Fawad Anwar is the Managing Director of Al-Karam Textile Mills (Pvt) Limited. He is a lifelong entrepreneur and an accomplished business leader. He officially took over the role of Managing Director of Al-Karam Textile Mills in 2010 and holds key positions on the board of governance of several other companies. Mr. Anwar hold an MBA degree from United States.

Following are the edited excerpts of a recent conversation BR Research had with Mr. Anwar to discuss the value-added textile sector and the export order Al-Karam has received from the renowned US brand, GAP Inc.

BR Research: What is Al-Karam’s revenue mix like in terms of local and export sales and how has it changed over the years?

Fawad Anwar: Al-Karam is a family business, and I have been associated with Al-Karam since 1992. Al-Karam Textile Mills will be a Rs40 billion business by the end of FY21. We exist domestically in retail, and through exports internationally with the US and EU as major markets. Al-Karam’s revenue mix is 80 percent exports and 20 percent local via retail called Al-Karam Studio. The mix has remained the same for a number of years though sales revenue in both segments have increased significantly.

In the domestic market, we were a late entrant in retail, and we had a slow start though we had been in the fabric business through regular stores for a very long time. But Al-Karam Studio has grown tremendously in the last 3 years. As a fashion retailer we did not exist in the top 10 three years ago but today we are ranked much higher than that. The growth last year was phenomenal, and though we have been hit by Covid this year, our growth rate has been exceptional. In 5 years, we intend to be in the top 3 of the Pakistan fashion retailers in terms of topline. To find out the exact market share is difficult because the retail sector is still disorganized in the country.

BRR: Data for 4MFY21 show that there has been a decline in exports in terms of volumes, but in value terms exports have seen a spike. Is this showing that we are moving more towards value addition?

FA: Yes, value addition has increased. As an industry, we have moved from low-priced items to better priced items, which is reflecting in better prices being fetched in the international market. The government’s focus is also towards value-addition; and I believe that it is the only way to grow our exports.

We only deal with high value-added finished products. The type of home textile products we export are truly value added. Bedlinen textiles is a competitive business and when one is exporting at world stage you are competing the most efficient. It is critical to learn and grow to compete with them. Over the last 10 years we have grown by 6 times in dollar terms in our sales and capacity. We are totally committed to this business and our investments in the last 3 years are a proof of that. Our next 10 years strategic plan shows that we will continue to grow and invest. We are not only investing in hardware but also in systems, quality, and training to compete with the best in the world.

BRR: In general, how has Covid impacted the country's textile exports?

FA: As far as exports are concerned, Pakistan did exceptionally well during Covid. There were a couple of reasons for it. We managed Covid and its impact on businesses relatively well. Initially when lockdown happened, there was a complete halt on production, hence on sales. And even when the exporters were ready, our global customer markets were closed. It is critical to mention here that steps taken by the Government of Pakistan and specially by the State Bank such as their salary scheme or the loan pushback scheme ensured a rapid recovery for the exporters. Pakistan’s exports were the fastest to recover, and we were able to service our customers especially when the rest of our competing countries were struggling due to Covid. A lot of companies would have struggled to make a comeback had it not been the aggressive and timely decision of State Bank. This happened only because of personal interest and daily follow up by the governor of State Bank himself. We are now back to pre-Covid levels.

Most of the exporters are now realizing that they are at the crossroads of being a major textile exporter in the country because of the opportunity offered to us from the US-China trade war. A lot of the retailers internationally have realized that they cannot have all their eggs in one basket, which can be seen in the shifting of orders from China to other countries including Pakistan especially in the bedlinen and the garments sector.

BRR: What challenges does the sector face today that the government should work on?

FA: Pakistan exports have been facing two issues which the government must address immediately. First is the Pakistani cotton. Our cotton crop has gone down from nearly 14m bales to 8m bales. On the contrary, Indian cotton output has increased from 14m bales to 35m bales. The competitive edge which Pakistan had is lost over a number of years for which the government has only been a spectator.

So, if the textile sector really wants to make a superior product, they have to import cotton. Unfortunately, no government has paid any attention to cotton sector’s long-term sustainability despite it being the major foreign exchange earner. Focus has always been short term with cotton crops being replaced with sugar, which has resulted in loss of a lot of cotton acreage. If nothing is done on war footing, we will lose this edge completely and our whole industry, which is only surviving because of its historic trained labor and textile based entrepreneurial skill, will be dependent on export policies of cotton of other countries.

Importing cotton is a textile sector perspective. But if you look at the overall picture, the net benefit to the country becomes small when you as a country are importing cotton and then exporting it after processing – at least not the right treatment for a sector that was once the basis of competitive advantage.

Second aspect which has been an issue and reason for stagnant textile growth is the availability and price of energy. We are considerably expensive in energy price relative to our competition and if sustainable long term committed policy is not in place by the government, we will keep losing our market share. The government has apparently tried to address this issue in the new textile policy where they have planned to lock in the prices; but we have heard this many times over the years and never see it happen due to multilateral pressure on removing subsidies. Unfortunately, our subsidies are not cost based, but inefficient where the consumer or the international buyers are not ready and shouldn’t be ready to pay for these inefficiencies in our domestic energy sector. We see orders on the other side of the fence; and this is the best time for the government to lock in some sustainable policies which would help our exports grow phenomenally.

Then the government has to seriously start working on retaining Pakistan’s GSP plus status that is expiring in 2023. GSP plus was the only reason we were able to sustain the textile export numbers. There are a number of points which have been outlined by the EU and a lot needs to be done on those matters which needs a serious concentrated effort by the government to ensure the continuity of GSP plus.

Garments is one segment which we can easily grow very quickly because the capex requirement is little. Thus, every small and medium player can be a part of it. And then the focus on the sector would attract retailers and brands to open their offices here like they have in India and Bangladesh. All you need is a focus and country policy to grab this low hanging fruit.

BRR: But Bangladesh’s exports propelled even when they didn’t have a competitive advantage in cotton. What did they do differently?

FA: Bangladesh has had two advantages. One, they have always categorized themselves as a least developed country, which gave them the duty advantage in European and Canadian markets. Second, the whole country is a big garment manufacturing zone – all their policies and regulations are directed towards the sector. Their garment industry is very competitive, whereas even today the value addition in our garment industry is very small. They also have the advantage of cheap labor where the sector has a lot of women workers.

BRR: How do you view the new textile policy?

FA: The textile policy 2020-2025 covers more or less all aspects of textiles. It is based on promoting value added sectors. On paper it is a reasonable policy, but the success of this policy depends on how fast it is actually implemented.

BRR: Given the opportunity as you have also highlighted, what are the industry’s capacity expansion plans going forward?

FA: As far as I know, all big houses are expanding tremendously because there is capacity in the market due to the shift in market shares. If we are able to grab even 2-3 percent of China’s market in exports, it is incredible for us. In five years, we are projecting Al-Karam’s exports grow by around 2.5 times, and we are gearing up for that. In the last two years only, we have spent about Rs5 billion to develop the infrastructure. This does not include the government’s TERF facility, which by the way is an excellent initiative. We have used the TERF facility for equipment.

The opportunity for growing textile exports is huge right now; my only concern is the energy pricing and availability. Any disruption which could occur in the ongoing gas shortage scenario in January could force industry to close down – jeopardizing our orders and timely shipments.

BRR: What are Al-Karam's exports currently?

FA: We will be touching $200 million by the end of this fiscal year i.e., FY21, and we are hopeful that if we are able to grow as per our strategic plan, we will be touching $500 million by 2024-25. I know three other players from the top exporters apart from us in the bedlinen segment who have similar expansion plans. We all can easily double the total bedlinen exports over the next four years.

BRR: You talked about increase in value addition. What kind of value addition is taking place in your segment i.e., bedlinen?

FA: Pakistan’s textile industry is now moving into quilt covers, embroidered cushions, sheets, pillows, comforters etc., which was never the case before. Bedlinen export in the past used to be simply basic, regular printed low-end sheets. So, the spectrum has broadened for the product range. Also, the industry structure globally is changing with the economies of scale especially the likes of India and China; within the bedlinen sector, the industry is becoming very competitive and the big players are getting bigger while the smaller exporters are becoming their suppliers. Today, there are only 4-5 big exporters of bedlinen in India, and the case is similar to China. Similar changes are happening here as well; some 15 years ago there were over 200 bedlinen exporters from Pakistan, but today there are around 40 bedlinen exporters. The decline in volumes reflects this trend; in previous times, every exporter was into basic sheets, but today the export volumes of bedlinen have fallen because now there are fewer exporters all of whom are selling value-added better priced products.

BRR: What is the textile sector doing to attract the international retailers and brands to open their offices here in Pakistan?

FA: When the country had the security issues, we used to sell the country as a destination and not its products, because we had to convince the international buyers that Pakistan was a safe country to invest in. Today, things have changed completely. Last year we saw a huge influx of people visiting Pakistan, which would have changed the perception had Covid not struck.

Nonetheless, we have been working directly with the retailers, and other players have been doing so as well. This resulted in an influx of European customers last year. Post Covid, it will take some time, but I am hopeful that with the shift in trade between China and the US, the trend will pick up further. Pakistan Textile Council is a 22-member value added exporters’ group recently formed with the agenda to work with the government through research and long-term policies. We are now starting to establish our research wing and a CEO running the day-to-day operations. We have also started connecting simultaneously with the ambassadors abroad.

BRR: Tell us about the deal Al-Karam has signed with GAP USA.

FA: Al-Karam is the first company from Pakistan to go into forward integration by acquiring a 6-year GAP license. GAP did not do bedding; it has been a garment manufacturer. However, now they have decided to license out more or less all their products, which means that their products will be placed at different stores all across the world. We have the license for North America and Mexico, which means that we have to procure, design, produce, place and price the product in store, and pay a royalty fee to GAP for using their name.

This completes our vertical integration all the way from fiber to a branded product in store presence. The onus of everything related to GAP products lies with Al-Karam. We will be launching this in the US in May. By fifth year, we are estimating exports of around $70-100 million per year as far as GAP is concerned.

BRR: Any plans to go public?

FA: I believe now with our volumes and topline numbers; we are at a stage where we think it’s time, we should consider going public. We have started initial work on it and are in the process of analyzing the potential and pros and cons of going public.