing

27

under-subscription soon after the bourse’s retreat May 2017 that remains unarrested. The benchmark KSE 100 Index has shed more than 21% of its value since May 25, 2017, when it hit an all-time high of 52,876 points – up to that point, as many as 17 companies had applied for listing.

“I think Shan will go for it [IPO] now. They will do it by 2020, if not before,” said the source. The company’s expansion plans prima facie back that view.

Shan Foods, insiders share, is in the process of launching a few new products, including wheat flour. Tiwana too hinted at it, without being specific.

“It could be anything related to our existing brand portfolio as we are looking into next possible categories,” said the CEO. “It could be wheat or pasta,” he added.

Starting in 1981 with a single-room business from his house, Sultan, the chairman, turned Shan Foods into a global spices giant, to the extent of raking in Rs10 billion in revenues in the latest financial year. With cash flows strong and consistent, Shan funded its expansion by reinvesting its own profits.

The company launched with basic spices (plain spices) and recipe spice mixes and later expanded its portfolio to include Oriental and Arabic recipe ranges, instant noodles, salt, cooking paste, ginger garlic paste, pickles, chutneys (sauces), desserts, rice, lentils as well as ready-to-cook and ready-to-eat range –some of these being available abroad only. Today, it has customers in 65 countries and manufacturing units

and offices in Pakistan, the UAE, Saudi Arabia and the United Kingdom.

In recipe mix and plain spices, Shan is amongst the top two, neckto-neck with arch-rival National Foods Limited (NFL) – a bigger brand based on revenues and number of categories, but industry sources say that in overseas markets, the former has a larger share.

Challenge of the ‘unbranded’

O

ther than brands like NFL, Chef’s Pride, Mehran Foods, Ahmed Foods, and Habib Foods keeping it on its heels, the unbranded portion of the industry cornering an estimated 70% of the total market is the challenge.

This is certainly a challenge, concedes Tiwana, linking it with affordability and consumer awareness.

“As disposable income and awareness levels rise, they shift to the branded segment.”

Hence, the question: with the statistics reflecting a rise in disposable incomes, did Shan reap the windfall?

“Yes, there has been a major change in the last three years,” said the CEO, adding, “Our size has doubled [during the period].”

Pakistan’s spices and condiments market was in 2017 (Database: Pakistan Bureau of Statistics) estimated to be worth Rs203 billion ($1,933 million).

Shan Foods’ management estimates that the share of the informal market as a proportion of the total market has gone down by 10 percentage points in the last three years.

Shan’s compound annual growth rate (CAGR) for the same period witnessed “a strong double-digit growth”, Tiwana said – thanks to our middle class’ growing income levels and changing consumption trends.

Annual disposable income in Pakistan grew by 8% between 2015 and 2016, fetching the country 23rd position in the world in terms of growth of annual disposable income, the London-based market research firm Euromonitor International mentioned in its report last year. ‘A strong indicator that consumption in the country’ was increasing, and ‘would continue to grow’ – further driving the ‘retail market’, said the report. The annual disposable income, the report ascertained, is expected to grow at a constant value – a compound annual growth rate of 5.4% (based on fixed rupee-dollar exchange rate) between 2017 and 2022.

Besides these optimistic forecasts on local consumption, Shan is set to benefit from the recent surge in rupee-dollar parity – the rupee depreciating by 9% compared to the greenback.

Uptick encourages expansion

“D

ollar appreciation benefits the export-oriented, so it will definitely help Shan,” said Tiwana, adding, the extent of its benefit would reveal itself in the coming months.

Since exports constitute over 40%

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revenue and more than half of its profit, Shan is most likely to make a decent yield in profits that, market sources claim, saw a dip in 2013 and 2014.

On the decline in Shan’s profitability, the CEO turned philosophical, saying, ups and downs were part of the business. To him, ‘Multiple’ factors may have triggered it. Such as, ‘a slowdown in global economic growth bringing about regulatory changes’ in international markets. “We have been growing for the last two years.”

The recent uptick in its bottom line may have encouraged Shan to go for further expansion, but, critics say, the spices giant seems to be stuck in a select few categories, with its planned foray into new food segments on hold

as 1997 – categories still missing from Shan’s range.

When asked as to why the company had not ventured into new categories and product diversification, since this is part of its vision, Tiwana said, all those categories added to the company’s product range over the past three

‘ONE WILL ALWAYS FIND OPPORTUNITIES IN THE MARKET. THE KEY IS TO PURSUE THE RIGHT OPPORTUNITY AT THE RIGHT TIME, IN THE RIGHT MANNER’ Sikandar Sultan, Chairman, Shan Foods for a while.

The last time the company entered a new category was more than five years ago when it launched Shoop, its instant noodles range. Meanwhile, its main competitor, NFL, has added jams and ketchup to its portfolio as far back

decades are diversification of Shan’s portfolio.

An industry expert concurs. “Shan has done the right thing by focussing on its core strength instead of overstretching its portfolio like NFL… It may be looking to expand within their existing categories or may go for vertical

integration,” added he.

The company chairman acknowledges that food businesses are targeting new, previously non-existent segments. Every business grows in two ways, says Sultan. ‘One, by evolving and expanding the current portfolio, and, two, by capturing untapped opportunities that present themselves in the market. “One will always find opportunities in the market. The key is to pursue the right opportunity at the right time, in the right manner,” says the chairman.

It is pertinent to mention here Shan sells rice and frozen food internationally but not in Pakistan, despite the categories being in high demand – as evident from a large number of players dealing in these commodities.

“The quality and price of rice Shan exports is not feasible for Pakistan, plus our expertise is in recipe mix, not rice.

Therefore, we are not selling it locally,” said Tiwana. As for fully-cooked frozen food Shan offers in Manchester, Tiwana said, the market was not ripe for it.

“The existing players are offering finger food, while we want to tap into the main course, like Nihari, Qorma, Biryani, and Haleem,” said Tiwana.

Elaborating his point further, Tiwana said: “When the opportunity is there, we will take advantage of that.

The purpose is to stay one step ahead of the competition.”

Tiwana didn’t disclose details of their expansion plans and the products or categories it will be adding to the business nor did he mention whether Shan will launch them from its own platform. He, however, confirmed Shan is looking to acquire another company.

“Yes, we are thinking about an acquisition and we have even spoken to one company about it,” said Tiwana, refusing to disclose further details. “It could also be an international acquisition,” he said in an apparent reference to the arch-rival NFL’s recent acquisition of Canada’s A1 Cash + Carry.

FOOD & SPICES

THE ECONOMY OF PUNJAB’S

GRAVEYARDS How the final resting places of citizens dead and buried are managed and maintained

“H

By Muhammad Faran Bukhari

e buried his father inside his uncle’s grave,” I hear a man say as I sit inside a ramshackle government office chatting with Bashir Ahmad, the security officer at the Miani Sahib Graveyard in Lahore. To some this might seem a bit of a stretch from reality, but taking into account the already limited spaces for graveyards in Punjab – year after year get closer to their full capacity – the situation makes a little more sense.

In all its totality, the issue as social in nature as it seems, is more importantly an economic one. In the United States, graveyards are managed and run like any commercial enterprise, keeping their financial sustainability in mind. The owners of the cemeteries do this by taking a proportion of the money generated from the sale of new plots, and investing it into what is essentially a perpetual ‘retirement’ fund.

The time till the facility reaches its full capacity is considered its ‘working life’ where it saves money for its retirement, which once invested provides a constant stream of income and is used for its maintenance and future expansion.

With no such model in place in Pakistan, graveyards, in general lack in maintenance and become a burden on the government or the bodies managing them. “The cost of a plot at Miani Sahib is only Rs500 and an additional Rs8,000 is charged for the preparation of the grave that is spent on building material and paying for labour,” says Bashir Ahmad.

Another major income source are the shops around the graveyard – mostly selling flowers – that are auctioned to the highest bidder and pay a decent rent, he further informs, without disclosing the actual rate.

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Primarily, a social service

H

owever, Asif Mehmood, the former deputy secretary at the Punjab Board of Revenue claims that the rates at which these shops are auctioned are low and raising them to their actual market rate would be a step closer to making the graveyards more financially sustainable.

“Due to the social construct we live in, people generally consider the burial process a social service to its core.

We need to change this perception to make graveyards more sustainable and improve the quality of these facilities,” he insists.

But it seems, that the provincial government (at least for now) plans to treat graveyards primarily as a social service. Its recent project, ‘Shehr-eKhamoshan’ initiated under the Chief Ministers Strategic Reforms Unit, that aims to build model graveyards in 36 cities across Punjab, three out of which are already operational in Lahore, Faisalabad and Sargodha, is a step in that direction.

The scheme envisages provincial government providing hearse, janazgah, ghusal and mortuary services all available under one roof.

Under the initiative, the graveyard in Lahore alone has been built on a land measuring more than 11 acres, 89 kanals to be precise, at a cost of Rs155 million, with space for approximately 8,000 graves. “We have not ruled out the possibility of a proper sustainable financial model for these graveyards, but for now the chief minister’s vision is that these facilities should be treated

‘SOME GRAVES AT MIANI SAHIB HAVE BEEN THERE SINCE MORE THAN A 100 YEARS. NO ONE COMES TO VISIT THEM. SUCH SPACES CAN BE UTILISED FOR NEWER GRAVES.’ Salman Sufi, Director General, Chief Ministers Strategic Reforms Unit.

(Shehr-e-Khamoshan Authority)

as a social service to provide maximum facility to the citizens,” insists Salman Sufi, the director general at the Chief Ministers Strategic Reforms Unit.

As of now these model graveyards are charging around Rs15,000 to Rs20,000 from those who can afford to pay. Along with the price of the plot and the aforementioned facilities, this sum also includes the maintenance of the grave. People who cannot afford to pay such a sizable sum – consisting of a large proportion of the people who come to bury their loved ones – are exempted from making any payment.

Philanthropists to the fore

F

atima Khan, a junior associate at the Chief Minister Strategic Reforms Unit, however says that even people who cannot afford,

contribute as much as they can. “Some pay Rs1,500 and some pay Rs5,000, as they want to contribute towards the burial of their loved ones to whatever extent they can,” she claims.

But the money generated through these burials isn’t the main source of financing available to these graveyards. Working along the Punjab Shehr-e-Khamoshan Authority is a slew of philanthropists, and they make a generous contribution to its projects. For example, according to Fatima Khan, a large number of ambulances in operation under the project have been donated by a renowned corporate group.

The authority is working to attract more philanthropists to its cause. “We have a large number of people and organisations willing to partner with us,” she insists.

On the other hand, as urban spaces expand, available spaces for graveyards keep shrinking. In Europe and Saudi Arabia (for religious reasons), the issue is dealt with by flattening out the graves after a specified period of time to make space for new burials in their place. On similar lines, the provincial government is now working to bring in legislation to make grave-flattening legal here with the only issue being that it is yet to decide upon a time frame after which the graves would be flattened out, says Salman Sufi.

“Some graves at Miani Sahib have been there since more than a 100 years. No one comes to visit them.

Such spaces can be utilised for newer graves,” he concludes.

SOCIAL RESPONSIBILITY

MILLIONS OF COMPUTERS AT RISK OF HACKS CRACKING INTO THEIR CORE Yuriy Bulygin, Intel’s former threat guru, is fighting the ghost in the machine

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Y

By Jordan Robertson

uriy Bulygin knows all about computer vulnerabilities. He spent most of his career at Intel Corp. studying security flaws in chips, including several years as the company’s chief threat researcher, until last summer. So you can believe him when he says he’s found something new: His latest research, set to be published on May 17, shows hackers can exploit previously disclosed problems in microprocessors to access a computer’s firmware—microcode that’s stored permanently inside processors and other chips—to get to its most sensitive information.

“The firmware has access to basically all the secrets that are on that physical machine,” he says.

The hacking technique Bulygin found exploits the Spectre vulnerabilities, initially unearthed by Google and other researchers and disclosed earlier this year. The tech giant discovered that millions of computers and smartphones could be compromised by Spectre, which takes advantage of glitches in how processors try to predict what data they believe users will need next, and fetch it in advance. Bulygin’s technique goes a step further by enabling hackers to read data from a particular type of firmware called system management mode memory. The code is linked to access rights that control key functions of the machine, including shutting down the central processing unit if the computer gets too hot or letting administrators configure the system. With access to the SMM memory, hackers can get essentially any data they want.

Cloud computing services may be at the greatest risk, Bulygin says, because the glitch could be used to breach protections for keeping companies’ data separate on physical servers.

The hackers who access those systems’

firmware can not only move between the databases and steal information but also look through the firmware’s own code to reveal some of the servers’ most heavily defended secrets, including encryption keys and administrative passwords.

Bulygin now heads Eclypsium Inc., a startup focused on protecting against threats to firmware. It attracted $2.5 million in seed funding from Intel and venture capital company Andreessen Horowitz in October. (Bloomberg LP, which owns Bloomberg Businessweek, is an investor in Andreessen Horowitz.)

Until now, most cybersecurity outfits have focused on protecting software and networks, not the guts of the machines. Spies have known about risks to firmware for ages; a perusal of the classified National Security Agency documents that Edward Snowden leaked shows intelligence services have been attacking it for decades using tools called implants. Those can be anything, including malicious code or chips designed to hijack circuit boards to modify firmware and other legitimate code.

Corporations and cybersecurity companies are paying a lot more attention now to the hardware threat, says Joe FitzPatrick, a former security research scientist with Intel and founder of Hardware Security Resources LLC. “In general, if there’s a hardware implant, nothing can be trusted on the system,” he says.

The danger attracted scant attention until now because companies were too focused on covering the basics.

This year, Gartner Inc. projects spending on cybersecurity will total almost $100 billion, with most going to consulting, outsourcing, and other services. Only a fraction goes to defense against hardware-level threats. “It hasn’t been something that the security industry has focused on,” says Martin Casado, an Andreessen Horowitz partner who led

‘THE HACKERS WHO ACCESS THOSE SYSTEMS’ FIRMWARE CAN NOT ONLY MOVE BETWEEN THE DATABASES AND STEAL INFORMATION BUT ALSO LOOK THROUGH THE FIRMWARE’S OWN CODE TO REVEAL SOME OF THE SERVERS’ MOST HEAVILY DEFENDED SECRETS, INCLUDING ENCRYPTION KEYS AND ADMINISTRATIVE PASSWORDS’

‘PROJECTED SPENDING ON CYBERSECURITY IN 2018, ACCORDING TO GARTNER: $100 BILLION’ the company’s investment in Eclypsium.

“It’s a heavily, heavily technical, heavily specialized space.”

Eclypsium is one of a handful of companies developing technology to look for malicious modifications to the firmware inside companies’ data centers. ReFirm Labs Inc. in Fulton, Md. –whose founders worked at the NSA – has teamed with software developers to monitor the firmware they’re building or using from third parties to ensure that malicious code isn’t added in the early phases of development. Apple Inc. bought LegbaCore, a forensics startup from the Washington, D.C., area that specialized in firmware, in November 2015.

One obvious potential client: the U.S. government. Last month the FBI and the Department of Homeland Security warned that since at least 2015, hackers working for the Russian government have exploited large numbers of network routers and switches – including home equipment – in part by modifying their firmware to establish a permanent presence on the afflicted machines. The goal was to route traffic through Russian government-controlled servers and copy it for espionage purposes, the agencies said.

Bulygin doesn’t know whether hackers have already tried to use the techniques he discovered to infiltrate computers, because this new class of hardware attack is virtually undetectable. Software hacks can usually be removed with a security update, but malicious code that makes its way into firmware could be there forever because of its role in the backbone of a chip or processor. “It’s a blind spot with a huge attack surface,” Bulygin says, “which is obviously not a good combination.”

BOTTOM LINE: Intel’s former chief threat researcher has found new vulnerabilities that build on the Spectre bugs, and millions of computers are at risk.

–Courtesy Bloomberg

CYBERCRIME

HOW INVESTOR CASH IS CHANGING THE FACE OF PAKISTAN’S

DIAGNOSTIC LABS

From global private equity to domestic healthcare companies, laboratories in Pakistan are attracting investment and getting technological upgrades

A

By Muhammad Faran Bukhari

s I make my way to meet Dr Omar Chughtai, Director Operations at Chughtai Lab, I am guided inside a small and densely populated office at the first floor of the Chughtai Lab’s collection centre and laboratory at Lahore’s Jail Road. As we begin to talk, voices in the background are jarringly overwhelming and we decide to move to someplace quieter. A few minutes later, we make our way towards a gigantic under construction building that looks like a hospital, two blocks away from the office where we had just met.

“A lot of people think this is a hospital, its not. It is only a lab,” he informs. The state of the diagnostic industry in Pakistan has seen constant improvement and growth in the last few years, and from how things seem at present, it is set to grow and improve further in the years to come.

The diagnostic industry in Pakistan, like many others, is evolving, with consumers becoming quality conscious and willing to pay more rather than just treating diagnostics as a mere necessity. “I think over

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39

the last 10 to 15 years, there has been a gradual shift towards quality… There’s more of an understanding that diagnostics when done right can really save a lot of time, money and pain,” said Dr Chughtai.

A booming market

H

ealthcare spending in Pakistan in general is on the rise. Total consumer spending on healthcare has risen at an average rate of 9.2% year-on-year between 2002 and 2017, reveals analysis of data from the Pakistan Bureau of Statistics. Consumer spending on healthcare in 2017 was estimated at Rs418 billion ($3,983 million). Of that, about one fourth, an estimated Rs114 billion ($1,087 million) was spent on outpatient services, which includes things like physician offices, hospital outpatient departments, and diagnostic services. And these numbers do not include government spending on healthcare, which, though inefficient, is by no means insubstantial.

Diagnostics meanwhile appears to be attracting a considerable amount of interest. Big names such as the Agha Khan, Shaukat Khanum, Chughtai, Shifa and others are all set to benefit from this shift. “There is general overall awareness, people want to eat better, wear better, and want opinion from better doctors. So it’s not just in the lab or the radiology space, it’s just a general behavioural trend in our economy,” he adds excitedly.

Dr Ahsan Malik, Director Health Services at Shaukat Khanum, on the other hand, attributes the growth to technological advancement and an increased influx of international and local investment in the healthcare sector. “Technologically, there has been advancement…And in the last three to four years, a lot of new local big groups, which run different businesses have started coming into health

‘STATISTICS SUGGEST THAT IN PUNJAB ALONE THERE ARE MORE THAN 4,000 LABS WITH LESS THAN 400 PATHOLOGISTS. SO, YOU CAN ONLY IMAGINE THE THINGS BEING DONE TO PEOPLE IN THE NAME OF PATHOLOGY’ Dr Omar Chughtai, Director Operations at Chughtai Lab The Wall Street Journal.] care industry, by setting hospitals and diagnostic centers… and then there are international investors also, who have earmarked Pakistan as an ideal destination to start off their health care businesses,” said he.

It also helps that diagnostics is an industry that has relatively predictable revenue models, and is easier to control for quality. Small wonder then, that Abraaj Capital made its first investment in Pakistan’s healthcare sector in the diagnostic laboratory space, with the acquisition of Islamic Diagnostics Center in January 2017 for an undisclosed price. IDC operates 20 labs across the Islamabad metropolitan area. [The fund that invested in IDC though has since become the subject of a dispute between Abraaj and its investors, and Abraaj has agreed to withdraw from managing that fund. The San Francisco-based private equity firm TPG is in talks to take over the management of that fund, according to a reporting in

‘CONSUMER SPENDING ON HEALTHCARE IN 2017 WAS ESTIMATED AT RS418 BILLION ($3,983 MILLION). OF THAT, ABOUT ONE FOURTH, AN ESTIMATED RS114 BILLION ($1,087 MILLION) WAS SPENT ON OUTPATIENT SERVICES, WHICH INCLUDES THINGS LIKE PHYSICIAN OFFICES, HOSPITAL OUTPATIENT DEPARTMENTS, AND DIAGNOSTIC SERVICES’ 40

The ‘informal’ competition

O

n the competition front, it seems that big players in the industry rather than competing among themselves are more concerned about the existence of a whole other unregulated diagnostic market in the country.

“At least as far as pathologists are concerned, we really see ourselves, at least I see our community more as collaborators rather than competitors,” said the Chughtai Lab director operations.

Their competition is with all of the other thousands of labs out there that have no pathologists, no trained human resource, no proper equipment and no protocols to collect samples and no quality controls, said he.

Dr Chughtai rough estimate is that of the major formal sector players all combined do not have more than a 15% to 20% share of the market.

On that score, the diagnostic lab companies may be about to get some help from the Supreme Court, already seized with the incidence of unqualified professionals running medical facilities.

According to Dr Chughtai people who are not pathologists and are running labs are no different. “Statistics suggest that in Punjab alone there are more than 4,000 labs with less than 400 pathologists. So, you can only imagine the things being done to people in the name of pathology,” he adds.

‘IT [DIAGNOSTICS] IS PURELY A COMMERCIAL VENTURE FOR US IN THE SENSE THAT WE CAN GENERATE REVENUE AND REPLOUGH THAT REVENUE TOWARDS THE TREATMENT OF PATIENTS WHO CANNOT AFFORD IT. SO, THAT IS A SOURCE OF REVENUE WHICH WE NEED INTENSELY’ Dr Ahsan Malik, Director, Hospital Services Marketing, Shaukat Khanum Memorial Trust Hospital

The money spinner for hospitals

P

rivate players have been prominent in diagnostics for decades, with Dr Zeenat’s among the pioneers of the lab space in Pakistan. Diagnostics to this day seems to be a lucrative investment. Shaukat Khanum, the biggest cancer hospital in the country, makes a major chunk of its revenue selling diagnostics services, while it offers cancer patients who cannot afford it free treatment. The three sources of revenue for the hospital are fundraising/donations, treating cancer patients who can afford to pay, and the diagnostic services.

The contribution of revenue from diagnostics has literally gone through

the roof. In 1997, the annual budget for the Shaukat Khanum Hospital was around Rs700 million with Rs500 million coming from fundraising/donations and the remaining Rs200 million being generated through its own revenue. Today the same model is still being followed, but the proportions and volumes have changed, with the annual budget standing at almost Rs11 billion.

Out of this, Rs5 billion is generated by the hospital’s revenue from providing services, almost 80% (Rs4 billion) of which comes through selling diagnostic services, according to Dr Ahsan Malik, the director of hospital services marketing at Shaukat Khanum hospital.

“It [diagnostics] is purely a com-

mercial venture for us in the sense that we can generate revenue and replough that revenue towards the treatment of patients who cannot afford it. So, that is a source of revenue which we need intensely,” Dr Malik insists.

The hospital now aims to reduce its dependence on donations/fundraising and fund cancer patients through the revenue it generates itself.

The diagnostics industry indeed has optimistic expansion prospects.

For players like the Chughtai Lab, the road is wide and clear. Starting off as just a lab in 1983, until the end of 2016, Chughtai stayed as it was. In 2016, it started limited radiology facilities in some places. About a year ago, Chugh-

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tai opened its first two medical centres, where pharmacy, lab, radiology and clinic all work under one roof. However, it is still only offering outpatient services and has no inpatient treatment facilities.

“Whether we will (offer inpatient treatment facilities) or not remains to be seen,” says Dr Omar Chughtai.

For now, the company is satisfied with its business model and wants to keep on replicating it. “If you believe that you have a team in place, and have systems in place and are delivering good quality at a reasonable price, and you feel that you can deliver this quality to more patients… that’s what drives it.

Then of course, just like any other business… volume helps, scale helps and implemental costs are less compared to starting off on day one,” he adds.

However, such endeavours are seldom undertaken if they don’t offer an ample return, and in Chughtai’s case they seem to be doing just that. Recently, the company sponsored the Faiz Festival, an event generally sponsored by large corporates. Its owners are also members of the, Entrepreneurs’ Organization (EO) whose membership can only be attained if one owns a business that has annual revenue in excess of $1 million. Such expensive sponsorships and elite memberships give a good insight into the massive scale Chughtai Lab is operating on and the positive cash flows it is generating through it.

‘...AS A WHOLE, DESPITE SUCH PRACTISES AND ALLEGATIONS, THE DIAGNOSTIC LANDSCAPE IN THE COUNTRY LOOKS PROMISING. WITH THE AFFORDABILITY OF THE POPULATION INCREASING AND A GENERAL TREND TOWARDS QUALITY...

IT SEEMS THAT THE INDUSTRY HAS NOWHERE TO GO BUT UP’ Kickbacks and copycats

I

n an industry as competitive as diagnostics, legal and ethical considerations gain the utmost importance.

However, it seems that some players in the industry at the very least are involved in unethical, if not totally illegal, practices.

A doctor, speaking to Profit on the condition of anonymity, alleged that some diagnostic labs, in a bid to attract more patients, offer commissions to doctors for referring patients to them.

Dr Malik of Shaukat Khanum, categorically denies such reports. “I would not like to comment on that because it is very unauthenticated,” he says.

On the other hand, Dr Chughtai has different views. “There are labs that offer kickbacks to doctors. It’s just unethical,” he confirms, adding that he himself would much rather offer discounts to patients from the same funds

‘SMALL WONDER THEN, THAT ABRAAJ CAPITAL MADE ITS FIRST INVESTMENT IN PAKISTAN’S HEALTHCARE SECTOR IN THE DIAGNOSTIC LABORATORY SPACE, WITH THE ACQUISITION OF ISLAMIC DIAGNOSTICS CENTER IN JANUARY 2017 FOR AN UNDISCLOSED PRICE’ 42

than indulge in such unethical and illegal practices. “On average one of our location is giving 15% discount, while another location is giving 21%. That eats into our margins significantly, but you know what? We would much rather do this, and facilitate the patient in front of us,” he insists.

He also goes on to complain regarding the copycats in the industry.

Some labs copy our name and have put a cross sign in front of it claiming that they are Chughtai Lahore Lab Plus and there is a lab that uses the name Chughtai Lahore Lab ‘Salman’ with ‘Salman’ written in a very small font, he says. “He is a cousin of mine by the way,” he stresses, referring to the name ‘Salman’. “But I will tell you this, that none of those players, will ever gain scale, because its a downward spiral,” he concludes.

However, as a whole, despite such practises and allegations, the diagnostic landscape in the country looks promising. With the affordability of the population increasing and a general trend towards quality coupled with the increased investment in the healthcare space and young entrepreneurs coming up with tech startups aimed at disrupting the traditional model of healthcare delivery, it seems that the industry has nowhere to go but up.

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