“Mehndi ke function mai, Maham, Anam, Sanam, Jasmine aur Auntie Parveen…Office ke cabin mai Faheem aur kamchor peon Kareem” If you do not follow up with ‘Hamary rockstar Usman, Adnan, and lead vocalist Arsalan’, were you even alive on the internet in 2020?
The iconic Servis shoes advertisement, which had originally aired in 2012, suddenly found a new lease on life in June last year, when it was rediscovered, rejiggered as a meme, and then seemed to play on loop constantly. Even Servis picked up on the ad’s inherent ludicrousness, starting the #ServisShoesChallenge, where fans could create and share their Servis ad memes for prizes.
The ad was a good reminder of the iconic brand, introduced to most Pakistani school children (along with Bata) as the place to buy school shoes. The brand has been around since before the creation of Pakistan, and its tagline is ‘Servis: shoes for everyone’.
Except, Service Industries has long ceased becoming a shoe brand. In fact, it has increasingly evolved to become a tyre brand, and recents events have shown that it is willing to put a lot of investment into expanding that segment.
In a notice issued to the Pakistan Stock Exchange on January 6, Service Industries said that its subsidiary Service Global Footwear Ltd was going to be included in a joint venture project, Service Long March Tyres. The other shareholders in the Service Long March are Chinese company Chaoyang Long March Tyre, and Myco Corporation (from Pakistan).
This joint venture will manufacture and sell truck and bus radial (TBR) category of tyres in Pakistan for both local demand and to export. Interestingly, Service Global Footwear is in the process of raising capital through an initial public offering, or IPO, the proceeds of which will go to making investments in the joint venture.
That is a lot to unpack here. Let’s start right at the beginning.
In the 1930s, three recent college graduates, Chaudhry Nazar Muhammad, Chaudhry Mohammad Husain and Chaudhry Muhammad Saeed, pooled together Rs62 and decided to start a business. Initially operating out of a four-bedroom apartment in Lahore, the company made mosquito nets, steel products and leather slippers (chappals), mostly for government personnel.
Much of their target market consisted of non-Muslims who resided in Delhi, Bombay, Calcutta, Madras and Kanpur, according to a recent BBC article. Cognizant of rising Muslim-Hindu tensions in the the 1940s, the friends decided to pick the neutral ‘Service Ltd’ name, to avoid any potential boycott of their brand.
After independence, the company had to find new markets, and decided to concentrate solely on slippers (chappals). The company Service Industries was formed in 1953, converted to a public limited company in 1959, and listed on the stock exchange in 1970. In 1954, they installed a shoe manufacturing plant in Gulberg, Lahore, and then followed up with a giant complex in Gujrat, that manufactures not just footwear, but also canvas fabric and bicycle tyres and tubes.
Today, the company has production facilities in Gujrat, Muridke and in Negombo, Sri Lanka, while manufacturing facilities are in Raiwind, Punjab, and Nooriabad, Sindh.
Between 2014 and 2019, sales rose from Rs16,495 million, crossed the Rs20,000 million mark in 2017, and settled on Rs26,156 in 2019. The company’s net income was a little more shaky, fluctuating from a low of Rs773 million in 2014, to Rs1,245 million in 2016 and Rs1,061 in 2018.
Of the 2019 sales figures, a whole 61% was supplied from tyre sales. In fact, local sales of shoes – aka the very people in that Sevris jingle – only made up 19% of total sales. It is a trend that has only increased in the last few years: in 2018, tyre sales made up 52.3% of total sales, while local shoe sales made up 20%.
Service Industries has been cognizant of this shift in its fortunes. So, it has gone about to try and reorganize itself around the segment.
First, it approved a scheme in December 2019, which was then sanctioned by the Lahore High Court in January 2020, under which its footwear business in Muridke would be demerged and become Service Global Footwear Ltd. The completion date for this scheme was set for June 2020. Essentially, this bifurcation means that Service Industries gets to act as a holding company for Service Global Footwear Ltd, with independent management.
Around the same time, in November 2019, Service Industries entered the same joint venture with Chaoyang Long March Tyre Co and Myco Corporation. Thus, Service Long March Tyres was incorporated in January 2020. The new notice is simply an update to this plan: that Service Industries Ltd will own 51% (including Service Global Footwear, which will not hold more than 23%), Chaoyang Long March Tyre owning 44%, and Shabir Ahmad of Myco Corporation owning 5%.
The total cost of this project is $250 million. In February 2020, Service Industries made a long-term equity investment of $31 million in the joint venture; to date, the Company has made an equity investment of Rs765 million, or roughly $5 million.
According to Service, the targeted production capacity for this project is 2.4 million tyres a year, of which 85% will be exported. This makes sense: currently, exports only make up 8% of all tyre sales, which means Service is looking to rapidly expand this segment.
“This is the size of the plant which is mandatory to achieve sustainable economic viability, and to go deep in the global market, and also to compete with big giants from China,” the company said in its most recent annual report. Clearly, the company has set its sights on bigger fish than shoes; will it be tyre jingles from now on?