There are few businesses in Pakistan that are holding their own — without subsidies and despite tough economic conditions. Even fewer would see and bet on future growth opportunities in this economy unless the government promised to hold hands to ensure guaranteed profits.

Pakistan’s largest power-cable manufacturer, Fast Cables, is one of those businesses. The company owes its spectacular success in recent years to its one-plank strategy: always stay ahead of [the market] demand and never let the capacity constraints hamper or slow growth in its market share.

Currently, the cable manufacturer is expanding its capacity again and removing production bottlenecks with the proceeds of Rs3 billion from the share sale through one of the largest share listings on the Pakistan stock exchange in May. According to Bloomberg data, the offering placed it among Pakistan’s 10 biggest initial public offerings. The goal is to triple the company revenue to Rs100bn by 2030.

Initially, the company’s focus was on the manufacturing of electrical cables and conductors. In recent years, it has also created business verticals in metals, PVC, and indoor and outdoor lights. Additionally, it has ventured into export markets where it intends to increase its presence in a big way in the coming years.

Fast Cables sees a huge opportunity in the planned privatisation of distribution companies

In an interview with this correspondent, Kamal Mahmood Amjad Mian, the managing director of Fast Cables, who holds a Master of Law degree specialising in corporate and international finance from Harvard Law School and had worked as a corporate law attorney before joining the family-owned business of cable manufacturing, pointed out that Fast Cables has consistently been expanding its production capacity, improving technology and introducing new safer smoke-free products in the market for the last several years to stay ahead of demand growth in the country.

“The new expansion plant to boost production is a one-year project, and the work on it has already started,” said Mr Mian, who sees a lot of growth potential in both the domestic demand and export market going forward.

“We see a huge development spending coming in to improve the country’s distribution and transmission network. So, we conducted the initial public offering (IPO) and raised funds to further expand our capacity. This is in line with what we see happening in the country in future,” he noted.

According to him, the share sale through an IPO aimed to make the company more sustainable. “The decision to go public was made to diversify sources of funds for expansion. Ours is still the least leveraged company, and there is still a lot of room to borrow from commercial banks. So whenever we are in need of money for investment and expansion, we would have multiple channels for funding our projects that are available for sustainable growth.”

Elaborating on the decision to boost the production capacity when public development spending is being cut due to the government’s fiscal troubles and the industry’s domestic retail sales have dropped by 20-30 per cent on account of soaring inflation, Mr Mian argued that Pakistan would need more power-cable capacity going forward. “I believe that the government will soon be investing heavily in transmission and distribution to ensure that excess generation capacity is fully used to bring down electricity prices.

“The planned privatisation of distribution companies will further increase investments in their infrastructure because they can build their customer base and make money when they have the network to supply power. It is because of the distribution network bottlenecks that 300,000 applications for B1 and B2 connections are still pending with the Discos.

“We see that a huge opportunity is coming in and must be ready to grab it. Our company is currently operating at 70pc of its capacity. In the power-cable industry, you can touch a maximum of 80pc utilisation of installed capacity. This means that we still have nearly 10pc available for export orders or for domestic consumption.”

Mr Mian argued that their business strategy to always stay ahead of demand growth had paid off in the past. “When we expanded our production capacity last time, the country was facing 10-12 hours of power blackouts every day. There was a kind of chaos due to terrorist attacks in public places and in mosques. And no one was investing in the manufacturing business at that time.

“We were also advised to buy real estate or take money out of the country. But we believe in this country and decided to build capacity. Our plan paid off, and we had enough capacity to meet additional demand when China Pakistan Economic Corridor-related power transmission projects were announced.

“We also benefitted when the government announced tax amnesty to stimulate the construction industry, and the State Bank of Pakistan gave long-term concessional financing for industrial expansion under its Temporary Economic Refinance Scheme. Our compound annual growth rate in the last five years has been 20pc plus because we have the capacity and we can grab the opportunities coming our way. In fact we played a major role in import substitutions.”

Nonetheless, Mr Mian agreed that “right now with these capacities, we do feel challenged when it comes to how to make sure that we fully utilise the capacities in a way that we cover our cost and ensure that we don’t have to lay off our employees and so forth.

“So for the past two years, we have also had a lot of focus on exports. Currently, we are exporting to around seven to eight countries, and it will increase. We will explore more foreign markets next year, and the export volume will also increase.

“Last year, we did one big project and exported more than a billion rupees of high voltage cables to Saudi Arabia. That was the first time cables from Pakistan were exported to Saudi Arabia because there was huge demand there, and they didn’t have the capacity.

“Our aim is to earn at least 10pc of our revenues from exports. We were able to sell there because we have heavily invested to ensure compliance with the best international standards.”

He pointed out that the cable industry’s growth and expansion are closely linked to the country’s economic growth rate and public development spending. “We can grow only at the pace the country would grow. Therefore, I was expecting that a new government with a new mandate would come and define its five-year plan so that the businesses clearly understand where the country is headed. That part was somehow missing when it comes to the long-term view of the economy and how we want to handle the economic challenges we face.”

The other thing about the present budget is that it doesn’t help the industry reduce the cost of doing business, he noted. Instead, it increased production costs by imposing customs duties on the importation of industrial raw materials to boost its revenues.

“It makes us more expensive and reduces cash flow. So the wrong policy is shrinking businesses’ ability to produce goods and services.” In addition, the cable manufacturers must pay the Sindh government a development cess. “Even exporters aren’t exempt. So we see the government’s revenue needs at federal and provincial levels are burdening the manufacturing with costly taxes and levies.”

Published in Dawn, The Business and Finance Weekly, August 19th, 2024