An industry that will remain in growth mode going forward
AURORA: Let’s start with a brief background about Pakistan Cables.
FAHD CHINOY: Pakistan Cables is a part of the Amir S. Chinoy Group, which consists of three companies. Pakistan Cables, established in 1953 as a joint venture with a British company, manufactures electrical cables, wiring, and allied products. The other two companies – International Industries (II) and International Steels (IS) – primarily manufacture steel sheets and steel pipes. All three are publicly listed, with a strong reputation for corporate governance and management best practices. In terms of the engineering industry in Pakistan, I would say they are the leading local group. II and IS are leading exporters of engineering goods from Pakistan.
A: Do you still have a foreign collaboration?
FC: No. We have a foreign technical collaboration with a USbased company in manufacturing overhead line conductors that use new technology and are more efficient than traditional products. This technology has been adopted by about 45 countries and approximately 110,000 kilometres have already been rolled out across the world. We believe this is something that Pakistan needs, given that our transmission and distribution networks are inefficient and essentially clogged. Unclogging them would require a lot of investment in terms of new transmission lines; the alternative is to replace the existing transmission lines with this new technology, where output is doubled right off the bat. The technology reduces line losses, increases output and is much more energy-efficient and carbon friendly.
A: To what extent has this technology been adopted in Pakistan?
FC: We launched the product about four years ago and we have rolled out three projects so far. One with the National Transmission and Despatch Company (NTDC) and two with the Multan Electric Power Company (MEPCO). We are now talking with K-Electric about a pilot project. The technology is new, so the uptake is slow, as people are wary because they have not experienced it before. Typically, even on a regional basis, we tend to be the last country to adopt new technologies. This technology has a huge base in India and Bangladesh and is being rolled out in the Middle East. However, although we have been marketing it and it is a ‘Made in Pakistan’ product, we have only been able to deploy it over three projects, even though it has been available for the last five years. We believe that as the stakeholders become more familiar with the technology, it will become a serious contender as it will help Pakistan overcome challenges inherent in our transmission and distribution networks.
A: Is the government one of your main customers?
FC:We categorise our business into three broad components. One is the utility sector, which at this point, constitutes a very small component of our revenue. However, going forward, we will start to supply more to the utilities, which other than K-Electric, are pretty much government-owned. The larger component comes from projects, which cover industrial and commercial requirements. Then there is the residential component, which we cater to through our dealer network. We have about a thousand dealers across the country; electrical stores essentially carry our wiring product. Pakistan has a long way to go in terms of electrification, which is why this is an industry that will remain in growth mode going forward.
A: How big is the retail component?
FC: Roughly 20-25% of our business. This is an area where we have a significant price premium, relative to our competition, although globally a price premium on a commodity like wiring is unheard of; this is where the strength of our brand comes in and the reason for our ‘trusted not to compromise’ mantra. We have created a relationship of trust with our customers and they are willing to pay a premium to ensure they get world-class quality in their homes.
A: Are you the market leader in cables?
FC: We like to think so. As ours is the only public limited company in this industry, we do not have data on our competitors. So, although I cannot say 100% that we are the largest company, we certainly are the one with the strongest brand, the strongest reputation and top-of-mind recall. Generally, when you speak about cables, the brand that first comes to mind for most people is Pakistan Cables.
A: As an industry in growth mode are you continuing to invest?
FC: We are in the process of setting up a new plant where we have invested billions of rupees and will continue to do so. We conceived this about three or four years ago and we are so far ahead in the project that we need to conclude it. IS, which has a million-ton capacity, doubled their capacity four or five years ago and similarly, II has added new product lines and expanded its portfolio. The reality is that domestic consumption on its own provides enough demand. If you have enough stability even over small periods of two, three or four years, GDP can grow by five, six, or even seven percent. All three of our industries tend to be cyclical and there are times when we are not able to meet market demand as quickly as we would like to. When growth comes, it comes quite fast, particularly in construction. Then it grinds to a halt and there are two or three years where it is very slow and then typically it starts to advance very quickly. The key is to have enough capacity to meet customer demand and Pakistan Cables is investing in this right now.
A: Do Pakistan Cables have a large export market?
FC: We have been exporting for the last two or three decades. Relative to our other two companies, our exports are a very small component of the business. It is a single-digit contribution, but we have ambitious plans. We drive a good premium in this market and the focus historically has been on catering to the domestic market. Going forward, we are starting to invest in exports. We have developed an export team and started to acquire the certifications required to be internationally acceptable. Then you need to build brand awareness in those markets. Cables are a very technical product and have an impact on safety, so the approval process is a multi-year process. At the moment we export to about 30 to 35 countries; mostly in Africa, because we have to look at countries that have a limited capacity to manufacture, although we are exporting to countries as far as the Caribbean and as close as Afghanistan. The crux is focusing on those niche markets as opposed to fighting for export business in markets where there are existing players. With our new factory, we will have more capacity, better technology and more efficiencies, and this, over the next five to 10 years, will enable us to become a significant player in exports. Taking a step back, yes, Pakistan needs to develop its export potential, but it also needs to look at import substitution. For example, cables are made in Pakistan, either by us or our competitors, yet NTDC are importing about 80% of their cable requirements.
FC: They have built in such stringent requirements in terms of their entry qualification criteria that it becomes very hard for a player, even if they have been established for 70 years locally, to break through that criteria. Pakistan Cables leads the cable industry association and for the last four or five years, we have strongly lobbied against these criteria.
A: Criteria in terms of quality?
FC: No, in terms of track record. It is a chicken and egg situation. They say we need to install 5,000 kilometres worth of cables before we can supply into their system, but if we are not allowed to supply into the system, how can we have a 5,000-kilometre track record? It becomes a circular argument. The other elements are the tax and duty exemptions, whereby over the last 10 years, and even recently, certain projects have been given exemptions on their import of cables. An example is the cables for the power plants set up under CPEC and which were imported from China – here it is worth mentioning that sometimes up to a billion rupees worth of cables are installed in a power plant. Right now independent power projects over 25 megawatts are exempt, so they buy imported cables even when local cables can be supplied. If these anomalies are fixed – and this is entirely in our hands – it will automatically spur the local industry on. Significant import substitution will help with Pakistan’s balance of payments issues.
A: The counterargument to import substitution is that the substituted product is as good as the imported one.
FC: Absolutely. And the counterargument to this is if countries outside of Pakistan are willing to buy our products, why should Pakistan not buy our products? The point is that as local manufacturers we have undergone as many international tests as the imported products have because they are a requirement to sell to some of the utilities in Pakistan.
A: Would you say that in terms of CPEC projects, Pakistani manufacturers have lost out?
FC: The cable industry did. I think that cement and steel did not have this disadvantage; they had the level playing field we were asking for. We literally got the leftovers of the CPEC business. Basically, if a company needed the product like tomorrow and they did not have the time to open an LC and import it, then they came to us. I would say that the electrical good business – cables, transformers, switchgear and that sort of stuff – would not have benefitted from CPEC.
A: To what extent is Pakistan Cables affected by supply chain issues arising from the pandemic?
FC: We did go through a rough patch when we had to deal with unexpected delays with limited visibility. We import 100% of the copper we use – in our estimation, we are the largest importer of copper in Pakistan by a long way. Others in the industry may rely on local copper and reused copper.
A: Why don’t you use Pakistani copper?
FC: Because Pakistani copper is recycled copper, not virgin copper. We use the highest grade of copper in the world, which is the recommended grade for the electrical grid. You can also use scrap copper, but then there are concerns around this, although you save a lot of money. We have never gone for scrap and have always used the best copper available in the world. Copper ends up being 60 to 80% of the cost of a cable, so it is critical because we cannot make the product without it. We did have some supply chain issues in the last couple of years, but to a large extent, they have been overcome.
A: As a forward-looking company, how much do you interact with academia in terms of providing training and development?
FC: We are very active. We hold technical seminars with a lot of the electrical engineering student base. We have student visit programmes, whereby we bring students into our company for a day; electrical engineers are generalists, so giving them a one-day visit where they have the opportunity to see the reality of how things are done and what their impact is, is important. We run a Co-Op programme with the NED University of Engineering & Technology and provide scholarships to six female electrical engineering students. Under this programme, these students, during their four-year academic programme, come in their summer and winter holidays to Pakistan Cables to work on practical engineering projects. The aim is to give them a holistic experience so that they can gain practical experience in engineering as well as non-engineering fields; we put them in finance, sales, marketing and HR. We have a similar programme with the University of Engineering & Technology in Lahore and Faisalabad whereby we give scholarships to eight female electrical engineering students. We also collaborate with the Hunan Foundation and Karigar to provide electricians with vocational training. Albeit inadvertently, Pakistan Cables have also become a sort of training ground; typically, when people work at Pakistan Cables, they become a lot more attractive to cable industry employers in the Middle East.
A: Do Pakistan Cables have a commitment towards sustainability?
FC: Very much so. We have pivoted our focus as an organisation towards sustainability. What is happening today in terms of climate change was never modelled and is happening way faster than scientists predicted. This is a very uncertain time and the world needs to invest in sustainability and adopt a cohesive approach that goes beyond just ticking the box. In terms of Pakistan Cables specifically, when we bought land in Nooriabad for our new factory, the first thing we did was plant trees. To do this we used the Miyawaki method, which is urban forestry. On three acres, we planted over 45,000 local species that would work in that environment. We planted them very close together and it has become the largest industrial urban forest in Pakistan, as far as I’m aware. We did this, even before we started digging for the factory, and we now have trees over 20 feet high. It’s a dense urban forest and in the aridest and non-environmentally suitable space for a forest.
A:How did you manage water?
FC: Right now we are putting water in, but in a few years, the requirements will be much less, because the forest will become self-sustaining, as an ecosystem develops. We have started to see birds, butterflies, bees, snakes, and other small creatures emerge – including fruit. We have projected this initiative to the industrial community as a way of trying to influence others to do the same. This initiative became our catalyst to explore making sustainable products.
A: Such as?
FC: Like the new cable technology I spoke about earlier. We are also making cables for the solar industry. We are solarising ourselves and looking into making our factory more sustainable. The objective is to build an internal narrative that will encourage our employees and their families to adopt similar sustainable practices in their homes and hopefully become a multiplier effect. The vision is that we are not simply a cable manufacturer; we want to be something bigger. Of course, we want to make money, be fair to our shareholders and to our customers and continue manufacturing world-class quality products. But in doing so, we want to take the company to greater heights by making a difference.
Fahd Chinoy was in conversation with Mariam Ali Baig. For feedback: email@example.com
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