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BR Research

Interview with Muzzaffar Hayat Piracha, CEO, Air Link Communication Limited

“Our IPO will leave money on the table for investors” Muzzaffar Hayat Piracha is a leading entrepreneur with...
Published August 16, 2021

“Our IPO will leave money on the table for investors”

Muzzaffar Hayat Piracha is a leading entrepreneur with more than two decades of experience in sectors of telecoms, textile and tourism. Air Link Communication Limited is involved in the distribution and retail of mobile phones in Pakistan, and has recently started local assembly, too. The company is expected to launch an Initial Public Offering (IPO) at the Pakistan Stock Exchange soon which will be the largest-ever in private sector in Pakistan. BR Research recently interviewed the Air Link CEO to know more about the company’s operations and the broader market. Selected excerpts are produced below:

BR Research: Please tell us a little bit about the company’s history.

Muzzaffar Hayat Piracha: The journey was started in 2010 when Air Link became the distribution partner of PTCL for its Evo broadband dongle devices. Back then broadband was only concentrated in the cities, so we helped PTCL in spreading Internet to rural areas. In 2011, Air Link engaged in imports, distribution and after-sale services of 3G Evo tablets for PTCL – this was the first of its kind product in Pakistan at the time which provided 3G connectivity. In 2012, we partnered with Huawei in bringing their mobile device business to Pakistan. We distributed Huawei phones to almost every corner of Pakistan. By 2015, Huawei’s market-share in phone business in Pakistan surged to 17 percent, signifying our successful efforts to market Chinese phones in this market dominated by big global brands. Huawei awarded Air Link with the status of a gold partner to recognize our efforts.

In 2016, we became a Samsung partner as well, proving that we could sell multiple competing brands under one umbrella. Working with different principals, we maintained their secrecy, achieved their respective targets, and this is how Air Link became successful. In 2018, we made an association, Pakistan Mobile Importers and Manufacturers Association, which worked closely with the new (current) government to stop the smuggling of mobile phones, in order to increase local manufacturing of mobile phones. Those efforts culminated in the introduction of the PTA’s DIRBS (Device Identification, Registration and Blocking System) mechanism, which helped cease the mobile phone smuggling. This system helped Pakistan increase import-related duties on mobile phones from Rs11 billion to Rs54 billion.

Around 2018, we realized that while Air Link had two major brands in its portfolio – Huawei and Samsung, from mid-end to high-end range – we were not into the low-end of the phones, which had a 60 percent share of the market. So we signed up several more brands – Tecno, Itel, TCL, Alcatel, and Xiaomi. We also signed with Mercantile Pacific Singapore, which is the regional distributor of Apple based out of Singapore. In this way, Air Link covered a market ranging from a phone priced at Rs1,250 going up to a phone priced at Rs360,000. Today, our mobile phone distribution business has 16 hubs across the country with 1,000 dealers and 4,000 retailers, covering approximately 90 percent of the total market canvass of Pakistan. We also focused on consumer experience by setting up state-of-the-art flagship stores across both big cities (tier 1 and tier 2) and smaller cities (tier 3 and tier 4). Our vision is to build 150 stores over the next five years.

BRR: How did Air Link venture into the assembly of mobile phones in Pakistan?

MHP: After the DIRBS launch, the mobile phone imports started coming solely through legal channels and local manufacturing became viable. At this time, we saw that there was a need for conversion form feature phones to smartphones. So we decided to undertake vertical integration of our distribution business and obtained a 10-year manufacturing license from the PTA. In 2020, we started working on setting up our smartphone assembling factory, and in March 2021 we inaugurated the facility. This is a very high-end facility with modern equipment, skilled labor and foreign trainers. This month, we are going to make 150,000 handsets. We have signed up with Tecno, Itel, TCL and Alcatel to make their phones in Pakistan.

Air Link is the only company in Pakistan that is engaged in mobile phone manufacturing, distribution, direct retail sales, and sales to other retailers. We are also working on the e-commerce channel, which will grow once handsets start selling in greater volumes. Having achieved phenomenal growth, Air Link was awarded with the top taxpayers award in Pakistan in its category of AOP by FBR few years back, and now it will be the first company in this business to head for an IPO.

BRR: Speaking of the IPO, how will Air Link utilize the proceeds between growing mobile phone distribution and expanding phone assembly?

MHP: The IPO proceeds will be utilized for the working capital for expanding our distribution network as well as importing the SKD units for our mobile phone manufacturing operations. We believe that there is a big gap in the market, and if we add Rs4 billion from the IPO (at the floor price of Rs65 per share) into our business, it will fuel the company’s growth. JS Global Capital Limited, being one of the largest brokerage and investment banking firm in Pakistan, is the consultant and book-runner to the issue.

Alhamdulillah, Air Link has already successfully completed its road shows with JS Global in USA, UK and Europe, and now we are meeting all the financial institutions and high-net-worth clients in Pakistan and the efforts are ongoing in full steam. Our IPO, which will be Pakistan’s largest private-sector IPO, will leave money on the table for investors. We believe we have a solid history behind us. Our forte is distribution, and we have diversified by going into local manufacturing. Once our prospectus is released, investors can evaluate our business, understand the risks and make informed decisions.

BRR: Air Link has been trying to get listed since early last year. What has caused the delay?

MHP: We were in the middle of our road-shows for the IPO in early March last year when the pandemic hit the country and the government imposed lockdowns. This affected the whole book-building landscape. We had to put everything on hold as traveling was next to impossible. Now we are into the market again after seeking a fresh approval from the SECP. Undoubtedly, it took SECP some time to provide approval as it is a new sector and business model coming at the PSX, so SECP had to satisfy itself completely with regards to all sorts of regulatory compliances applicable on the company. In the meantime, the company’s revenues have grown a lot, as there is a 53 percent volumetric increase and 17 percent value increase in sales despite pandemic during FY21. There has been high growth in low-end phones compared to high-end and premium phones due to the consumer buying pattern in pandemic, a scenario which is expected to reverse again.

BRR: Tell us a little bit more about the manufacturing operations.

MHP: Our current production-line has a capacity to manufacture 4 lac phones per month, in a single shift. We will continue with the single-shift until operations come to a certain level. We have recently achieved production level of 150,000 phones in a month. By December this year, we will hopefully be producing mobile phones at capacity. We are majorly producing Tecno and Itel phones currently; we also produce some volume of TCL phones in line with the market appetite.

BRR: Between distribution and manufacturing, where do you see the company’s future?

MHP: The future is, of course, about locally-produced handsets, as the import duty difference in CBU and CKD/SKD for local manufacturing is between 20-25 percent. We have focused on the mass production of mobile phones with players like Tecno, TCL and Itel. We are also in talks with other companies to make their phones in Pakistan.

Having said that, Air Link, at its core, is a distribution company. And this business will continue to flourish even after our partners like Samsung enter into local manufacturing in partnership with other local players. Local production of different brands will, in fact, reduce our lead times in the distribution business. Besides, sourcing phones locally from players like Samsung will favorably impact our financing requirements vis-à-vis imports. This will go on to help our own retail network to keep on expanding.

BRR: How soon do you expect that Pakistan will be able to produce parts and accessories involved in mobile phone assembly?

MHP: Right now, it is the principal that sources and supplies all the parts and accessories for mobile phone assembly in Pakistan. But as the mobile manufacturing ecosystem grows in Pakistan, businesses will start investing in local manufacturing of parts and accessories as well. And when that happens, principals will be able to do local sourcing from Pakistan. Once Pakistan’s mobile assembly reaches a threshold of 20 plus million units annually, I see a good future for local manufacturing of parts like mobile casings, mics, chargers, CKD kits, batteries, etc.

BRR: How do you see the current regulatory environment for mobile phone manufacturing in Pakistan?

MHP: The current government has resolved quite a few regulatory challenges in this space. Some minor anomalies remain, but the government is very receptive. In order to improve local production volumes and bring up the export numbers, we have proposed to the government that handset re-exports should have a 5 percent rebate, instead of 3 percent. The government is working on it, and hopefully we will be able to export mobile phones from Pakistan in the near future.

BRR: What are your plans for retailing?

MHP: We are targeting to expand our retail footprint to 150 outlets, so that in five years’ time, about 20 percent of Air Link revenues originate from retail operations. We have plans for excellent after-sales support for our retail channel. E-commerce is also a prospective retailing channel which the company intends to launch soon; so far, smartphone sales have been more via the brick-and-mortar environment, but as soon as the landscape and preference changes to e-commerce sales, the company will be in a position to capitalize on it.

© Copyright Business Recorder, 2021


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