Home »BR Research » Brief Recordings » ‘Next 10 years will be a golden decade for Pakistan,’ Asif Jooma, Chief Executive, ICI Pakistan

Recently BR Research met with Asif Jooma, the Chief Executive (CE) of ICI Pakistan Limited and NutriCo Pakistan Pvt Ltd. He started his career with ICI Pakistan in 1983 and has served the Company within various roles for more than thirty years. He joined Abbott Pakistan as Managing Director in 2007 and after spending six years in that role he returned to ICI Pakistan Limited as CE in 2013.

Asif Jooma completed his BA in Developmental Economics from Boston University and has, through the course of his career, served in various roles including President of the American Business Council, President of the Overseas Investors Chamber of Commerce and Industry, Member of the Board of Investment and Chairman of the Pharma Bureau. He also serves on the boards of NIB Bank Limited and Systems Limited.

Below is an excerpt of our conversation with him.

BR Research: Please tell about ICI Pakistan Limited, its business segments and products.

Asif Jooma: Established pre-partition, the Company has been in operation since 1944. Currently ICI Pakistan Limited is a leading manufacturing and trading Company consisting primarily of four diverse businesses: Polyester, Soda ash, Chemicals and Life Sciences. These Businesses allow ICI Pakistan Limited to capture demand from various sectors of the economy and cater to the changing consumer patterns in Pakistan.

In addition to these businesses, the company also has a management stake in an infant formula milk marketing and distributing business under the name of NutriCo Pakistan (Pvt) Ltd.

In 2012, ICI Pakistan Limited was acquired by the Yunus Brothers Group (YBG), which is one of the most prominent and progressive conglomerates in Pakistan. Their portfolio includes cement, textile, power generation and commodity trading amongst others.

BRR: How has the journey been post-acquisition? How has YBG helped ICI Pakistan Limited and vice versa?

AJ: Since ICI Pakistan Limited was previously under foreign ownership, it followed the parent company’s global strategy, which until the 90’s saw significant investment by ICI Plc into its Pakistan operations. Subsequently the challenges faced by ICI globally, significantly impacted the availability of capital to pursue growth. ICI Plc in 2008 was acquired by AkzoNobel primarily due to its strong position in the coatings segments. Following a portfolio review, AkzoNobel divested its non-coatings businesses in Pakistan, of which, Pakistan PTA was acquired by Lotte and subsequently the remaining businesses of ICI by YBG, However; after the 2008 financial crisis, a lot of new opportunities in Pakistan were not pursued.

The acquisition by YBG allowed ICI Pakistan Limited to embark on an accelerated growth trajectory by capitalizing on its core competencies. Since the acquisition, we have invested about $250 million, through which we have carried out numerous initiatives. These include capacity expansions in our Soda ash Business and energy-efficient projects in both the Polyester and Soda ash Businesses. We have also undertaken multiple new projects in the Agri and Animal Health divisions of our Life Sciences Business. And in the Pharmaceuticals division of the Life Sciences Business, we have expanded our product range and have acquired Cirin Pharmaceuticals Pvt Limited, which has given us a manufacturing base in pharmaceuticals for the first time.

Similarly, we are also in the process of acquiring certain assets and brands of Wyeth Pakistan Limited and Pfizer Pakistan Limited, in order to further strengthen our pharmaceuticals capabilities in line with the Business’s growth strategy.

So as you can see, a remarkable amount of new developments have materialized in the short span of only a few years since the acquisition of ICI Pakistan Limited by YBG. This accelerated growth has been made possible by the trust placed in us by YBG. And in return, we have created tremendous shareholder value which is evident from our earnings, dividends and share price.

BRR: What was your motivation behind returning to ICI Pakistan Limited as Chief Executive? You were already leading an MNC in Pakistan.

AJ: I recognised the immense potential of ICI Pakistan Limited. I knew that all the Company needed were sponsors who were seriously committed, and leadership that could channel the Company’s energy and resources constructively.

For myself personally, since I had already spent considerable time with ICI Pakistan Limited and knew the Company well, I wanted to play a part in re-establishing this entity with a team of committed professionals, so that it would be seen as a game-changer in Pakistan’s corporate sector.

I believe, the real opportunity in Pakistan today lies with local groups. If you compare the local companies to MNCs, you will see that home-grown companies are, to quite an extent, outperforming their MNC counterparts, which was not the case a few years ago. To fully leverage the unique growth prospects that our market presents, we need local groups which are keen to invest and take action when it comes to institutionalization. That was where YBG came in for ICI Pakistan Limited.

BRR: The Polyester business has been contributing negatively to your bottom-line. When do you expect it to turn around?

AJ: In Pakistan, the demand for polyester or blended textile has unfortunately not yet achieved the scale or sophistication one would have expected. Our per capita consumption of blended textiles is one of the lowest in the world.

Polyester has two components, staple fiber and filament yarn. The market for filament yarn in the country is almost non-existent, while staple fiber is used to mimic cotton and blend it. In other countries, it is the filament yarn that is more popular, but in Pakistan, staple fiber is preferred because we have more spinning units established here. Secondly, our textile industry has not yet achieved the required level of modernization in terms of finishing products to necessitate the use of filament yarn.

As with most commodities businesses, this is also a cyclical business and prices depend on regional supply factors as well. Previously, in Pakistan almost 20 percent of domestic consumption was through imported or dumped Chinese products which made pricing very difficult for local players. Last year, after a prolonged struggle, the National Tariff Commission (NTC) imposed an anti-dumping duty on Chinese manufacturers. However, the duty imposed – 2.82 percent – was lower than expected and we still face pressure from imports in this industry. If we are able to continue to protect the industry from persistent dumping by regional players and adjust our tariff structure to cover the cost of doing business, we are confident that soon the Polyester business will return to contributing strongly towards the Company’s bottom line.

During the last ten years, the total demand for polyester has approximately been between 450,000-500,000 tons. The quality of our cotton crop also plays a vital role in the demand for polyester, where a good cotton crop decreases the demand by 20 percent and vice versa. As a cotton shortage is imminent, not just in Pakistan but globally – and inventories are lowering as well – it is likely that PSF consumption will increase, since Polyester is a ready replacement for cotton in the majority of end uses. Recently, the GoP announced Rs180 billion textile package to boost exports, which should improve demand for PSF in the coming years.

With that said, there have been improvements where we now anticipate a more positive period ahead. Due to some stability in regional PSF margins, domestic margins grew by 9 percent. The imposition of anti-dumping duty on Chinese PSF imports enabled domestic PSF manufacturers to benefit from slightly higher operating rates as a consequence of higher demand for their product. This resulted in higher sales volumes by 2 percent which, along with an increase in PSF prices, translated into net turnover that was 8 percent higher than the same period last year.

BRR: Soda ash has been a star segment for ICI Pakistan Limited. How do you see demand for this category going forward?

AJ: The main raw materials required for the production of Soda ash are salt and limestone, both of which are abundantly available in our country. Soda ash has multiple uses in industries such as detergents, glass, paper and sodium silicate. The fastest growing usage segment within soda ash is the detergent industry, followed by glass and sodium silicate.

Currently, the demand for soda ash is growing faster than the GDP of our country and we foresee it to increase steadily over the next decade due to growth in the construction industry, where float glass manufacturers are likely to be our main customers.

Our soda ash consumption is currently well below that of India, China and the developed world. The Company’s current soda ash production capacity is 350,000 tons per annum and we have announced a further increase by 150,000 tons to raise our total capacity to half a million tons per annum by next year.

In our expansion plans, we have also taken into account regional demand, especially in India. North India’s total soda ash demand is 750,000 tons per annum compared to Pakistan’s 450,000 tons. To service North India, local manufacturers in Gujarat, where most of India’s soda ash is produced, have to ship the product all the way across their geography. In terms of proximity, we are much better placed to service those customers. We are already exporting to India and by the time our new capacity comes online, we will be in a position to export this additional capacity as well.

BRR: ICI Pakistan Limited has announced that it will set up a manufacturing facility in partnership with Morinaga. When will the facility be online and what value will it add to your company?

AJ: Pakistan is home to one of the largest populations of children in the world, and the infant nutrition market continues to grow daily. Once GDP per capita of $2,000 is reached, most basic household needs are fulfilled. Parents then begin to start allocating additional disposable income towards nutrition, and that is we where we see huge potential.

So, keeping in mind the growing infant nutrition needs in the country, we have joined hands with Morinaga Milk Industry Company Limited to set up a manufacturing facility, for infant formula products across the country. Initially, we plan to launch infant formula for stage 3 (for children aged 1 to 3 years) and stage 4 (for children aged 3 years and above). Most of the product development will be done in Japan. The facility is expected to come online around mid-2018. Taking into account the growth potential, the capacity initially will be more than demand. NutriCo Morinaga Pvt Limited is the entity through which this business will be carried out, in which ICI Pakistan Limited has a majority shareholding of 51 percent.

We expect this segment to grow by 20 percent for the next five years. Apart from the local market, we will also explore regional markets such Afghanistan where we are already distributing imported Morinaga products.

BRR: What is your view on CPEC and how do you see it impacting local industries?

AJ: CPEC will have the most positive impact on the SME sector which employs the highest number of people, and has also suffered the most due to the power crisis. The power loom industry in Faisalabad, the engineering sector in Gujranwala and industries such as sports goods in Sialkot will once again begin to thrive. The spillover effect from economic activities initiated by CPEC will be massive and I also believe domestic commerce will flourish.

There has been considerable criticism regarding repayment of debt and Chinese manufacturers setting up shop in Pakistan’s special economic zones. This has further impacted our already established industries. However, this will be accounted for by the immense growth of our service sector, which will cater to these new economic zones.

Given the nature of the company’s diverse businesses and divisions, we see all our segments benefitting from CPEC and in my opinion the next ten years will be a golden decade for Pakistan.

Copyright Business Recorder, 2017

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