This first democratic transition of power has already awakened investors confidence that this government can make progress on the country's key issues. PM Nawaz Sharif has pledged to transform Pakistan into a peaceful and economically viable state. How do you think this can be a ‘New Beginning’ for Pakistan?
Pakistan has suffered not as much from economic issues as much as their poor management in the past. Hence the opportunities and potential have always been there and the country continues to retain an underlying vigour which may not reflected in the macro economic statistics. I think those who have been investing in the country understand that and are looking up to the new Government of PM Nawaz Sharif to bring about the necessary changes. Some of these will no doubt be difficult to begin with as good economics is bad politics. But this is an experienced Government that has put in some good people in key positions to manage the economy who should opt for the long term good of the country. Hence the hope for a “New Beginning”.
Considering your first-hand experience of all these diverse sectors, what are going to be the most important stalwarts in the future, where will you concentrate your efforts and what areas offer the best returns for UK investors?
Dawood Hercules Corporation is the group “mothership” so to speak with controlling investments in other large corporations like Engro and Hubco. Both of these companies have a strong growth dynamic within the sectors in which they operate, however, it is critical to pick the right growth path. We will be looking to provide more balanced direction through a strengthened and more thorough risk analysis of future opportunities. Given the extreme shortage of power in the country, Hubco will continue to be very important player in the growth and rebalancing of fuel sources in the power sector whilst Foods and Agribusinesses should figure prominently within Engro’s portfolio going forward. The group is also investing in a big way in renewable energy via Reon, a sub business under Dawood Lawrencepur Limited. This is virgin territory in Pakistan but I am very hopeful that we will emerge as the leading RE company in the country with a strong position in off grid photovoltaic energy solutions in the next 5 years.
How does DHC provide the a private sector hope for growth in Pakistan?
The Dawood Hercules Group has always invested in Pakistan and if indeed we are the largest conglomerate as you say, then this has been achieved though our commitment to ethical business practice and to making new, often ground breaking investments in sectors which have not been invested in previously. This is not always easy in Pakistan but we understand the risk and opportunities of this market and have built up a credibility with investors and business partners which enables us to raise capital and mitigate risk more effectively than others. Our strategic partnerships are with some of the leading international names in the game who only do business with people they trust. Building business trust and capability – these have key for us and we hope through these to become a role model for the private sector and for growth in Pakistan.
In the first half of 2013, you have seen profits skyrocket, with reported profit-after-tax (PAT) of around Rs609 million — up a whopping 222 per cent from its 2012 PAT of Rs189 million. Can you explain this enormous reversal in fortunes and what is your outlook for the coming years? Do you think such an accomplishment can help to grow confidence among investors?
I think it would really be more useful to look at the group’s 9 month consolidated accounts for the period ended September 2013 which are more reflective of group performance and show that our after tax profits grew by more than 3 times from Rs 807m to Rs 2691m. We feel this is still well below potential as the energy shortages that beset the country and have particularly impacted the group’s fertilizer operations are not completely resolved albeit Engro has done exceedingly well following the resumption of gas supply to its new 1.3 m tonnes urea plant. The reversal comes largely as a consequence of this and is a testament of the new Government’s commitment to resolve the gas distribution issues more equitably. As this trend continues, we should be comfortably deleveraged in the next 2-3 years and can hence plan for growth.
Yes, I think investors should draw some confidence from the turnaround in profitability and the fact that with platforms like Hubco, Engro and Reon, Dawood Hercules Group is poised to grow the country’s energy supply infrastructure as well as make new headway in foods and agribusinesses. Locals investing in their economy is certainly a good sign to follow!
Cyan Limited and Elixir Securities provide a frame for investments to participate in the country’s capital market. Are these the vehicles foreign portfolio investments need to enter in Pakistan?
Elixir Securities is one of the top brokerage and financial advisory houses in the country and traces its history back to when WI Carr Securities set up shop in Pakistan. The stock market in Pakistan has been one of the best performing in the world gaining 29% in the 9 month this year and Elixir has been at the forefront of providing the right context for the investment opportunity in Pakistan to potential investors – it recently held investment road shows in New York as well London attracting a lot of interest.
Cyan on the other hand is another exciting prospect in the group’s stable. Under Samad Dawood’s leadership, It has maintained steller profitability via astute management of its portfolio throughout the last 2 years but has also advanced plans to develop a Private Equity business – something of a novelty in Pakistan. Through an innovative approach which involves building trust and relationships, as well as assiduous research and due diligence, it has developed one of the best databases on high growth small and medium sector private companies. It informally acts as the brains trust of the group using its very talented team to scout trends and opportunities. Cyan is publicly listed and also plans to launch a PE Fund and is therefore poised to become the vehicle through which foreign equity investors can participate in the very high growth companies of Pakistan.
By your initiatives in energy, food sufficiency and fertilizers, Dawood Hercules Group is addressing Pakistani people’s main concerns. How do you conjugate pursuing profit, and at the same time, helping Pakistan to solve its main issues?
Investment should have a purpose beyond money – this is not cliche. Yes, we are entrepreneurs at heart but Pakistani’s to the core and have always practiced that by re-investing in Pakistan. The vision of our group has been shaped by the experiences of our founders going back to the birth of the country and the many political and economic ups and downs since then. Back then we were the first national group to pioneer fertilizers, indigenous paper manufacture based on bamboo (in the then East Pakistan), high quality worsted fabric under the famous “Lawrencepur” brand to rival anything produced in the UK or Italy. The examples of the many “firsts” in our history are numerous but interestingly continue to this day in Agribusiness, LNG, Thar Coal, Renewables etc.. Anything that sustains further economic activity excites us because it enriches the lives of others. Today our size and capability enables us to be aspire to a grander scale and hopefully to impact Pakistan …. and, one day, the region.
CSR is an integral part of DH and through the Dawood Foundation, DH makes an invaluable contribution to social development, particularly in higher education. Can you tell us about the important CSR work and how you are contributing to the development of the next generation of Pakistani entrepreneurs and innovators?
Well, I am sure you are referring to the Karachi School for Business & Leadership (KSBL) which was launched Aug 2012 in close collaboration and assistance from Cambridge University’s Judge Business School. KSBL was chartered as a degree awarding institution last year and is already recognized as a comparator institution with the other two top MBA level business schools in the country within 18 months of starting its first class. It has attracted some of the best faculty in Pakistan. The KSBL was established by the KEI, a non profit foundation which counts some of Pakistan’s leading business people as its supporters. The Dawood Foundation which has provided significantly large contributions to many other higher education institutions as well as founding the Dawood College of Engineering and Technology and the Dawood Public School for girls, is KSBL’s largest contributor and has provided a state of the art city campus designed by William McDonough, the globally renowned US professor of architecture. I can also say without fear of contradiction that Mr. Hussain Dawood who chairs the Dawood Foundation and the KEI Boards is the driving force behind this initiative. The seed has been laid – we now await the blooms!