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CONTENTS 16

11 mposter syndrome and thrift stores - this week in Pakistan’s business and economics Twitterverse 13 Do we need a Google financial office in Pakistan? Hamza Nizam Kazi 15 As Samaa drowns in losses, Aleem Khan offers to buy the channel

18 The big, wild, eGrocery gamble that has the startups mesmerised 25 Exide scrapes through 2020 26 Cement does well - again

29 29 Why is Z2C Limited investing in a kart racing competition? 33 Jo Banain Gai Khain Gai (We will eat what we make) Osman Niazi 36 Will VavaCars be able to make a dent in the used cars industry?

Profit

Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan Abdullah Niazi l Meiryum Ali l Shahab Omer Regional Heads of Marketing: Muddasir Alam (Khi) l Zulﬁqar Butt (Lhr) l Mudassir Iqbal (Isl) Layout: Ahmad Salahuddin l Photographers: Zubair Mehfooz & Imran Gillani l Business, Economic & Financial news by 'Pakistan Today' Contact: proﬁt@pakistantoday.com.pk

Readers Say Hi writer. I would like to know how you got some of your figures. What research did you do to reach the fact that every third cup of tea drank in Pakistan is Tapal ? A valuation of a billion American dollars? I would suggest you splash cold water on your face, drink some coffee, and revise this article. Apropos: Is Tapal worth $1 billion? Sharukh, Website It is obvious from your comment that you have not read the full article. May I suggest that you actually get a subscription to Profit by paying a few hundred rupees, and actually bother to read the whole thing? Either do that before suggesting the writer makes revisions or do not comment at all. Apropos: Is Tapal worth $1 billion? Sohaib Akhtar, Website A significant uptick in consumer demand has been seen post-lockdown all over the world, and supply shocks during lockdown have contributed significantly to recent inflationary pressures. The article rightly pointed out that money supply is a contributor, but you also need to consider that central banks are supposed to support businesses in expansionary policies so that they in turn can continue to provide salaries. On the other hand, it is the government’s job to apply minimum wage standards or furlough schemes to support the salaried person. I don’t agree fully that these Gov/CB schemes are bad, even though they have contributed to a flatlining economy. I do agree that the government has not done enough to support the salaried person. Apropos: Inflationary tactics Kamil Shahid, Website

facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com.pk

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You conveniently ‘forgot’ to mention the impact of the so-called ‘security establishment’ and the influence it has on the nation’s economics. Despite the fact that the last military dictatorship was so long ago, the Security Apparatus ( SecAp) has continued to have a lion’s share (estimated 37 percent) of the development funds of the nation. They have invested this in ‘their’ own, growing middle class status, supported by subsidized public / private housing and other magnanimous perks. This is bound to have a terrific and dominant repercussion on the funds available for the rest of the nation. Apropos: How big is the Pakistani middle class? Irshad Majeed, Website The Valuation methodology over here for UFone is based on EV to Sales multiple of 2.7 which seems too high. In the USA, good companies have around 3x sales = EV. In Pakistan the multiple would not be more than 1.5 . Secondly, Ufone should be valued via FCFF( Free cash flow to firms) to find out the

EV based on Intrinsic value which would be far lower. This is due to the fact that free cash flows in ufone are very low due to high NWC and High capex and a larger cost of capital. Apropos: PTCL wants to sell Ufone. Here’s why that’s a good idea Majid, Website Reducing the SOE losses by 50% and diverting the available funds to education can bring about transformational changes in the country. The country is adversely impacted by the low education and skill levels. The quality of education is very poor and only a select segment of the society can tap into quality education whereas the rest have to rely on poor quality education from either private or govt institutes. Despite a firm commitment to improve the educational budget by the PTI govt prior to election, the only way for the government to revive the economy is to give tax breaks and amnesty schemes to the construction sector. Apropos: WB highlights role of loss-making SOEs in growing govt debt Faisal, Website That is exactly the question that comes to mind. Why did UBL have a subsidiary in Switzerland in the first place? Maybe, the late, great Agha Hasan Abedi wanted to counter the influence of Habib Bank AG (Zurich). Commercially, how much business does Pakistan do with Switzerland and how much Pakistani labour is working there? The answer to both questions is zilch. Apropos: UBL discards its little known Swiss subsidiary N K Ali, Website How soon? In the year 2165? The nation is being fooled by these mirages. So many things from CPEC have been built, adding scores of billions of dollars in our foreign debt, but this "soon" fails to happen, and these "commitments and interests of foreign investments" don't materialize. Apropos: Iran’s trade through Gwadar port to start soon Fuzail Zubaid Ahmad, Facebook Clearly the decision to keep Pakistan on the FATF list is political, rather than based on facts. This is despite Pakistan having put in place stringent check & balances to identify and stop money laundering and terror financing. However the govt should take this as an opportunity to track and tax the undocumented sectors of the economy including doctors, lawyers, etc. and especially the real estate sector. The real estate sector is used to dump black / corruption money in the country. By documenting the sector we may be able to identify the black sheeps and plug the main tax leakage hole in FBR. Apropos: FATF decides to keeps Pakistan on grey list Faisal Malik, Website

COMMENTS

IN BRIEF Federal Minister for Energy Hammad Azhar on Monday announced that there has been no forced load shedding in the country from Friday and normal supply has been restored for all sectors. Despite the statement, power outages continued to be an issue in major cities throughout the week.

“I don’t think so. The Pakistan-US relationship would not impact the China-Pakistan Economic Corridor. The US knows how important the project is for Pakistan and that it will continue to remain so. Fifty per cent of investments have come from China and our exports to China increased by 30pc following the FTA.” Abdul Razak Dawood, Adviser to the Prime Minister on Commerce

Hyundai Nishat Motors Private Limited has officially revealed its 4th CKD (completely knocked down) model Hyundai Sonata in Pakistan, priced at Rs6.3 million and Rs7 million for two variants. The Hyundai Sonata will have a first-mover advantage in the D-Sedan segment. The Federal Board of Revenue (FBR) served nearly 13 million tax notices to non-filers in three years whereas only 1.315 million people filed returns against these notices. FBR had raised Rs64.3 billion tax demand in these 12.8 million cases. However, it could recover just Rs2.6 billion.

Rs4.8 billion:

The KP Local Government department has sought Rs4.80 billion from the provincial government after it advised Tehsil Municipal Administration (TMAs) to waive next year’s property tax. The provincial government has advised not to collect property tax next year and has sought the opinion of the local government in this regard.

An Islamabad High Court (IHC) division bench on Thursday suspended a single bench’s June 28 verdict that set aside appointments of president of the National Bank of Pakistan (NBP) Arif Usmani and board of directors (BoD) Chairman, Zubair Soomro.

The federal government has decided to launch the ‘Kamyab Pakistan’ programme – a multidimensional social welfare initiative – at the national level in the next few days. This was announced by Finance Minister Shaukat Tarin while chairing the third meeting of the Economic Advisory Council (EAC).

Imposter syndrome and thrift stores

this week in Pakistan’s business and economics twitterverse

e have got an exhaustive list of the high and lows from the business and economics end of Pakistani social media this week. There was more needless posing for pictures, and we give you some more running commentary on why we think LinkedIn is a cesspool of degeneracy. Ariba Shahid brings you all this, mango season, thrift shopping and more in this week’s social media round up.

Enough with the pictures

Math and food don’t go together

I don’t know what’s worse. Islamabad’s food, the expensive daal, or the fact that restaurants don’t have tax inclusive prices. I want a meal not a mental math test where I have to calculate the amount with tax. This is not fair.

Twitter lessons

Remember when Imran Khan didn’t know how to tweet threads and used to quote-tweet himself? Tabish Gauhar is the new kid on the block on twitter and might we say he badly needs a lesson on the ‘how-tos, the dos and the donts. At this juncture I would like to offer my services to make him a twitterati like myself, but I will not be responsible if he turns into an addict. {Editor’s note: The offer for twitter lessons are in no way or shape affiliated with Profit.}

SOCIAL MEDIA ROUNDUP

What is up with photo ops by government servants and politicians? Why must they strike a pose for every mundane task they do? Doesn’t it kind of remind you of lifestyle bloggers that document their entire lives? Picture your eggs in the morning, coffee in the afternoon, and whatever friend you go out with at night. If you’re lucky, maybe you’ll have someone pay you a little bit to do a post for them? Whatever is going on in their minds, government officials do need to think to what end they are doing these photo shoots towards. Because at this point it is getting a little tacky, especially if it is a picture of two people congratulating each other for doing their job. Or, well, telling each other they did a good job. The reality is up for debate.

US quality

Thrift stores or preloved retailers - whatever you want to call them, we have all seen Instagram pages selling pre-loved foreign goods being sold to the rich. Mostly, these are the lots that are sold at the landa which rich kids have decided are worth visiting to make a quick buck. They model the clothes, take pictures in pretty lighting, pretend they’re doing it to be environmentally conscious or some silliness like that and then they make money out of it - no matter that the landa shopkeepers are not particularly happy about others making a profit off their products. We really hope they can capitalize on the powers of Instagram. Now, with all of these left behind goods, we wonder who will make the most of it. Who knows, you might see this keyboard at your nearest Sunday bazaar soon.

Among us

If you truly love something set it free

You love what you can’t have. Looks like the government is in love with Paypal. However, it’s weird they’re investigating why PayPal isn’t coming to Pakistan and not investigating why Pakistanis lack the innovative capacity to come up with something better than PayPal. I’m sure we’ve got the capacity, just not the right incubation and environment.

Something worse than a manel

LinkedIn is not your personal diary, and neither is twitter for that matter. No one wants to see you post every hour. Do what the rest of us do: Think 20 times before posting actual milestones that deserve to be posted, and then once you’ve done that, feel the imposter syndrome buzz through your system as you think a hundred times about deleting the post. That’s it. That’s the only way to use LinkedIn. That’s how normal people use it. {Editor’s note: Claiming that we have ‘actual milestones’ worth posting in this piece may or may not later contribute to the imposter syndrome mentioned above}

You know how much we hate manels. Turns out there’s something even worse. A panel of white people talking about areas that they are not from. Ofcourse foreign experts exist on Pakistani matters but isn’t it better to stick to and amplify local voices and let them speak on issues or topics surrounding them? The only thing worse we can think is a white manel about an area with no local representation

SOCIAL MEDIA ROUNDUP

OPINION

Hamza Nizam Kazi

Do we need a Google financial office in Pakistan?

uring a meeting of the National Assembly Standing Committee on Finance and Revenue, an FBR representative stated that it had warned digital platforms that it will not allow Google, Facebook, and YouTube to operate in Pakistan without payment of taxes. Though no official statement or clarification was provided, there hangs a sword over the head of these digital platforms including online e-commerce companies that there may be a huge demand notice coming their way or they may get a reprimand by the administration in Pakistan to abide by the law of land. Looking back in 2012 Google’s then head of Emerging Market Development, Southeast Asia, Jana Levene told a gathering that Pakistan is the next big market in the region. Even then it was highlighted that the laws regarding internet censorship, and the security of Google employees are the things they take into account. Accepting the fact that Pakistan was a $400 to $500 million market back then in 2012, the estimates reflect the fact that now

Hamza Nizam Kazi is a corporate and technology lawyer having experience in the telecom industry and advising digital startups. He can be reached on hamza.n.kazi@gmail.com for advice on legal and regulatory issues pertaining to the telecom sector and electronic media. COMMENT

The above scenario explains a need for a regulatory framework and policies catering to all stakeholders, the creators, the content platform, and the authorities, whether telecom, information technology or tax, under which these platforms are to be governed.

Pakistan’s overall internet penetration stands at 45% with 99 million mobile users and 46% with broadband subscribers with access to Google, Facebook, YouTube, and e-commerce websites. Last year, The Citizens Protection (Against Online Harm) Rules 2020 were notified. The Rules, formulated under the Prevention of Electronic Crimes Act (PECA) 2016 and the Pakistan Telecommunication (Re-Organization) Act, 1996, gave broad powers to the National Coordinator over social media content. This made the big tech giants rethink their strategy to enter into Pakistani market In August last year, Amazon announced that it was considering registering a local office in Pakistan to drive the adoption of cloud computing. A couple of months back, the Federal Minister for Information Technology confirmed that social media companies are ready to open offices in Pakistan while giving an interview to a private news channel. These vacillating and unclear decisions and policies at the highest levels create doubts among these companies. Besides, the tax collection authorities weighing in and ready to pounce on any such opportunity for revenue collection through taxation, creates further impediments in these organizations setting up their businesses. Who doesn’t want to be recognized as a country having the local offices of these tech giants here, creating an impact and promoting the soft image of the country? Their offices here would increase employment and investment opportunities but what really matters is whether we have suitable conditions, regulatory framework, a tax-friendly environment, and internet penetration to allow these companies to have their offices? Google is located in 154 locations in the world while YouTube has eight office locations across six countries only and catering to the entire world population remotely. Bearing in mind that Pakistan will soon have the fifth largest population in the world, with conditions of doing business getting friendlier, internet penetration and use of smart-

phones increasing, investments opportunities in tower fiberization and 3G/4G network, telehealth startups rising amid Covid-19, and e-commerce companies having established their presence, there is an opportunity for these tech giants to establish their presence in the country and consider a long term strategy for this region. On the other hand would bringing these tech giants under tax regime and laws of the land create any positive outcome? And with such unclear policies from the administration over the last few years, with the new rules and policies being enacted and different social media apps being banned now and then, the threat of leaving the country would create a greater and a much more negative impact than bringing them and asking them to establish their offices here. Having said so, it should not be construed that the offices should not be established; it is only suggested that the pros and cons should be measured before really getting into this debate. Recently Pakistan’s ICT industry export remittances, including telecom, computer & info services, have risen to US$1.298bn in the current quarter. Consider the example of YouTubers who receive 55% percent of the revenue share from ads placed via AdSense. The amount is generated on a cost-per-click or a cost-per-

These vacillating and unclear decisions and policies at the highest levels create doubts among these companies. Besides, the tax collection authorities weighing in and ready to pounce on any such opportunity for revenue collection through taxation, creates further impediments in these organizations setting up their businesses view basis. A view counts as an ad watched for 30 seconds or halfway through, whichever comes first thus generating revenue. However, there is a view that right now when the money leaves Pakistan and it counts as IT export, then the amount owed to the creators is sent later to them. The 45% owned by the creators should remain in the country while the remaining 55% that is remitted should reflect the IT export accurately. People advocating that YouTube or Google should have their offices are usually victims of phishing scams or any hacking whereby they had lost their influencing status or lost their viewership and needed instant support. However, the recent pandemic and work from home policies from corporations have made people understand the concept of remote working and

the same can be provided from anywhere in the world. All you are required is to have updated policies and regulations whereby these companies are bound to provide you instant support. The only way is that the stakeholders should be ready to accept these companies under a framework suitable for all, rather than bombarding them with various notices and letters of complaint. The above scenario explains a need for a regulatory framework and policies catering to all stakeholders, the creators, the content platform, and the authorities, whether telecom, information technology or tax, under which these platforms are to be governed. The consultations should be carefully deliberated upon to reach a consensus without which the whole exercise may be futile. n

COMMENT

By Ariba Shahid

hy would you buy a television channel in Pakistan? More specifically, why would you buy a news channel in Pakistan? Even more specifically, what would convince a real estate tycoon and a Senior Minister in the ruling party to want to spend Rs3.5 billion of his hard earned money on a television channel that has been making massive losses for years? The latest reports from the world of news media are strongly indicating that the Pakistan Tehreek-e-Insaf (PTI) Senior Minister in the Punjab Government, Aleem Khan, is in the process of buying Samaa TV. And while both the management of Samma and Aleem Khan have declined to comment on the matter, employees at the television channel have revealed that layoffs, structural changes, and revisions in HR policy are already underway to pave the way for new management. So why would Aleem Khan, or anyone for that matter, want to buy a television channel? With the state of the industry and censorship, it cannot possibly be a love for

MEDIA

journalism. With ad revenues down and the digital medium gaining more traction by the day, the profit motive is definitely out of the question. Even if you were to not consider the censorship aspect, and even if you made a big splash and have a lot of resources, chances are that if you started a news channel tomorrow you would be much more likely to bleed out money and fail than you are to make even a small profit. Yet Aleem Khan is more than interested, and he is not the only one. The reason is that with the possession of a television news channel comes influence. Say, for example, you are a businessman like Aleem Khan that also has political interests. If there is a story breaking about you or your business in a newspaper or on a different channel, all you have to do is mobilize the journalists that work for your channel to tell another version of the story. Anyone that doesn’t comply can be terminated, and everyone will listen because you pay their salaries.

It is a neat little solution, and one that happens far too frequently. Just last week, Profit reported on how personal the reporting of the news can get with the example of a feud between Bol News and a private company over politics at an elite Karachi school. And if Aleem Khan does manage to buy Samaa it will mean a bit of a shakeup in the Pakistani news industry. According to a recent Gallup poll, Samaa is the seventh most watched news channel in Pakistan, behind Geo News and ARY but well ahead of Dunya news. Discounting PTV and only looking at private, national, Urdu news channels, Samaa comes in at number 5, reaching 7% of the national population with 883,000 watchers reached daily. To get the most out of his investment, Aleem Khan will be looking to try and get those numbers as high as possible. He will also be trying to cut his losses as much as possible, and one of the most sure fire ways to do both those things are layoffs and sensationalism. The downside is the death of quality journalism. Profit takes you through the ins and outs of buying a news television channel in Pakistan, and why it might be a good idea despite the cost.

People enter the media business to protect their other business interests and because it “opens doors” for them and that there were very few people who were in the media business who had been in it for a very long time Zafar Siddiqi, Chairman of the Samaa Group

Samaa and the Zafar Siddiqi connection

e have two main characters in this story. The first, of course, is Aleem Khan. The other is Zafar Siddiqi. Aleem Khan is a real estate developer and Chairman of the Vision Group. His political activity has landed him in the Punjab cabinet on three different occasions. He is the prospective buyer of Samaa TV. Zafar Siddiqi on the other hand has been thoroughly involved in the business of news media his entire career, launching and re-launching two different channels in Pakistan as well as presiding over their sale. There are currently at least 33 licensed television channels on Pakistani cable networks. Most of them are doing abysmally. Currently, other than Geo, which is owned and operated by Mir Shakil ur Rehman of the Jang group, most of the other television news channels are owned by industrialists, real estate developers, or other people whose fortunes and fame come from anything but journalism. Geo’s top two competitors, ARY Digital and Dunya news, are owned respectively by the gold trading ARY Group and Mian Amir Mahmood, the former mayor of Lahore who owns the Punjab Group of Colleges and has stakes in different businesses. Then there are less serious competitors like Gourmet with its GNN and the Axact group with Bol News. Yet this was not always the case. The story of television in Pakistan begins with Syed Wajid Ali, the elder brother of Syed Babar Ali of the packages group, signing a joint venture agreement with Nipon Electric Company (NEC) to bring television to Pakistan. The project was quickly taken over by the Ayub regime in 1962, and brought under the information ministry. From here, PTV would be the only programming on Pakistani television sets for three decades. In the 1990s, however, changes were happening both in technology and in possibilities. The formation of the semi-government Shalimar Television Network (STN), which broadcast shows from CNN and the BBC, paved the way for Network Television Marketing (NTM), which became Pakistan’s first private

television network. Most of its programming included slots for CNN, BBC, the German DW, and NTM’s own content. In the mid-1990s, Zafar Siddiqi could tell that the winds were changing with regards to television in Pakistan. A chartered accountant by profession, Siddiqi had found great success in his field, first starting off as a partner at KPMG Oman. Later on he was promoted to the managing director of KPMG in Pakistan. But the prospect of television was lucrative and attractive, and Siddiqi made the rather significant career change decision. “In the mid-1990s, I spotted an opportunity to launch a TV production house in Pakistan specializing in providing business programmers to overseas broadcasters,” he said in a statement. From seeing this opportunity, Siddiqi began to produce various shows which included a business show on PTV, Question Time Pakistan for BBC World, Pakistan Business Week for CNBC Asia, and Business Week for NTM Channel. So by the turn of the century, he was deeply entrenched in the business of news media, not just in Pakistan but very much in the region. Around this time, bigger changes were happening in the Pakistan television industry. NTM shut down in 1999 due to financial losses, but it had set in motion the beginning of the private television channel revolution in Pakistan. In 2000, the government finally allowed private broadcasts and for television channels to produce their own content and independently report the news. Very quickly a number of news and entertainment channels began to make their way onto the airwaves. Geo, ARY, Indus, Aaj, and Hum were all launched between 2001-2005. Samaa was also one of the early entrants, making its way to the stage in 2007. During this very crucial period, Siddiqi was instrumental. Up until 2003 he continued to produce different shows, and later launched CNBC Arabiya in 20 countries in the Middle East. The channel was the first Arabic language international brand in television news. In 2005, Siddiqi came back to Pakistan and set up CNBC Pakistan. In 2007 he set up CNBC Africa and Samaa TV in Pakistan. He launched Samaa FM in 2009. Siddiqi continued to serve as Chairman of Samaa TV and CNBC Africa to date.

So in Pakistan, trying his best to take control of early mover advantage, Siddiqi was responsible for launching two channels: CNBC Pakistan and Samaa TV. Out of the two, CNBC has already been sold and has gone through a number of rebrands. Samaa is now in the process of being sold, which means what happened to CNBC is telling. Prior to CNBC’s launch, Zafar stated that within a year of the launch, CNBC would be listed on the stock market. So far, the only TV channels listed on the PSX are Hum Network Limited with its bouquet of channels including Hum news and the formerly operational Business Plus. An investment of $10.7 million had been made to set up CNBC by VNTV, a Pakistani company that had access to the CNBC global network. However, the IPO did not go through and CNBC was later sold to Vision Network Television Limited in 2015. It was renamed as Jaag TV. Later on Gourmet bought Jaag TV for Rs 1.5 billion and changed the name to GNN. GNN is the channel that has been bought by the family that owns the chain of Gourmet bakeries. It is another example of a business family wanting to have some media muscle and investing in a news channel that might not be able to turn a profit, but can be used as a vehicle to spread PR and a preemptive defense in case something goes wrong. Jaag, formerly CNBC Pakistan, was sold for Rs 1.5 billion. Samaa is comparatively a much larger fish to fry, which might explain that the price tag for it has been around Rs3.5 billion. Now, this might make sense. Samaa is a larger channel with a larger audience and it has been a few years since 2015, which means prices should have gone up. The only problem is that now is the worst possible time to be buying a television channel. Censorship is at its height, and the government has massively cut down on ad revenues (rightly so in theory, but not in spirit) which means running a channel into the ground is easier now than ever before.

Is Samaa a good buy?

inancially speaking, the simple answer is no. While Profit was not able to get the latest financial statements, we were able to have a look at 2016’s

accounts. Samaa TV incurred a loss of Rs 1,118,348,327 in 2016 bringing its accumulated losses to Rs 11,148,056,624. As a result, the company was flagged by the auditor as a going concern. Yet, in the notes to accounts for the financial statements of the year ended June 30, 2016, “The Company believes that the losses would be eliminated in the future as the Company’s operations would improve/ increase.” The only problem is that since 2016 things have only been going downhill for the news media industry, especially ever since ad revenues from the government have been given massive cuts since the new government took power in 2018. Add to that the coronavirus pandemic which has affected all industries, and the financials for Samaa do not make pretty reading. Already in 2016 some of the facts indicated that the channel and the media group were rather bloated. Naveed Siddiqi is currently the CEO of Samaa TV. He is an MBA from the Institute of Business Administration. Samaa TV was not his first stint in the media. Naveed had previously worked as a marketing manager for Geo TV in 2005 – 2007. He was then made the vice president of product development at ARY News. In 2010, he joined Samaa TV as Director of Strategic Planning and was then promoted to CEO in 2012. In addition to Naveed, Sara Siddiqi, the daughter of Zafar, also works at Samaa as vice chairman of Samaa TV. She has a master’s degree in international journalism from City University London. In addition to this role, she also runs cutacut, a digital media platform established for a younger audience. In 2016, Jaag Broadcasting also had non-current assets worth Rs 535,742,699 which include license which had a written down value of Rs 1,095,594 in 2016 with a useful life of 15 years. Advertising revenue stood at Rs 1,947,895,674 in 2016. As per the financials, the company was highly geared with a gearing ratio of 1050%. Samaa TV employed 1,117 employees in 2016 while the CEO earned a salary of Rs 11,652,500 in a year. These numbers have now all gone down. Moreover, Zafar Siddiqi also seems to be more than happy to sell because he is now getting on in years, and there is no clear person to take over from him as Chairman. At the time of incorporation, Zafar Siddiqi, Javed Faruqi, and Saleem Adil owned 98%, 1% and 1% shares of Jaag Broadcasting Systems. However, as per Media Ownership Monitor Pakistan, Zafar Siddiqi transferred his shares (debentures) to his son Bilal Siddiqi. This brought Bilal’s stake in Jaag to 99.99%. Out of a total of 1,002 shares in the company, Saleem Adil still owns one share. Bilal Siddiqi serves as an executive director and is married to Mira Sethi, the daughter of famous journalists Najam Sethi and Jugnu Mohsin. Zafar might have hoped that being married into the Sethi clan would have added

strength to his media barron ambitions, but Bilal Siddiqi has seemed less interested in keeping the channel long term. Zafar has definitely tried to keep it in the family, and his passion lies in the media. He has authored the book ‘Media 3.0’ as well, but keeping Samaa was almost always an impossible dream in the current climate with the organization bleeding money fast.

What is in it for Aleem Khan?

e have already discussed why Aleem Khan or any other politician or businessman would want to have a television news channel at their beck and call. These days, there are only two ways to run a television news channel. The first is to already have one that has been running for decades, and is such a juggernaut that it is charging on ahead by the sheer force of its inertia and how massive the organization is. These would be channels like Geo and ARY. The other way is to have so much money from your other businesses that you can afford to subsidise a channel that may be of use to you in a propaganda war. Aleem Khan definitely has that kind of money. The Vision Group was founded in 2012 as a company working on real estate projects. The group has worked on various projects including the Abdul Aleem Khan Foundation, Park View Icon located at I. I. Chundrigar Road, Park View City in Islamabad, Park View Corporate Center at Mall road Lahore, and Park View Signature Apartments at Gulberg Lahore, The National School, and Park View Villas at Multan Road Lahore. As per his nomination papers for the 2018 elections, Khan owns assets worth over Rs 918 million. His personal property was valued at more than Rs159 million while his ownership of shares was said to be worth more than Rs129.3 million. Khan’s domestic business is valued at a mere Rs90,000 whereas his foreign businesses amount to over Rs8.1 million. He owns 43 registered companies in Pakistan and three outside the country. Khan earned more than Rs43.9 million in salaries and profits, and gave taxes of over Rs10 million in 2018. He has also had bad press in the past, to the extent that NAB investigations forced him to resign from the Punjab cabinet. In 2019, however, the National Accountability Bureau (NAB) arrested Aleem Khan in light of the Panama Scandal Investigation, asset beyond means in Pakistan and overseas, and misuse of authority as a lawmaker for his Parkview Housing Society, and acquisition of 1500 kanals of land in Lahore and outskirts. Once again, we have to stress that as

a business decision, purely on the basis of direct profit and loss, buying a channel makes no financial sense. Although the financials presented in this story are based on 2016, it is important to note that it is highly unlikely for massive losses for the company to turn into profits, especially keeping industry dynamics in mind. Media houses are no longer making the same money they were able to, especially due to the heavy slash in government ads during the PTI government’s tenure. In August 2018, the Senate was informed that the government provided advertisements worth Rs 15.7 billion to print and electronic media from 2013 to 2017. The PTI government aimed at reducing ads to media in order to avoid the notion of buying influence or favors from TV Channels. However, the conditions started deteriorating prior to the elections so one cannot blame it solely on that reason. As per an article published in Aurora Magazine in 2018, TV accounted for 46% of Pakistan’s news media advertising market worth Rs 4 billion. This was a 9.5% contraction in revenue compared to the previous year and a 2% cut in share against other mediums. The biggest sources for ad revenue come from the Federal Government, Real Estate, Education, Finance Sector, and Big Pharma.

Controlling the narrative

ince Aleem Khan has declined to comment on the news, we cannot in all earnest claim to know the reasons behind why he might want to buy out Samaa. For all we know, he is a great lover of the free press and will give the channel complete editorial authority and encourage them to report on both him and the party he is a cabinet minister for. However, if we were to take a gander, it would be that Aleem Khan realises owning the means of disseminating information is a great way of controlling what information makes its way out there and how. Speaking at the launch of his book last year, Zafar Siddiqi was asked why people enter the media business. He said they do it to protect their other business interests and because it “opens doors” for them and that there were very few people who were in the media business who had been in it for a very long time. Considering the government’s decision to cut down on ad revenue to buy influence in the media, this may be a covert way of PTI trying to send out a favorable message. With elections nearing in, this would not be the most absurd election campaigning tactics. However, if this speculation of intention does turn out true, it will end up in reducing the public’s already decaying trust on independent journalism and media. n

MEDIA

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By Taimoor Hassan and Ariba Shahid

y the end of 2020, while the world watched as Covid-19 rapidly changed everything with little regard for traditional notions of success, some Pakistani startups had a lot to celebrate. The global pandemic seemed to be exactly the kind of push that they needed to convince customers to move to online platforms and to convince them of the benefits of such operations. Among the startups hailing basking in success were the ones that had gotten involved in online grocery shopping. Covid-19 meant that people no longer wanted to do the monthly trip down to the supermarket. But even as these startups celebrated a large number of people beginning to use their platforms frequently and trusting their business model, they will have had one eye on Hum Mart – one of the early entrants into the game. A subsidiary of HUM television, Hum Mart makes an interesting case study. It started operating in 2018 with aplomb, offering discounts and deals aplenty. It had the backing of a large company and its name was well recognised. Yet somehow, within two years, they had to close down in what the management is calling a ‘temporary’ shut down so that they can revamp. Eyes and ears in the industry are calling the fall of Hum Mart an introspection point for the grocery delivery industry and if it holds any future in Pakistan. If a player like Hum Mart, which has the financial backing of a known media company, could crumble, how can the others survive? Let’s clear the air here about Hum Mart. There have been reports of mismanagement and excessive theft, with a source telling Profit that there have been instances of riders going out with goods worth Rs1,500 when the orders would be of Rs1,000 worth. A source in the management of Hum Mart, denying that there was any mismanagement while running operations of the company, attributed the shutting down of business to a risk factor that Hum Mart did not even slightly perceive could become an existential threat. The feud between the siblings, Jehangir Siddiqui, the retired investment banker and founder of JS Group, and Sultana Siddiqui, the force behind Hum Network Limited that resulted in the hostile takeover of Hum Network Limited fundamentally affected the operations of Hum Mart

Collateral Damage

I 20

f you go to the Hum Mart website today, there will be nothing but banners and announcements telling you how Hum Mart is on hiatus, but is about to come back

bigger and better. As a consumer, you might wonder what happened to Hum Mart that it had to shut down first to come back bigger and better. Normally, if a business is growing, it keeps growing, getting bigger and better. Only if a company is not doing well, it would shut down and make an attempt at saving face by claiming to be ‘coming back bigger and better’, leaving everyone up in the air whether the business would be back or not. In the case of Hum Mart, things, however, add up. “A VC offered Hum Mart money in 2019, which the company did not take, even though the company was losing money and had burnt all of its equity. The rationale was that if Hum Network, which owns 70% of Hum Mart, was ready to support Hum Mart, it did not make sense to raise venture money and lose shareholding to a third party,” says a source. The approval for the loan, disbursed in quarterly installments, came from the board of directors of Hum Network Limited. As testament from two sources, the company was on a growth trajectory since its operations. While there was growth, it was coming on the back of losses, which a source said were planned for and come as part and parcel with growth in eCommerce. In August 2020, however, the company went down the tubes in the aftermath of the dispute between the two parties, JS and Sultana Siddiqui, in which JS thrusted a hostile takeover of Hum Network Limited. Court cases that ensued resulted in the dissolution of the board of directors at Hum Network. It was the board of the company that Jahangir Siddiqui wanted to dominate. However, the consequence was that the loans that were Hum Mart’s lifeline to grow, stopped. And in the absence of venture capital money, the going was simply getting tough. According to sources, Hum Mart only had approval for loan until September 2020. Hum Mart was incurring losses. Then the funds to operate stopped because of the feud at the parent company. In this backdrop, in the beginning of April this year, the company planned to temporarily shut down the business until a clear verdict from the court was announced. “The worst part was that because of the cases at court, venture capital firms refused to put any money in for as long as there were any legal complications. VCs simply won’t involve themselves in this mess until a court verdict is reached,” said a source. While there is still considerable ambiguity, according to sources, some progress has been made with court cases and the company has managed to secure funds from an individual investor. “Hopefully, the court will resolve matters in the coming few months and the

company will be launching again by Eid,” adds the source. While the company claims on its website it will be coming back by Eid, there is no surety if it will actually make a comeback by that time. Court cases can linger on and while the timeline is uncertain, sources claim that Hum Mart is poised to come back. It is even going to come in with a different business model, owing to its financial constraints. Hum Mart launched in Karachi and has since remained there until the recent bust in operations. Its comeback, however, as planned, is going to be with Hum Mart launching in a few cities simultaneously. Where in Karachi Hum Mart had a central warehouse from where it would do deliveries, the new model will include third party fulfillment partnerships under which customers would be placing orders on the Hum Mart website and the fulfillment partner, which will also keep the inventory, will deliver the order. Since the company would not be investing in its own warehouses in different cities, its expenditure would be limited, which will help it launch in other cities simultaneously with its fulfilment partners. For a loss making startup that was hit so badly that it had to shelve operations completely, its planning to return only goes on to speak about the potential of grocery delivery in Pakistan. After all, if it did not have potential, it would have been better to shut down and the saving grace here would have been the feud that led to Hum Mart’s demise instead of the business doing badly in a potentially bad market. But as it turns out, the market is not bad at all. Hum Network annual reports from the time Hum Mart was launched note that launching Hum Mart could potentially be a profitable business and that the company was striving for growth in this segment. Sources also say that the company had an upwards growth trajectory till the fiasco but the startup is very much up to stay in the game. Other startups have also entered into the space while older ones are apparently thriving. So what exactly makes eGrocery so interesting for these startups?

The state of eGroceries in Pakistan

tartups, for all their ingenuity and good qualities, are all based on one business or the other. Most of them in Pakistan are trying to turn outdated processes digital and improve them through technology. So a lot of the time, they like to take credit for things they have no hand in. Currently, the important names in the online grocery space in Pakistan

include the likes of Airlift Grocer, Grocer App, Panda Mart, October, Hum Mart, Naheed, Carrefour, Metro, Al Fatah, Mandi Express, D fresh, and D Mart amongst many more. Some of these, like Airlift, had to adapt during the pandemic and shift to online grocery stores to survive. Others, like Al Fatah and Metro, have been in the groceries business for a very long time and it was only a matter of time before they moved towards the online space as well. All of these companies will try to sell you the idea that it was their bright idea to take grocery shopping online. The reality is that online groceries in Pakistan have existed for a while. Chain stores with large presences have been delivering groceries and had websites for a while. The idea had not exactly caught on before the pandemic, but it was also not a complete bust. In fact, there is a culture in cities like Lahore and Karachi of local kiryana stores taking orders on the phone and delivering directly to houses in the area, and you have a population willing to shop online. Pakistan’s retail grocery market is the single biggest component of total consumer spending. According to Profit’s analysis of Household Integrated Economic Survey (HIES) and Pakistan Social and Living Standards Measurement (PSLM) data from the Pakistan Bureau of Statistics (PBS), consumer spending on groceries was approximately Rs6,540 billion in Pakistan, approximately 38.7% of total consumer spending. This market has been growing at a relatively average rate of 12.7% per year between 2002 and 2019, a period during which overall inflation has risen by an average of 8.1% per year. Both incomes and consumption levels are higher in Lahore than in the country as a whole. Profit’s analysis of PBS data suggests that while the city accounts for 5.4% of the country’s population, it accounts for 6.9% of total grocery spending in the country. All of the aforementioned players are trying to secure a chunk in the $48 billion pie called groceries. Currently, the pie is dominated by offline retailers, the likes of Metro, Carrefour, Al Fatah, JalalSons and Imtiaz, who have been around for decades. While the pie is dominated by these big players, startups have found themselves some problems in the consumer grocery purchasing cycle that they have jumped in to solve and based on the problems that they are trying to solve, have constituted different models. To begin with, the generic problems that having an app, a website and a delivery service instantly solve. For instance, the convenience of getting groceries delivered to your home would simply be a blessing for some people and the convenience was visible for some during the pandemic lockdowns. This is why many startups launched during the pandemic while others say they thrived exponentially.

“Everyone right now is trying to get to that sweet spot of having an optimum basket size. At a different scale, that size is going to change,” Ahmad Saeed, CEO at GrocerApp

There is always the option of walking round to your nearest general store, thela wala, or mart to buy the product. Most people go with the convenient option as opposed to going all the way to a far off supermarket for such needs. While the nearest option is not the cheapest, it makes up for it in convenience. Similarly, you’ve got online grocery platforms. The prices may not always be able to compete with the prices you got during your monthly grocery haul, but they are able to compete with prices you may find at your nearest store. One also needs to keep in mind that not all cities around the world, or Pakistan for that matter, are like Karachi where you can find a general store every two streets. That is where the dark store business model actually works best. As for perishability, not all products are easy to transport. Eggs crack, biscuits crumb, juice boxes can get squished and fruits can become bruised. The longer the distance the more likely something could go wrong with your order. While there has been an increase in the demand for online grocery shopping considering the ease, convenience, and more importantly the massive customer acquisition costs that businesses are running through; no one really knows how long this will last. Then grocery purchasing could be segmented into different categories based on types of groceries different types of consumers like to buy and that could differentiate the startups that we have in the market. For instance, all the millennials out there

who perhaps don’t know what the difference between cooking oil and ghee is, like to have their pack of Lays or a bottle of Nutella or icecream, without having to go out to buy it. They would want it fancy, they would want it now. Sometimes they wouldn’t want to go out to buy it, sometimes they would want it at times when shops would be closed. These millennials form a market that wants products, low value items, purchased repeatedly, which could be a lost demand if let’s say a shop is closed at night. Here, startups like pandamart will deliver it to you late at night. In the same category are products like fruits and vegetables, that are consumed in a short period of time and the purchase is repeated every two or three days. This is the segment that companies like pandamart, Airlift Grocer, Cheetay target where products have to be delivered immediately because of the instant gratification nature or urgent need of these products. Naturally, the order value is small and the delivery has to be swift. This is why pandmart offers a 15 minute delivery service and is laying out a network of dark stores, scattered in neighborhoods, with cheap rentals, that optimises its costs, yet enables quick deliveries. Cheetay is following a similar model of setting up dark stores for swift deliveries and has 3 dark stores at the moment, compared to 30 that pandamart has. Then there is the consumer segment that likes to do grocery shopping for the entire month. For example, the family heads, old

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Hyper fulfilment in our model is coming at a higher cost and we are going to the manufacturing companies and asking them that since we are generating value and demand that otherwise would have been lost, for that, you give us additional margins Nauman Sikandar, CEO Pandamart

in age, are habitual of doing entire groceries biweekly or monthly which include big value items like flour bags, cooking oil, shampoos and stuff. Startups serving this segment are GrocerApp, and the aforementioned Hum Mart. Their logistics infrastructure is also based on fulfilling demand from this segment. GrocerApp for instance has customised rickshaws that can carry big value items to deliver in one go. Their delivery times are also in hours rather than in minutes. Then are the problems that come simply along with the grocery business. The problems of unauthentic, counterfeit products. “There is no standardised experience in products which we saw as a major gap. No single retail chain is big enough to have a presence all over Pakistan to ensure standardised products,” says Nauman Sikandar, CEO at pandamart. This is what it all sums up to: there are counterfeit products in the market that people want to avoid, there are different demand drivers for different products, different consumer behaviours, add the convenience of getting these products delivered helped by the pandemic, you have startups like GrocerApp, pandamart and others that have made their presence felt, though they are yet to make a serious dent in the grocery space.

It’s only starting

o be clear, when we earlier mentioned the two different categories of products and consumers that it is delivered to, that is low value items purchased repeatedly and high value items purchased with a gap, did not mean these startups are restricted to those models only. That is only what they have started off with, based on strength and strategy. For instance, pandamart, which is an offshoot of the bigger foodpanda that has a vast network of riders, running in thousands, uses the same fleet for grocery deliveries that predominantly uses bikes to make these deliveries. The fleet inherently has a capacity limitation that a bike can not deliver big grocery orders in one go and, therefore, started with smaller items that it could easily deliver. Add to that pandamart used its strength in data that it has from the foodpanda business to analyse consumer spend in neighborhoods to strategically place dark stores that enable deliveries in 15 minutes through the bike riders. Conversely GrocerApp, which targets high value grocery items, has a central warehouse from where it dispatches the items for deliveries through rickshaws, though it also has bikes in its fleet to deliver low value items.

The key is to structure a model that keeps your cost very very low. And the way you do that is by having a lot of scale. As your order volume increases, your unit cost is going to decrease Usman Gul, CEO of Airlift Express

Essentially, these startups are targeting different basket sizes for their business that suits them the most according to their operations. According to industry experts, the average basket size for pandamart, Cheetay and Airlift which are all initially targeting a similar set of consumers, is between Rs600 to 700. Whereas for GrocerApp, the average basket size can go as high as Rs2,000 or above. Similarly, Daraz is also into eGrocery and is targeting a smaller basket size at the moment. “Everyone right now is trying to get to that sweet spot of having an optimum basket size. At different scales, that size is going to be different,” says Ahmad Saeed, CEO at GrocerApp. Smaller or bigger basket size does not mean it is going to stay that way because margin wise, both make sense. The grocery retail margins, gross, vary for different categories of products, but on average add up to 9-10%. So if pandamart makes a delivery for an average basket size of Rs650, at 10%, that is Rs65 in revenue. Conversely, GrocerApp’s single delivery for a basket size of Rs2,000 would yield Rs200 in revenue. The difference is stark, but for the lost revenue due to basket size, pandamart can make up for the higher number of deliveries it does as compared to GrocerApp. But having a bigger basket size has its benefits. It brings down the average delivery cost significantly. Which is why dark stores optimise cost for pandamart. These dark stores are facadeless, have cheap rentals and the rider does not have to go to a central warehouse which would increase delivery cost for low ticket items. “We have about 30 dark stores in Pakistan. From a logistics point of view, we have opened those at places that are prime, where rentals are less and consequently margins are fair,” says Nauman Sikandar. Cost optimisation is also where being a tech company helps. Since these startups have data of product purchases, they can optimise purchases and even manage inventory for swift operations and deliveries that help scale. “The key is to structure a model that keeps your cost very very low. And the way

At the end of the day, eCommerce is an expensive business. It is an expensive game that ends up tying your cash flows to a large degree. Secondly, on the grocery side, you really need to have a product that you have on your own. Oftentimes, the working capital gets tied up for a long time and it becomes challenging Ehsan Saya, managing director at Daraz

you do that is by having a lot of scale. As your order volume increases, your unit cost is going to decrease,” says Usman Gul, CEO of Airlift Express. According to an industry expert, different models are just a way of getting in the game. “Everyone is trying to be the go-to grocery service. Some are starting with instant gratification products model, others are targeting major grocery items. The principal at the end of the day is to attract consumers to the platform enough for them to eventually start ordering different value products as well. If GrocerApp grows big enough, people will impulsively start ordering smaller products eventually. Conversely, if pandamart keeps going with this model, eventually people will say if I am ordering ice creams from here, why don’t I order oil and rice too. Same is the case with other startups,” says the expert. This goes on to validate that because startups want to gain maximum traction, they

plan to launch their own white label products, which, if a hit, would make the respective platform more wanted. Cheetay has, in fact, launched its own brand of milk, called Sahar milk. Having your own product is great that will certainly add to the traction and revenue for the platform and if successful, people who would want to order the brand of milk from Cheetay would also start impulsively buying rice, wheat flour or other grocery items, further increasing the traction of the platform.

Is it profitable?

“A

t the end of the day, eCommerce is an expensive business. It is an expensive game that ends up tying your cash flows to a large degree. Secondly, on the grocery side, you really need to have a product that you have on your own. Oftentimes, the working capital gets tied up for a long time and it becomes

challenging,” says Ehsan Saya, managing director at Daraz. When the news of Hum Mart shutting down started making rounds, the immediate assumption in many people’s heads was that the business was perhaps doing badly. That it could not generate significant revenue or could not see generating profits, which is why it went bust. That the company tied cash into capex and could not get enough traction. As earlier mentioned, the problem was entirely different with Hum Mart, but had the problem not arisen, could Hum Mart have become a profitable business? After all, sources revealed that Hum Mart was growing while sustaining losses that were planned for four years. Though it was not disclosed if profitability would have come after four years or not. The question also is that on a broader level, can eGrocery become a profitable business, because other startups in the space are also sustaining losses.

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From candid admissions of startup founders, pandamart is not profitable, GrocerApp is not, Airlift is not and Hum Mart was not. At the same time, however, the founders make haughty claims that they can become profitable whenever they want to. It’s just that they don’t want to right now for the sake of expansion. For example, GrocerApp says they will be turning profitable in Lahore this year but they have expansion plans because of which they would divert the profits to loss making operations in other cities to sustain them. eGrocery startups primarily see the likes of Metro, Carrefour and Al Fatah as the mammoths they have to compete with. Grocery space is very big and startups are really small. All of them are so small and the space is so big that they can all coexist for the time being. Startups’ primary income is the margin that they earn on selling grocery products. Then they have delivery fees, which was earlier waived to get traction for the platform but pandamart and GrocerApp have started charging nominal fees for covering certain portions of costs. Then there are negotiations with manufacturers for higher margins, that companies like Carrefour and Metro are able to secure because they are simply very big and generate massive volumes for manufacturers. “Manufacturers would sell to normal retailers at trade price. To Metro and Carrefour, manufacturers sell at trade price minus one,

two or even three per cent. The startups will try to negotiate similar deals with manufacturers which offer them greater margins and that is going to come with high volumes. Essentially, these startups would also be cutting out the distributors and get distributor margins for themselves if they are able to grow big enough like Metro and Carrefour that manufacturers don’t mind dealing with them directly,” says the sector expert. The deal here is that the startups are sustaining losses deliberately to expand countrywide, grow big in volumes so that manufacturers give you the margins that Carrefour and Metro get. For context, Carrefour and Metro’s gross margins are 15-20% compared to 10% for startups and normal retailers. “Hyper fulfilment in our model is coming at a higher cost and we are going to the manufacturing companies and asking them that since we are generating value and demand that otherwise would have been lost, for that, you give us additional margins. That is still conceptional but that is going to be the case moving forward,” confirms Nauman. “Big manufacturers also have massive marketing budgets. Metro, Carrefour get hefty sums from these manufacturers and we receive the same as well for marketing their products on our digital channels,” says Ahmad Saeed. At the end of the day, startups, when they are operating in a country like Pakistan where people are not used to ordering stuff via

mobile or website applications, some of the spend is always going to go towards discounts to drive discounts. The same is happening with grocery deliveries too. They offer discounts, which constricts their margins, which means losses and further funds to sustain if you plan to grow at the same time. So in the endgame, the startup that is able to constantly fund its operations is going to survive and make profits. And by far, pandamart is the strongest in the game right now. It has a parallel business that has dominated the food delivery space, and it has the backing of the Germany-based delivery giant Delivery Hero. Other startups are VC funded like GrocerApp that raised $5..3 million this year, Airlift raised $10 million last year and another less known grocery startup, 24seven.pk is also in the process of raising new funds. In the endgame, the strategy of these startups will also matter. Those not seeking an exit are going to be in the game for the longer run, most likely foodpanda. Others who have planned an exit will simply get acquired by an existing player. Some that have already perished, reportedly Karachi-based QNE has shut shop, and some more will perish in keeping up with the eCommerce game. At the end, we might only see a few big players, perhaps as many in numbers as the big physical retail giants like Carrefour and Metro, because as Ahmad Saeed tells us, no one player can be big enough to cover the entire grocery segment alone. n

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Exide scrapes through 2020 S

In a year it should have expected losses, the car battery company managed a small profit

omehow, Exide did it. It managed to turn around two years of consecutive losses and scrape through with just a sliver of a profit in the year 2021. It seems improbable that the company should have done so, considering it sells, of all things, car batteries; and car sales took a tumble in the year of the

Covid-19 pandemic. And yet, take a look at its most recent figures, in a notice issued to the Pakistan Stock Exchange on June 30. The company’s financial year ends on March 31. In the year 2020, sales stood at Rs8.7 billion, while net loss stood at Rs558 million. But just one year later, net sales increased to Rs11.7 billion, and the company

managed to achieve a profit of Rs84 million. To put another way, that is the highest sales achieved in 2018, and is in fact even higher than sales netted in 2016. And sure, the size of the profit isn’t great: the company had comfortably crossed the Rs80 million threshold all the way back in 2007. But the company had stumbled along the way, falling from a high

BATTERIES

of Rs739 million in 2017, to just Rs22 million in 2018, to two consecutive losses in 2019 and 2020. At least from that perspective, the company has managed to do quite well. The improvement represents a shift on the part of Exide to revamp itself following poor showing in the last few years. First, some context on Exide Pakistan. The company was incorporated in 1953 as a private limited company, in association with Chloride Group, of the United Kingdom (that particular group had associates in 35 countries globally). In 1982, it was listed on the Karachi Stock Exchange, now known as the Pakistan Stock Exchange. The company essentially manufactures and sells batteries, chemicals and acid, and also supplies solar energy solutions. Most of its facilities for both batteries and chemicals are located in S.I.T.E Karachi and Bin Qasim Karachi. Today, Exide claims that it is the largest manufacturer of lead acid electric storage batteries in Pakistan. Its clients include car companies such as Suzuki, Toyota, Honda, Mercedes-Benz, and Audi. Though the company is publicly listed, at least 75% of all shares are held by the director (Arif Hashwani), CEO and children, which is mainly the Hashwani family. In fact, Sana Hashwani (his wife) holds nearly 21% of all shares. Only 8% of shares are held by the general public. Now, for the most part, the company has managed to do well. Between 1998 and 2007, the company has grown at a piecemeal rate, before jumping spectacularly post-2008. Between 2009 and 2015, net sales rose from Rs5,630 million to Rs13,138 million. Between 2015 and 2018, net sales hovered in that general ballpark, before dropping to Rs 9,507 million in 2019, and then again to Rs8,722 million in 2020. How come? According to the company’s annual report, a “highly disappointing auto sector” led to car sales plunging by 55% to 94,325 units from 209,255 units sold last year. Similarly, the sales of trucks and buses plummeted by 50% to 3,477 units, jeeps sales fell by 50% to 3,564 units and so on. “Demand for automobiles, especially cars,

But coming out of Covid-19, consumer demand has actually jumped, now that the worst of the pandemic is over. For instance, according to the State Bank of Pakistan, automobile loans increased from Rs251 billion in March 2020, to Rs270 billion by October 2020, depicting an increase of 8% had plunged sharply due to steep rise in prices contributed by imposition of various taxes in the budget 2019-20, rupee devaluation and soaring interest rates. This unprecedented rise kept the prospective buyers at the sidelines as the prices went out of their budgets,” explained the Exide director’s report of 2020. This is how the company recorded a loss for the first time in the last decade in both 2019 (Rs504 million) and 2020 (Rs559 million). Now, that is how things used to stand. But coming out of Covid-19, consumer demand has actually jumped, now that the worst of the pandemic is over. For instance, according to the State Bank of Pakistan, automobile loans increased from Rs251 billion in March 2020, to Rs270 billion by October 2020, depicting an

increase of 8%. Its a a view echoed by the last quarterly report, ending in December 2020: “The entire auto sector except heavy commercial vehicles gave a brisk performance during the first half of the current year on account of low interest rates and better farm income” According to Exide, car sales jumped by 13.4%, SUVs to 134%, light commercial vehicles by 32.4%, farm tractors by 43%, and two to three wheelers by 6.3%. That jump in car sales helped the company shoulder on. That is how even in the third quarter ending December 30, net sales stood at Rs3.3 billion, compared to Rs1.8 billion in the same period last year. And it seems that the company has only just capitalized on that momentum. n

Cement does well - again

The construction sector’s lobbying went a long way in the cement industry keeping its head up

ame an industry, and it probably took a hit under the Covid-19 pandemic. Automobiles? Collapsed. Textiles? Already had one foot in the grave but crum-

bled entirely. And let’s not even consider how oil did. But there is one industry that has done well consistently. Cement. It was told well ahead of time of the shutdowns to take place in April, had time to prepare, and survived the onslaught of

the pandemic with government buffers in place. The result? Fast forward a year later, and local cement sales stood at 57 million tons. According to Shahrukh Saleem, senior investment analyst at AKD Securities, an investment bank, that is the highest ever recorded sales. To recap: the construction sector went all out lobbying the government to keep the industry running, mostly so daily wage earning labourers would not be put out of work. As a result, the cement sector picked up significantly in 2020. First, the interest rate was cut significantly by 625 basis points to 7%, helping with loan repricing, and new loans for large projects. Second, the federal government announced a construction package in April 2020, upon which investors will also be granted a waiver of up to 90% on tax, if they are investing in construction projects under the Naya Pakistan Housing Scheme. The government also followed up with more incentives for the industry in the new budget for fiscal year 2021. Around Rs69 billion was allocated for dams, and Rs30 billion was allocated for the Naya Pakistan Housing Scheme. Third, the central bank asked commercial banks to allocate 5% of their total lending to the construction sector (banks’ current exposure to the sector is only at 1% of overall advances). This was provided at a low rate of 5% and 7% for five and 10-marla houses (one marla is around 225 square feet). Morse construction equals more cement. The results are in. Local cement sales increased by 22% year-on-year for June 2021, while total cement dispatches for fiscal year 2021 stood at 57 million tons, or an increase of 19% year-on-year. Of that, local dispatches

The increase came on the back of a number of factors, including a shortfall of natural gas. There have also been supply side issues, such as flooding in Indonesia and Australia, along with an ongoing trade spat between Australia and China increased by 20% year-on-year to 48 million tons. Most of this was due to an increase by the private sector, help from the construction sector package. A lot of the ‘growth’ however is due to the low base that the cement industry was starting out with anyway, amplified by Covid-19 restriction places in the fourth quarter of fiscal year 2020. Similarly, the significant increase of 46% month-on-month was because Eid-ul-Fitr holidays fell in May, partially pausing production and sales. The south of the country had sales increase by 79% year-on-year, and 66% monthon-month. Still dispatches remained relatively low in May because of the Eid holidays, and in June as well because of greater Covid-19 restrictions in place. Meanwhile, demand in the north witnessed an increase of 14% yearon-year, and 42% month-on-month. Because local sales in the south increased so drastically, esports from that region actually declined (by 39% year-on-year and 17% month-onmonth), as manufacturers shifted their sales mix towards local sales. Overall, exports stood at million tons for the year, increasing by 15% year-on-year. Coal has been a pressure point for the industry, according to Saleem. Coal prices increased by 35% since December 2020; in

fact, local manufacturers increased their prices by Rs25-35/bag in May. “We expect another increase of PkR20-25/bag to fully pass on the increase in coal prices,” explained Saleem. Utilization stood at 92% for June 21, which means local players have ample pricing power to increase prices - which will hurt the cement sector. According to Saleem, the increase came on the back of a number of factors, including a shortfall of natural gas. There have also been supply side issues, such as flooding in Indonesia and Australia, along with an ongoing trade spat between Australia and China. “Moving forward, we expect coal prices to remain elevated in the near to medium term as increase in demand has been supplemented by distortions in supply and global markets will take some to return to normalcy,” noted Saleem. Still, Saleem is positive about the sector: after all, demand for cement is very high. He identifies Lucky Cement as a company to watch out for, as it has one of lowest cost producers, and has a diversified portfolio, which includes exposure to the booming automobile sector through Lucky Motors Corporation. Meanwhile, Maple Leaf Cement Factory is also a solid contender, as its line is run on pet coke making it least sensitive to coal prices. n

CEMENT

Why is Z2C Limited investing in a kart racing competition? Cricket might be the go-to sport in Pakistan, but kart racing might be surprisingly popular

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sport that appears to have weak organic interest in Pakistan is nearly six months away from its mainstream launch, much to the bemusement of onlookers. According to publicly available data on Google Trends, the top sport and activity searched in Pakistan has been cricket. No surprises there. Which further explains why advertisers and media agencies spring at the chance to plaster their products and services on any branded integrations opportunities on any professional Twenty20 cricket league. From 2016 to 2021, Spark affiliate Blitz Advertising held the global media rights for the Pakistan Super League (PSL), a deal structure wherein the media agency is expected to guarantee a minimum sum to the Pakistan Cricket Board (PCB), which in industry jargon is referred to as an upfront. In light of its six years of monetizing the nearly quarter-billion worldwide viewing audience, Blitz Advertising was recently awarded the global media rights for the Kashmir Premier League, which debuts on the 6th of August. And how much money are advertisers and media agencies launching towards sports sponsorships? Due to COVID-19, the 5th edition of the PSL held in 2020 reaped in Rs. 2,167,794,749, of which the Pakistan Cricket Board pocketed Rs.627,612,185, while the total franchises share is Rs.1,540,182,564. This would seem impressive if not for reports that this is reportedly 11% less than what the stakeholders earned the year prior in 2019. Data for the past five years on Google Trends clearly shows that of all the mainstream face-to-face sports played in schools, parks, dedicated arenas, and more, cricket

dominates over soccer, basketball, volleyball, and kabaddi. The data shows that only once, in June 2018, was soccer more popular in Pakistan than cricket, a spike that coincided with the 2018 FIFA World Cup held around that time. According to Google Trends, the organic search popularity of cricket in Pakistan reached an all-time high in June 2019 when the Pakistan cricket team won against South Africa by 48 during the 30th of 48 ODIs, which was swiftly followed up by beating New Zealand by six wickets during the 33rd of the 48 ODIs. If data from Google Trends is anything to go by, clearly cricket has no equal. Yet, the COVID-19 pandemic proved that isn’t necessarily the case, with critically acclaimed online multiplayer battle royale game PlayerUnknown’s Battlegrounds (PUBG) surpassing cricket in popularity in mid-March 2020, right when the lockdowns went into effect and the PSL 5 was faced with last-minute rescheduling and live audience limitations. The data shows that PUBG continued to dominate over cricket in terms of organic search popularity for roughly six months until the Pakistan cricket team toured England in August and September 2020 to play three tests and three Twenty20 International matches. Nevertheless, the pandemic has made it clear that cricket is not pandemic proof, hence advertisers and media agencies began seeking diverse & additional content platforms and activities that organically draw mass eyeballs which can, in turn, be monetized. Thus it comes as no surprise that advertisers such as Red Bull and PepsiCo have been ready to sponsor eSports, as reported by Profit. Thus

“We intend to develop motorsports in Pakistan in the highest professional manner to be an inclusive, safe and fun activity,” Syed Ovais Naqvi, CEO & managing partner at Omni Motorsport Pvt. Ltd

we can see a direct link between spikes ingame or activity popularity and investments by leading media agencies in Pakistan, which research from RECMA suggests are GroupM and Z2C Limited, controlling roughly 40% and 35% of the respective $2 billion media industry. This is not the case, however, with go-karting. In June this year, Z2C Limited signed a deal with Omni Motorsport whereby the Pakistani multinational communication, advertising, public relations, technology, and commerce holding company would cover the complete sponsorship and media rights of the Omni Karting Circuit and its forthcoming kart racing championships, for a period of three years. In comparing road racing sports and activities on Google Trends, for the past five years racing itself has proven to be a popular pastime, as has the Formula 1 as a spectator sport. The organic search data pertaining to Pakistan shows a spike in interest for Formula 1 coinciding with the 2019 Brazilian Grand

“We traditionally tend to take a daring and visionary approach to new opportunities and see a bright future for sports marketing as a new medium to engage with for brands and the corporate sector and look forward to working with advertisers and agencies across the country to grow brand awareness and reach through the Omni Karting Circuit and its endeavors,” Farhan Khan, CEO of Starcom Prix, resurging two years later in mid-July due to the British Grand Prix 2021. And while this data is impressive, throwing the search term of PUBG and cricket into this visualization shows that all terms pertaining to road racing sports lack the kind of organic popularity that would justify an investment into an activity without qualified interest nor experienced racing drivers (no, the rash drivers at Devil’s Point in Karachi don’t count). “We traditionally tend to take a daring and visionary approach to new opportunities and see a bright future for sports marketing as a new medium to engage with for brands and the corporate sector and look forward to working with advertisers and agencies across the country to grow brand awareness and reach through the Omni Karting Circuit and its endeavors,” said Farhan Khan, CEO of Starcom affiliate Brainchild Communications Pakistan, which is owned by Z2C Limited. While the numbers are unclear, sources shared that the expected ceiling of the deal value for the first year is anticipated to be roughly $1 million, with revenue target slabs in between incentivizing the sports marketing teams at Z2C Limited to hit predefined minimums in order to collect a higher sales commission due to their own upfront and guaranteed commitments“We view motorsport as having an untapped potential that needs to be coupled with additional avenues into formalizing motorsports & karting through our broadcast media, merchandising, and experiential business units,” said Khan. “As the largest vertically integrated communications holding company in Pakistan, Z2C Limited has a wealth of experiences in driving commercial outcomes for unique value propositions.” The risk lines up with an extended lineup of investments by the vertically integrated communications holding company, which told Profit in October 2020 that it was working on creating & managing sports leagues for a

range of steadily popular games such as mixed martial arts, volleyball, kabaddi, and even soccer, all for which talent scouting is in progress. It remains to be seen whether the company is making the right choice, as competitors stick to the tried and tested safe formula of replicating Coke Studio and other unoriginal advertiser-funded projects nationwide such as Candy Meray Dost Meray Yaar 2, Nescafe Basement, and Supreme Gharana and many more. “We intend to develop motorsports in Pakistan in the highest professional manner to be an inclusive, safe and fun activity,” said Syed Ovais Naqvi, CEO & managing partner at Omni Motorsport Pvt. Ltd. “We want to grow motorsport in Pakistan both from a recreational and sporting point of view, from a non-existent sport to one that is widely available and accessible for the public irrespective of age, gender or status.” There are only two karting circuits in Karachi at the moment, one that is operational and open to all at the Dreamworld Resort, Hotel & Golf Course, which is an hour’s drive away from the supposedly elite residing in DHA. And then there is the partially operational Omni Karting Circuit (OKC) next to the Airmen Golf Club & Recreational Park in Korangi Creek, roughly a 30-minute drive from the same affluent class. This matters due to the price point attached to go-karting, an activity that requires a sizable investment - with the OKC being reportedly developed with $4 million dollars in private equity funding - including health & safety measures, an on-site medical team, training for new drivers, and a race track for aspiring drag racers, as well as a means of demonstrating the full power of new vehicles. Bearing all this in mind, the membership fee for the OKC is Rs. 400,000, a pricing decision that immediately limits access to the facility and the sport to a select wealth class in Pakistan. Couple this with the likelihood that the OKC will attempt to emulate the rules and

regulations of the Kart World Championship, the minimum age to compete is 13 years of age with parental consent and the recommended weight of the race driver is at max 90kg in full racing equipment, wherein lighter drivers must carry weight in a kart to equalize them at 90kg.

The investment still doesn’t make sense, unless …

he big picture for Omni Motorsports and Z2C Limited may be to find, train, groom, nurture, and groom the racing drivers that will eventually master kart racing and make the well-documented transition to compete in Formula 1 motor racing championships, similar to the career of British racing car driver Sir Lewis Carl Davidson Hamilton. Perhaps by being the early investors and indirect talent agency behind Pakistan’s first generation of Formula 1 racing drivers, Profit believes the long-term eyeballs and attention in taking local talent to the international stage will be the real return on investment for both companies, monetizing on global eyeballs around racing events that attract much larger audiences than local cricket could hope for. This hypothesis is somewhat solidified by Google Trends data that unsurprisingly shows that while Pakistan values cricket, the bat-and-ball game pales in comparison for global audiences that gravitate towards soccer and Formula 1, in that order. Given its active and ongoing talent scouting in soccer as well, Z2C Limited appears to be playing the long game. By January 2022, the nation will find out how soon it can create brand-safe top racing talents within kart racing, with the right attitude and representation characteristics to qualify for the big leagues. It appears that if the Pakistan Sports Board is laid back, private enterprises must once again step in to put Pakistan on the map.n

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OPINION

Osman Niazi

Jo Banain Gai Khain Gai (We will eat what we make) The main focus of our economic policy should be efficient production of exportable goods and agricultural products. Our standard of living faces a collapse due to a lack of industrial and agricultural production

If the current industrial crisis deepens (in our opinion it is possible that thousands more industries may well shut down) the cities may face severe problems

goods we produce (in effect we barter exports for imports). The services sector does not manufacture anything but rather takes a cut from the productive sectors. In countries such as the USA, the services sector is so good that they can actually export services (e.g. investment banking, consulting). Unfortunately in the case of Pakistan our services sector is not capable of exporting and our exports are real goods produced by our industrial or agricultural sector. o Banain Gai Khain Gai. That is the idea that needs to be We Pakistanis have been living way beyond our means. on every Pakistani’s mind if we are to have a chance to We consume more than we produce. We make up the difference make our economy grow. People of most countries realize between our imports and exports by external borrowing or by the importance of locally produced goods, so much so that foreign exchange remittances from our workers from abroad. The even in the richest country in the world, the USA, great problem is that we have borrowed for decades. Our level of debt is emphasis is placed on the competitiveness of their so much that our net new borrowing ability is being diminished. industrial sector. At the same time our foreign exchange liabilities are increasing. The simple fact is that in the absence of borrowing, what we This loss in new borrowing ability is the reason that we are produce as a Nation is what we consume. So let's look at this process. worried about a GOP default for the first time. As a result it's beOur manufacturing sector and our agricultural sector produce the coming more and more important that we live within our means. goods that we can consume. What we need in terms of imports We have to balance our budget and trade deficits. we pay for by foreign exchange earned by exporting the surplus The solution seems simple: increase your production of industries and agriculture and cut down on your imports. In the past the means for achieving this was by placing tariff barriers and protecting your industries and controlling imports also through import barriers. The new trend seems to be towards freer trade under the WTO. In such a situation the solution is supposed to be to devalue and make your nation poor enough so that they are competitive in the world. Inefficient industries should shut down and people of a country Osman Niazi should compete in avenues where they can be competitive in the world. is a graduate of the One reason for our excessive trade deficit is perhaps a lack of understanding of what is Wharton School of happening. As Pakistanis we don’t realize the implications of buying imported goods to such a large extent. When you import so much more than your exports there is a larger demand for Business and a former foreign exchange than for the rupee. The net result is a devaluation pressure on the rupee. The associate at Goldman devaluing of the Rupee makes the consumer poorer. Most Pakistani’s must realize this. When I Sachs buy an imported product, I am worsening the trade deficit and the net result of doing that over decades is that I have lost a lot of my buying power and I am becoming poorer.

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In effect I am saying that I don’t produce good enough goods. Here’s the paradox. If I don’t produce good enough goods as a nation the implication is that I don’t deserve to get paid for my work either. Thus I am saying I am not able to make good enough goods and I should not be paid much for my work either and that I should be a poor person. This is the problem. This is what is happening to us. I, as a Pakistani, am getting poorer. I am not making enough exportable goods. The net result is I eat more than I make. I borrow to meet the gap. Borrowing becomes difficult. I get poorer. This is the key fact, in the absence of exportable services, we have to export more real goods or we cause devaluation and inflation. Every one in Pakistan must understand this aspect of reasoning. True, buying local products is not necessary in the short run when debt levels in the country are not so great and the borrowing ability of the country is still significant. The same holds true if you are from a rich country. However, this is not the case for Pakistan. Every Pakistani in the services sector -- be he a doctor in Peshawar or a civil servant in Islamabad or a journalist in Karachi or a military officer on the border, or an accountant in Lahore or a banker in a Village or a teacher -gets poorer whenever an industry shuts down in some other place in Pakistan. A reduction in production in Pakistan directly hits the services sector employee in terms of greater inflation (and the associated depreciation of the rupee). The buying power of the rupee goes down, however wages of the services sector don’t go up to compensate for the inflation. This is completely logical because the services sector employee is getting a cut from the real sector. If the real sector shrinks, the services sector is in trouble. This is the reason why

Every Pakistani in the services sector -- be he a doctor in Peshawar or a civil servant in Islamabad or a journalist in Karachi or a military officer on the border, or an accountant in Lahore or a banker in a Village or a teacher -- gets poorer whenever an industry shuts down in some other place in Pakistan people feel that their buying power has been steadily declining. This is exactly the reason that the same doctor get hundreds of thousands of dollars in the USA but only a fraction in Pakistan. The same is true for any services sector employee in Pakistan when compared to an employee in the USA. Thus the industrial sector and the services sector people get directly affected by a reduction in industrial production. The city folk who are primarily in the services sector, have the most to lose by a production decline. If the current industrial crisis deepens (in our opinion it is possible that thousands more industries may well shut down) the cities may face severe problems. It is concerning that the services sector is the next in line for a severe shrinkage. A lack of industrial productivity if not supplemented with new borrowing from abroad could trigger a services sector shrinkage. The problem is that if the industrial sector collapse is bad enough it is possible that the services sector collapse may be very severe. This would impact the city populations tremendously as they depend on income primarily from the services sector. Some very dangerous thinking has been

seen in the past few years, people involved in the manufacturing sector seeing the death of the manufacturing sector seem to have tried to move money into real estate and also tried to move into the trading and services sector. This is extremely dangerous. This may give a temporary real estate boost and may get some short turn money but this kind of thinking will sink the economy and real estate and the services sector with it in the long term. For now it is just important to say that the agriculturists have a tremendous amount to gain by increasing the industrial productivity of the nation. The same is the case for low agricultural production. UP until now this has mostly been about the industrial sector because it is in very serious trouble. We must educate our people. Education is not only literacy. Perhaps as important is to explain simple facts to them which would help us achieve our aim as a nation. If we can get ideas like jo banain gai khain gai into the mainstream Pakistani thinking we may have successfully managed to change our nations perspective for the better. Without this perspective there is little hope for the future of the country. n

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Will

VavaCars be able to make a dent in the used cars industry?

The first competitor to CarFirst, VavaCars has a surprise advantage up its sleeve By Taimoor Hassan

here is usually a very particular way you sell your car in Pakistan. You start off by mentioning that you’re thinking of selling to a friend or a relative. They tell you they have a dealer or a website that has been successful for them. Slowly, the word starts to spread and different people inquire after the car, come to check it out, and offer a bad price. If that doesn’t happen, you go on OLX or Pakwheels and put up an ad where the interested buyers on the platform will call, connect with you, schedule a visit and inspect your car, negotiate the final price and complete the transaction if things go smoothly. If neither of these two methods work, then you will reach out to a showroom or a car dealer where you will park your car and people visiting the dealership will decide whether they want the car or not. Once the right buyer is there, the transaction is completed and the middleman or the showroom owner will

charge a commission, There is a fourth option, however, where you can avoid the hassle of negotiations, time consuming visits to showrooms and of interested buyers coming to you, one after the other, to inspect your car and you having to negotiate with everyone individually. The fourth option are the platforms where you can simply go and the platform will buy it from you right then and there. Launched in 2020, VavaCars is one of the only two players from your fourth option that will purchase your car if you reach out to them. The other platform in the same space is CarFirst, which was founded in 2016. Headquartered in the UK, VavaCars has no operations there. Instead, the company chose to have operations in Turkey and Pakistan. VavaCars launched in Turkey in the mid of 2019 and in Pakistan, launched operations in January 2020.It is a little odd for a company that is headquartered in the UK to not have operations there, but in two emerging markets instead. “The UK is the hub of technology and

leadership is based out of the UK. The parent investor, Vitol, is also based in the UK and so are the founding members. From a growth perspective, we saw potential in the growth markets,” says Mujahid Khan, country manager at VavaCars. Having operations in Turkey and Pakistan would further make sense if you know a little more about the company that backs VavaCars. It is backed by Dutch energy and commodity trading company Vitol which owns and operates retail petrol stations in Turkey and has a stake in Pakistan-based petroleum retailer Hascol Petroleum. The potential here is extraordinary. Imagine a VavaCars dealership at every Hascol pump in the country. So if you’re thinking about selling your car, the next time you drive by a Hascol pump you go in for a quick fill and then ask for them to give you an evaluation. Even if you aren’t thinking, the service simply being available might convince you to get an evaluation and that might get you thinking. Even if that doesn’t happen, whenever you plan to sell, VavaCars will be on the top of your

The UK is the hub of technology and leadership is based out of the UK. The parent investor, Vitol, is also based in the UK and so are the founding members. From a growth perspective, we saw potential in the growth markets Mujahid Khan, country manager at VavaCars

mind. The principal investment in VavaCars has come from Vitol, whose annual revenues run in the billions of dollars, and as Mujahid Khan, country manager for VavaCars in Pakistan tells us, they will be bringing in several million dollars worth of investment in Pakistan this year alone for VavaCars venture. Mujahid says that their presence in Turkey and Pakistan is along the line of the company’s vision to focus on growth markets where it already has a presence. They started off with these two countries and as the venture grows, they will be scaling to other growth markets as well.

The market

n an offline setting, the main pain point for both buyers and sellers is the time it takes to buy or sell the car. For buyers in particular, verifying car conditions is an issue as well. What VavaCars wants to do is take out the guesswork out of trading cars and create a system that is based on technology and transparency in terms of the company inspecting the inspecting cars, creating free inspection reports and based on that inspection reports, generating a price when a customer comes to sell. Alternatively, these reports and details are furnished when they are buying. “In Pakistan, whichever segment you look into, the biggest opportunity lies in organising the unorganised sectors. From unbranded to branded. Similarly in the used car industry, the majority of the sector is unorganised. The opportunity is massive to organise this sector and brand it and give people a branded organisation which is based on the pillar of trust and transparency,” says Mujahid. Normally, in an offline setting, used cars are traded with dealers who work in a cashbased economy. Even though the transacting parties might be making bank transfers for money matters, some of the transaction value is transferred in cash where the buyer would be making some payments, for instance token or advance payments, to the seller in cash while the remaining he might choose to transfer into a bank account. On the other hand, brokers would also prefer to operate in a cash-based

economy over digital, preferring to receive their commissions in cash, and not reporting the transaction. On the other hand, if a car is sold to a family member, that transaction would also not likely be reported to tax authorities. All this eventually means, and which adds up as Mujahid says that the sector is unorganised, there is no solid data to gauge the number of used car transactions in a year. “Normally, the ratio of new cars sold to used cars in any given year fluctuates between a minimum of 4x to a maximum of 7x. That is for each new car sold, a minimum of 4 and a maximum of 7 used cars are traded in the market,” says Mujahid. According to numbers available from Pakistan Automotive Manufacturers Association (PAMA), about 207,630 new cars were sold in the country in the year 2018-19. PAMA’s year for this calculation is from June to July. Car sales declined steeply in the year 2019-20 because of the pandemic and car sales were only 96,455 during the entire year. According to Mujahid’s estimates, for 207,630 new cars sold in Pakistan in 201819, the number of used cars traded would be anywhere between 830,520 cars to 1.4 million. If an average used car sale and purchase transaction is worth a million rupees, the used cars sector is a market that is $5.3 billion in size at minimum and $9 billion at maximum, if we stick with Mujahid’s assumption that used cars are traded between 4-7 times the number of new car sales. The actual number might be even higher if imported cars are also accounted for. This is the size of the market that VavaCars is trying to tap which is currently shared by dealers and brokers, marketplaces like OLX and PakWheels, and CarFirst and VavaCars. The size of the market is likely to grow further because of the recent government stimulus to decrease car prices and the new variants that are being introduced in the market. “As soon as a new car is purchased, it becomes a used car and is available in the used car trading pool. It is going to get bigger as new variants enter into the market,” says Mujahid.

Selling on VavaCars

o here we are. You have a few options to sell your car. Friends and family, offline dealers, marketplaces and platforms like VavaCars. As a seller, you would be looking for the best price that your car can fetch and you would need some solid arguments to justify your car price, that you would base on the mileage of your car and how you kept it like a princess. For buyers, it is the price and the ability to verify if the car is actually worth the price it is being offered at. This is why sellers and buyers first reach out to friends and family because it is easy to sell or buy because you have seen the car, know how it has been driven over the years, know if it had any accidents, and trust in the seller. This makes price negotiations also easy. It is in the cases of dealers that a buyer has to get the car inspected, with the seller still lacking trust if the inspection was done right and he would get it done again if he has a doubt the buyer’s inspection was ruining the price of the car. Similarly in the marketplace setting, where OLX and PakWheels connect buyers with sellers, trust is an issue which PakWheels has tried to mitigate by launching its own inspection service. People who trust the inspection service of PakWheels would know about the vehicle which would make it easier to negotiate. It is this trust that VavaCars is starting off to build in the Pakistani market. If you want to sell your car, VavaCars is going to be your trusted dealer that will do inspection of your vehicle and give you detailed reports of your vehicle’s condition and base the price on it. To be clear, VavaCars is not an inspection service per se, or a platform that connects buyers with sellers. It is not a classifieds platform like OLX and PakWheels where if a customer wants to sell a car, he posts the advertisement outlining the details of the car and putting up a rate that he comprehends is fair. VavaCars is also not an offline dealer that parks your car in its space until the right buyer comes and charges a commission on the transaction. No. VavaCars is a buyer itself. So

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when VavaCars does an inspection of your car, it is doing that as a buyer and it wants you to trust that inspection. After it buys the car, it might or might not add value to the vehicle by fixing any issues and refurbishing it, and selling it at a higher price, like many offline dealers themselves who purchase a car, make it look shiny, and earn windfall margins on it. The only difference is that VavaCars does it in an organised manner, as a brand. If you want to sell a car today on VavaCars, you can put an inquiry on VavaCars website and it will instantly give you an estimated valuation of the vehicle based on the information you put in like the make and model of the car and mileage, on the assumption that your car is in excellent condition and there is no major damage. If you are satisfied with the valuation, you can book an appointment to visit the VavaCars centre for inspection or you can call one of the mobile purchasing units at your home or your office, which will inspect the vehicle. The seller is provided an inspection report, along with the final price and all the paperwork which can be signed then and there and money transferred electronically. According to Mujahid, technically, the car can be sold in an hour if the price is agreed and the car can be handed over immediately. It’s a great thing to have the inconvenience of going out from one dealer to another to park your vehicle for sale removed. It is also great to have the inconvenience of people calling you one after the other and then coming to your home to check the vehicle, sometimes coming again with some other member of the family to see the car before it is purchased,

removed. But no matter how much you trust the seller, you are also not going to buy a car that is above the market rate. Likewise, a seller is also not going to sell his car if someone is offering a lower than market price. Which is why a seller is most likely going to explore all options available to him to get the best price and he is likely going to overlook the inconveniences associated with dealing with offline dealers and marketplaces as well. This is another value that the VavaCar brand claims to be giving to its customers. That it will give you the best price for your vehicle along with the trust that there was no shadiness in the transaction and that you as a customer were not ripped off. “If you are trying to make money when you are buying cars, you would not be able to scale. We are in growth mode right now. We are chasing volumes, instead of margins,” claims Mujahid. VavaCars itself is a buyer that makes money by buying cars at a low price and selling them at a high price. Mujahid claims that because they are in growth mode right now, they are ready to earn less margins for bigger volumes but from an individual seller’s perspective, things might be a little dicey. VavaCars is itself a buyer and the trust it is trying to build for the seller is that it is going to buy the car at the price that it tells you and you should trust the brand that it is giving the right price, even if it is below the market rate. And it is below the market rate because from the market research done by Profit, for a number of makes and models of cars for the purpose of selling, VavaCars platform offers a substantially low price compared to the sale

prices of cars on OLX and PakWheels, and CarFirst. For instance, for a 2014 Suzuki Mehran and a 2019 model Honda Civic that were researched on different platforms by Profit, VavaCars initial valuation of the cars was at least Rs100,000 short than on other platforms, for the same mileage. Well, it could be that the final offer after inspection of the vehicle is better but a seller that receives an initial valuation that is less than what he can get from other places, even though his vehicle is in best condition, is likely going to stay away from VavaCars. Profit asked if VavaCars could share numbers pertaining to revenue of the company to see how they were growing with this arrangement in place. The company refused to share numbers saying these were only the early days of the company and claimed that the company was growing exponentially. It could also be that VavaCars might be constricting its margins, that is selling cars at a lower than market price as well while selling the vehicles to new buyers. After all, Mujahid says that VavaCars right now would prefer to sell 50 vehicles at a profit of Rs10,000 per vehicle against selling 10 vehicles at a profit of Rs20,000 per vehicle. This however is difficult to ascertain since VavaCars is primarily selling to walk-in offline customers or dealers and businesses through auction. Its website for buyers is in the works and its online model concerns sellers at the moment. For a price sensitive consumer, trust can be interchanged with price is the verdict here. So from a seller perspective, then, we would ask you, the reader. Would you prefer to trade your car below the market price if you trust VavaCars? n

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