Does Pakistan’s biggest ever IPO make sense for you?

If everything goes according to plan, Service Long March Tyres Limited will make the biggest Initial Public Offering (IPO) in the history of the PSX early next month. For a company that has only been around since 2022, the ascent has been fast. 

The last time an IPO of this heft took place was in 2021, when smartphone assembler Airlink Limited raised Rs 6.43 billion. Which is why it might seem strange that the next big offering to investors is not another tech company, but one making tyres. 

But look around you and things start making sense. Service Long March is the first (and only) Pakistani company to manufacture all-steel truck and bus radial (TBR) tyres. Pakistan is a country that is highly dependent on road transport both for goods and for travel. That means hundreds of thousands of trucks and buses crisscrossing the vast network of asphalt arteries that run throughout the country every day. All of those buses and trucks run to maximum utility on most days, and part and parcel of their operating cost is changing tyres. 

Up until SLM’s entry into the market, these tyres were all imported. Their 50 acre facility in Sindh’s Nooriabad has changed the game. With a production capacity of 1.6 million tyres a year, not only have they become the sole player in a market that has constant demand, they have also started exporting their tyres to markets like the US, Brazil, South Africa, Puerto Rico, Egypt and the UAE. 

For investors hoping to get in on the business, these are only some of the highlights that might make it worth the gamble. But the IPO is not as simple as it seems. SLM is already producing at a level that is enough to meet domestic demand. The money they are raising through the IPO is meant to go into a new facility meant to produce tyres for passenger cars. If the facility hits its targets and goes live in 2028, it will start off as the largest tyre manufacturing unit in the country. 

So is the IPO worth it? Profit analysed the company’s history, its financial data, and spoke to analysts involved in the deal to understand the full picture. 

How it works

Stock market veterans will already know how IPOs work. For the uninitiated, it is a simple enough concept. When a company wants to expand and grow, it usually needs more money to do so. This money can be acquired through a few means. The first is simple: go to the bank and get a loan. This way, the ownership composition of the company does not change, but the debt becomes a cost the company has to bear. 

If you don’t want to feel the burden, the directors of the company themselves can either give loans to the company or invest more in it. But when you really want to go big (and also make a bit of a statement) you go for an IPO. You issue new shares in the company, and give investors and the public a chance to buy them and get equity in what will be a publicly listed company. 

The first step is the book building stage. This is where “large” institutional investors bid for the shares that are up for grabs. Instead of a fixed price, a price band (floor and cap) is set, and investors submit bids for the quantity and price they are willing to pay.

In the case of SLM, the book building stage is pretty standard. Three quarters of the shares are up for grabs in the book building stage.