A not so meaty affair

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In what is so far the highest difference between floor price and strike price (Rs52) in the last five years, AlShaheer Corporation got publicly listed at a per share price of Rs95 against the offered Rs43 by the company. Profit sat down with the CEO of the Shariah compliant company, Kamran Khalili, to look at the company’s journey since its nascent public offering in Pakistan Stock Exchange in 2015 till today.  

For Khalili, a decade long stint at the Pakistan Stock Exchange was enough to tell him that he wanted to build something on his own. Venturing into the food industry – particularly the meat segment – seemed an attractive option.  At the age of 39, he began building AlShaheer Corporation in 2006. He began exporting meat to the Middle East in 2008.

“When I was three years into exporting, it struck us that all of the good quality meat is exported; hygienically prepared meat of good quality that is available abroad it is not available in the local market,” says Khalili, reminiscing about his company’s journey.    

It was this realization that led to the inception of Meat One – a high-end meat retail chain – in 2011. Yet, much remained to be learned, as AlShaheer had ventured into a largely unchartered territory. Two years after Meat One started, the feedback indicated that although the meat quality was up to the mark, the high prices were making it inaccessible for most Pakistani consumers.

According to Credit Suisse, a global financial services company, Pakistan has the18th largest middle income group worldwide, comprising of some 6.27 million people. In order to tap into this middle-income consumers market, AlShaheer established Khas Meat, a low-cost model of Meat One.

“The meat quality is the same; however, the business overheads are lower. There are fewer shops, a smaller staff, and lower rentals,’’ Khalili says , explaining the business model of Khas Meat. “At the end of the day, the business costs are paid by the customers. If there’s a lean and economically efficient model, the customer can get good quality product at affordable rates,” he adds.    

Kamran Khalili, CEO, AlShaheer Corporation

AlShaheer Corporation is the institutional supplier to many major private and public institutions. Pakistan Air Force, Pakistan Navy and Aga Khan University Hospital are a few of AlShaheer’s clients.

On the winning stand as the largest meat exporter of the country, AlShaheer also boasts of being the only meat retail chain in the branded sector in Pakistan, and has a poultry processing plant underway. Being the adroit businessman that he is, Khalili is looking at the challenges and opportunities that lie ahead of him.

“Unfortunately after our Initial Public Offering (IPO) in June 2015, things got challenging and they still are. The main reasons are that the Pakistani rupee has not devalued, exports all over Pakistan have been hurt, and there’s 15-20% decline in overall export. We are affected by this.” Khalili explains, that citing the foremost reason for his company being in this tight spot. He calls the last year the toughest for his corporation in the nine years since its inception.

AlShaheer, as Khalili says, has been investing in the organization “Our human resource cost has increased by 200 million per annum; it has had a major impact”. The Middle Eastern market has also shrunk recently, which, Khalaili says, has had a negative effect on the exports of his company which is already suffering the impact of the overvaluation of the rupee.

According to Khalili, Pakistani rupee is presently overvalued. In his opinion, the rupee has had a history of devaluation of 6% per annum on an average in Pakistan; however, this has not occurred during the last three years, resulting in an overvaluation of the rupee by almost 18%.

In the opinion of Zeeshan Afzal, Director Research at Insight Securities, the Pakistani rupee’s depreciation actually results in an increase in the rupee revenue, assuming there is the same product price in the international market ”The depreciation will benefit AlShaheer and the overall export sector as most of the input costs are domestic.”

Recently, AlShaheer made rounds in the news for its upcoming processed foods line. Out of the Rs2.2 billion raised in the IPO, Khalili says that a major chunk has been invested in the poultry and processed meat plant in Lahore which will start commercial production by August this year. But till the plant begins generating revenues for the company, it remains an expense.

“The hiring has been completed for the project in Lahore but the team is not contributing to the revenue yet, as the project is not commercially operational at the moment,” said the 48-year-old CEO.

All this has contributed in depreciating the company’s share price by 73% since its IPO. However, according to Khalili, the actual depreciated value is 43%.

“We gave two bonuses after the IPO. One was of 35% and the other of 15% – a total bonus of 50%,” says Khalili. “After a bonus, the price of the stock gets adjusted because the bonuses are free of cost; so if anyone bought one share for Rs95, he has 1.5 shares now,” he further explained.

Thus, while AlShaheer’s stock price should have been Rs63 right now, these multiple factors have resulted in the price being 43% lower than that. On the day of this interview, it stood at Rs44.      

“There are two reasons for [price depreciation],” explains Khalili candidly. “One reason is that the strike price was very high, which it shouldn’t have been. Secondly, the performance of the company during the last was poor.”

In addition to the constraints on the business front, Khalili says that the Government’s policies are also unfavorable for the organized sector. “The cost of doing business in Pakistan is rapidly increasing; expenses have gone up, rents are high.  All costs are going upward but the efficiency is going downhill. And no one other than the Government can bring in efficiency. We need business-friendly policies,” he says.

Issues such as killing of young animals, smuggling of livestock and slaughtering of female livestock have become a hindrance in the growth of Pakistan’s meat segment Khalili feels, which otherwise has a tremendous potential. “Our strength is agriculture, and the Government should focus on it; there is no area other than agriculture where we can do wonders,” says Khalili, adding that the government’s focus needs to be diverted to animal health and welfare in the bigger interest of the country’s economy.

Despite the odds that Khalili and AlShaheer have been fighting against, he is optimistic about his company’s future. “We might have to suffer for one more year, but with the poultry line coming up the whole scenario is expected to change,” the CEO says.

After capturing a large share of the 1.25 trillion meat market locally, AlShaheer now intends to capture Pakistan’s Rs40 billion processed food market.

For this, a vertically integrated plant has been constructed in Raiwand, Lahore, which will have the capacity to produce 1200 tons of processed meat each month. In order to ensure that AlShaheer gets a strong footing in the processed food segment, Khalili is planning to make his product available at some 2,000 locations nationwide in the first year of its launch.

“Considering investment in the distribution channels and the tough competition, one should keep a margin of at least 6 to 9 months in mind for profits to materialize,” says Afzal, commenting on the growth prospects of the company.

However, Al’s aspirations do not end here. According to Khalili, Pakistan’s per capita meat consumption is 20-22 kg which is far below the region’s average of 40-45kg.

“This market should have been twice the size it is,” he says. “This market can go up to 45 kg; when that happens, the market will be of Rs2.5 trillion. I don’t think that there’s any other category in food, other than meat, which has such a big contribution.”

Khalili is eyeing the exponentially growing middle-income group and their increasing buying power. “I believe that in the coming five years, Pakistan’s retail dynamics will change. There will be a lot of growth in modern trade and retail in Pakistan,” he says, adding that due to rapid urbanization, increase in education and living standards, and the formation of nuclear families in the country, priorities are changing, and that will enable the food segment to grow further.

“Health and hygiene probably wasn’t a big priority back in the day but today it is. Today, people feel it’s okay to live in a small house, but wish to provide their children with a good upbringing and healthy food,” he says, commenting on the changing dynamics of the country

“This is why this segment is growing rapidly; there’s a shift in progress. And this shift will result in a paradigm shift; people will look at things differently in the next five years.”