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BR Research

Interview with Omar Saeed, CEO Service LongMarch Tyres Limited

“Pakistan’s largest footwear exporter decides to go public.” Omar Saeed is the CEO of Service LongMarch Tyres...
19 Mar 2021

“Pakistan’s largest footwear exporter decides to go public.”

Omar Saeed is the CEO of Service LongMarch Tyres Limited, and also a Group Director of Service Group. He has formerly led Service Industries Limited (SIL) from 2011-2019, and also ran Service Sales Corporation and grew it to become the largest retailer in the country.

Over the years Omar has served on the boards of multiple public companies and currently sits on the Board of Systems Limited. He has also founded multiple technology companies including Ovex Technologies and JOMO Technologies. Omar has a keen interest in philanthropic work and leads Servis Foundation as its CEO. Servis Foundation has been developing hospitals and schools in multiple cities all over the country.

Omar did his high school from Aitchison College, his undergraduate degree from Brown University and his MBA from Harvard Business School.

Following are the edited transcripts of a conversation BR Research had with Omar Saeed that revolved around the upcoming IPO and its purpose:

BR Research: Servis Global Footwear Limited (SGFL) – a subsidiary of Servis Industries Limited (SIL) is going public. Where will the IPO proceeds be used?

Omar Saeed: At Servis, we believe that going public improves the governance of companies. We intend to list all of the companies/divisions in the group over the next 5 years and make Servis Industries Limited (SIL) a holding company. Servis Global Footwear Limited (SGFL) is Pakistan’s largest footwear exporter, with annual revenues of Rs7 billion. More than 95 percent of its revenues come from exports. This mix allows the company to be considered an Export Oriented Unit (EOU), a classification that allows duty- and tax-free imports of plant, machinery and raw materials.

The funds raised in this IPO will primarily be used to inject equity in Service LongMarch Tyres Limited (SLM).

BRR: How much do you plan to raise with this IPO?

OS: We are offering 40.8 million shares at a floor price of Rs38. So, the minimum raise is Rs1.5 billion which can go up to Rs2.1 billion depending on how the book building process closes.

BRR: What is Service LongMarch Tyres? Can you give an overview of the JV?

OS: Service LongMarch Tyres is the result of a three-year effort we’ve made in order to transform Service Group into a billion-dollar enterprise. We started looking for like-minded JV partners who had world class technology in the truck and bus tire segment. Service LongMarch Tyres will be the first truck and bus radial tyre manufacturing project in Pakistan. Service Industries Limited has a 51 percent share in this JV. Chaoyang LongMarch owns 44 percent and Myco Co owns 5 percent.

We have been incredibly fortunate to get a partner like LongMarch, which under the leadership of Chairman Li Qinqwei is among the most profitable tyre companies in China. They are a world class company, with technology and systems that will transform Pakistan’s tyre industry. Chairman Li and I have developed a great personal relationship in the process also, and we look forward to creating tremendous value for our shareholders through this venture.

BRR: What is the cost structure and timeline of the project?

OS: The total project cost is $250 million with phase 1 being completed in August this year at a cost of $100 million. In phase 1, the company will make 600,000 tyres per year, with a plan to export 85 percent of the production. Phases 2 and 3, taking the production up to 1.2 million tyres and eventually 2.4 million tyres per year will be launched in years 2023 and 2026.

The factory is located on 50 acres of land in Nooriabad, SITE. SLM has received the status of sole enterprise SEZ as well as a greenfield undertaking allowing it to have major benefits in income tax, sales tax as well as customs duty over the life of the project. More than 50 percent of the civil work has been completed on the project, and commercial production is expected to start in August this year.

BRR: Does the JV come under CPEC? Or will CPEC eventually have an impact on this project?

OS: No, this is a JV between two private companies. However, we expect the massive increase in logistics to favorably impact the truck and bus demand in Pakistan, and hence there is likely to be an acceleration in local demand as well.

BRR: How would you classify government facilitation in helping you sign this JV?

OS: Outstanding. This is a great case study of how the federal government and a provincial government can work together to help investors.

The PM himself went into a meeting with me in Beijing where we convinced the Board of Chaoyang LongMarch to invest in Pakistan. Then, Advisor Commerce Mr. Razak Dawood has been very supportive from inception. And I also need to thank the past Chairman BOI Zubair Gilani and the current Chairman Atif Bokhari, who’ve both gone the extra mile to get us approvals which are not easy to get. And CM Sindh and Najam Shah, Secretary Investment Sindh for managing all departments of the Sindh government seamlessly.

BRR: How would you define the competitive environment for truck and bus tyres? And what is the significance of the project in terms of investment, exports and import substitution?

OS: In Pakistan, there is no production of all steel radial tyres. So, we don’t foresee any competition on the horizon. Our main competition is likely to be with smuggled tyres where we have seen significant improvement in government implementation of track and trace system. This will have a positive impact on our ability to sell more tyres locally, even though it is our wish to have export as much as possible from this factory.

Service LongMarch, on its own, is investing more in one year than the entire tyre industry of Pakistan has in the last 5 years combined. So, this is a game changer for Pakistan. A new industry is coming into existence; there will be others that follow us, and God willing, Pakistan will make a name for itself in the global tyre market.

Over the course of 10 years, we will export more than $3 billion dollars’ worth of tyres to the world. In 5 years, we have the potential to become one of Pakistan’s largest exporters. On the side of import substitution, we will start with $15 million a year, and by the time we hit phase 3, we expect to be saving $100 million per year in foreign exchange for the country.

BRR: Which countries will you be exporting to?

OS: In phase 1, we are targeting Europe, USA and Brazil only. However, post COVID the dynamics have changed rapidly, and we think many more profitable export markets will open up for us.

BRR: Coming to the pandemic’s effects, did Covid-19 impact the timeline of the project?

OS: Covid has impacted everything globally. In the case of SLM, the plant design and construction were delayed by 3 months. However, as soon as travel between China and Pakistan started, we were able to fast track things and now everything is in full flow. We got an unintended benefit of COVID as we were buying most of our equipment in the last 12 months, and during COVID we were able to negotiate discounted prices with pretty much all suppliers.

BRR: Are there any synergies between Servis Tyres and Servis LongMarch?

OS: Yes, there are. The equipment and raw materials are similar to what we have been using in our existing business. But the real asset is our workforce – Servis Tyres has invested a lot on its HR and its workforce for the last 20 years. This is now coming to fruition. 15 middle managers, and nearly 100 workers will be trained in China and they will kick start the business. Together with our JV partners’ presence here, we think we will ramp up very quickly and our business will have a very short gestation period.

© Copyright Business Recorder, 2021

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