Académique Documents
Professionnel Documents
Culture Documents
Abstract
This case examines the June 2015 decision of Muhammad Asad, a fund manager at Al Meezan Investment
Management Limited, to participate in the Initial Public Offering (IPO) of Al Shaheer Corporation, a
leading meat sector company of Pakistan. He was interested in increasing the exposure of the Meezan
Islamic Fund (MIF) to the food sector, provided attractive risk-adjusted returns could be achieved.
Based on the research team analysis and his own assessment, Asad had to decide whether or not to
participate in the IPO book building process and the number of shares to bid for at each price level.
Both Market Multiples and Discounted Cash Flow (DCF) valuation methods had yielded share value
higher than the IPO floor price of PKR 43 per share which encouraged Asad to consider the investment
opportunity. He also had to decide on the amount that he could allocate to the IPO on behalf of MIF.
Asad had to prepare his recommendations on the IPO for presentation and approval by the investment
committee in the upcoming meeting. He has asked you to conduct an independent analysis and valu-
ation of Al Shaheer stock over the weekend and share your findings with him early Monday morning.
Keywords
Initial Public Offering (IPO) Process; Book building; IPO Valuation; Discounted Cash Flows (DCF); Shariah
Investment Criteria
Discussion Questions
1. What are the costs and benefits of Al Shaheer Corporation going public? Briefly describe the IPO
process.
2. What is the growth potential of the meat sector of Pakistan within the global halal food market?
How is Al Shaheer Corporation positioned to benefit from this opportunity?
1
Visiting Faculty, Suleman Dawood School of Business, Lahore University of Management Sciences, Lahore, Pakistan.
2
Suleman Dawood School of Business, Lahore University of Management Sciences, Lahore, Pakistan.
Corresponding author:
Fazal Jawad Seyyed, Visiting Faculty, Suleman Dawood School of Business, Lahore University of Management Sciences, Lahore,
Pakistan.
E-mail: fazal.jawad@lums.edu.pk
2 Asian Journal of Management Cases 14(2)
3. What are some of the key risks faced by Al Shaheer Corporation that could impact its financial
position and performance in the future?
4. Does Al Shaheer meet the Shariah criteria of Al Meezan Investment Management Limited to
qualify for investment?
5. What is your estimate of the target stock price of Al Shaheer using the Discounted Cash Flow
approach and information provided in the case? What about Al Shaheer’s stock value based on
market multiples?
6. Would you recommend Asad to participate in the IPO? Defend your position.
Muhammad Asad, a fund manager at Al Meezan Investment Management Limited, skimmed through
an equity valuation report as he reflected on the issues that had come up in a long discussion with the
equity research team which concluded on Friday evening, 5 June 2015. The discussion had focused on
the upcoming initial public offering (IPO) of Al Shaheer Corporation, a leading meat sector company
of Pakistan. The research team was led by Ali Asghar, senior manager research, and an equity analyst,
Hassan Khan, who specialized in food sector research. Both Asad and Ali had recently attended the
pre-IPO road show and had interesting discussions with Al Shaheer senior managers and the research
analysts of the lead underwriters, the AKD Securities Limited (AKDS) and the Next Capital Limited
(NCL). The book-building portion of the IPO was scheduled to open for subscription on 10–11 June
2015. Asad, who managed the leading Shariah compliant equity fund, Meezan Islamic Fund (MIF), was
interested in increasing the fund’s exposure to the food sector, provided attractive risk-adjusted returns
could be achieved.
Based on the research team’s analysis and his own assessment, Asad had to decide whether or not to
participate in the IPO, and in the event of participation in the book-building process the number of shares
to bid for at each price level. The research team had used the market multiples and discounted cash flow
(DCF) methods for IPO valuation. Both methods had yielded share value higher than the IPO floor price
of PKR 43 per share, albeit significantly different, which encouraged Asad to consider the investment
opportunity. However, since the upper price limit of the offer was not specified, his dilemma was not to
bid too low and be priced out or bid too high, giving up the upside potential if the offer price settled at the
higher end. He wondered if he should make a single limit bid or step bids at different price levels in the
book-building exercise. In addition, Asad had to decide on the amount that he could allocate to the IPO on
behalf of the MIF. Asad just had the weekend to prepare his recommendations on the IPO for presentation
and approval by the investment committee in the meeting scheduled for Monday, 8 June 2015.
of Al Meezan with AUM of PKR 26.41 billion as on 31 May 2015. The fund had a stellar track record of
performance. The separately managed accounts (SMAs) offered clients with customized solutions to
portfolio structuring and investment management (Al Meezan Investment Management Limited, n.d.).
free-float and 8 per cent of market capitalization (Abduhu, 2014). Exhibit 1 provides summary informa-
tion about the IPOs in Pakistan during the past four years. The lack of appetite for IPOs in Pakistan was
due to a number of factors including the socio-political and economic uncertainty surrounding capital
markets. In addition, a more stringent capital market’s regulatory regime and oversight could have
deterred some companies from going public.
Al Shaheer Corporation
Al Shaheer Corporation Limited (ASC) was the prime name in the formal meat sector of Pakistan.
It was established as a partnership in 2008 and converted into a private limited company in June 2012.
This Karachi-based company was HACCP (Hazard Analysis Critical Control Point) certified and had a
vision ‘to become a leader in the global halal2 meat trade’ (Al Shaheer Corporation Limited Preliminary
Prospectus, 2015). The company enjoyed a leading position as a fresh meat exporter and retailer in
Pakistan.
With more than 550 employees and US$45 million (PKR 4.4 billion) in annual revenue, Al Shaheer
operated in three business segments: meat exports, meat retail, and institutional meat sales. Its products
ranged from fresh and chilled beef, mutton and lamb for export and local markets, camel meat both fresh
and frozen for exports and fresh chilled and frozen raw fish with a range of marinated and ready to cook
meat items. Animals were procured mostly from cattle markets and brought to the company abattoirs3 for
slaughter and processing. Exhibit 2 shows the supply chain of Al Shaheer.
Al Shaheer’s sales grew by a compound annualized growth rate (CAGR) of 35 per cent in value and
17 per cent in volume during the last four years as of 2014. The total sales of the company had shown an
increasing trend over the past five years with the major share in revenue coming from exports. Exhibit 3
shows the sales revenue generated by key segments of the company.
Export Segment
The primary business segment of Al Shaheer, representing 77 per cent of the top line in 2014, was the
export division. The company sourced local cattle and slaughtered them at the state-of-the-art abattoir
and transported the meat carcass in custom-designed refrigerated trucks from the factory to the airport to
be delivered to its international clients. It exported certified fresh meat to United Arab Emirates (UAE),
Bahrain, Oman, Kuwait and Saudi Arabia. Some of its products ended up at some of the largest stores
in the Middle East including LULU and Carrefour in Dubai. The company had also added a de-boning
facility along with the blast freezers to the abattoir, enabling it to export boneless, frozen meat via sea to
major regional markets resulting in significant savings in transportation cost. Al Shaheer capitalized on
the growing international demand and its exports grew from over PKR 2.3 billion in 2011–2012 to over
PKR 3.7 billion in 2013–2014.
Retail Segment
Pakistan had a meat market worth PKR 1.25 trillion (Baloch, 2015) and about 95 per cent of the meat
in the country was sold through the wet market or roadside butchers. Al Shaheer brought a paradigm
shift in Pakistan’s meat sector. The company saw potential for modern and upscale butcher shops in the
Seyyed et al. 5
country and sought to provide a hassle-free and pleasant meat buying experience to the customers by
introducing a chain of specialty meat shops, Meat One, in 2010. Meat One provided quality meat with
live butchery as well as convenient pre-packs and marinated and ready to cook products in Karachi,
Lahore, and Islamabad.
Another retail brand of Al Shaheer, Khaas,4 introduced in 2013, targeted price-sensitive consumers in
the mass market. The custom-designed Khaas outlets offered competitive prices which were at par with
the prevailing market rates for beef, mutton and chicken, along with a clean and pleasant meat buying
experience. Khaas meat stores were present both as stand-alone meat shops and within larger retail
outlets in Karachi and Lahore.
To reduce the cyclical impact of fall in post-Eid al-Adha5 sales, Al Shaheer launched a qurbani6
service in 2011 in Karachi, Lahore, and Islamabad. This enabled customers to delegate their sacrifice
ritual to Al Shaheer which generated positive cash flows for the company.
Institutional Selling
Al Shaheer’s institutional selling division catered to local clients, with bulk orders, at cost-effective rates.
The clients included multinational corporations, hospitals, caterers and restaurants looking for a one
stop solution for their meat procurement requirements. Abbot pharmaceuticals, Agha Khan University
Hospital, Pakistan Navy, Pizza Hut, and Johnny Rockets were a few notable clients.
Al Shaheer Farms
In March 2015, the company decided to vertically integrate its supply chain by incorporating Al Shaheer
Farms (Private) Limited. It planned to set up Pakistan’s largest feedlot fattening farm in the Thatta
district of Sindh by adopting best practices in farm management and technology to raise cattle with the
sole purpose of obtaining meat. The company planned to eventually raise 8,000 cattle heads every year
for high quality production of beef. The cattle would be brought to the farm, kept for ninety days and
fed a proper diet in order to increase the meat yield and quality. Premium prices would be charged for
the high-quality meat.
Over the years, the global meat consumption also increased. In China, the average meat consumption
per year increased from 9 kg per person to more than 50 kg per person in thirty years leading to strong
growth in demand for meat products. The average meat consumption in the developing world was at
16 kg per person and that in industrialized countries was around 90 kg per person (Bradfield & Ismail,
2012). The meat consumption in Pakistan was around 18 kg per person as compared to the world average
of 42 kg per capita (Al Shaheer Corporation Limited Preliminary Prospectus, 2015).
The global expenditure on meat amounted to US$1.3 trillion in 2013. However, the global halal meat
market valued at US$300 billion in 2014 with 12 per cent demand coming from Muslims residing in
Europe and the Americas (Business Recorder, 2015a). Pakistan’s strength had been 100 per cent halal
production. However, despite being the sixth largest country in terms of population and the second larg-
est Muslim country in the world, its global share in the halal meat exports was less than 3 per cent accord-
ing to Halal Research Council (HRC) (Business Recorder, 2015a), and it was ranked eighteenth in the
global halal meat market. Over 80 per cent of the halal trade was done by non-Muslim majority countries
(Memon, 2013a). Refer to Table 1.
There were three types of livestock producers in Pakistan: (i) small farmers comprised over 80 per cent
of the farming community with less than five animals; (ii) medium-sized farmer/producers with five to ten
animals represented 14 per cent of the farming community; and (iii) large-scale producers having more
than ten animals were only 3 per cent. Since most of the animals in the county were raised by subsistence
farmers, their nutritional requirements were not properly met, resulting in low-quality meat. Moreover,
breeds ideal for meat production had not been developed in Pakistan, specifically for the purpose of
obtaining beef. Also, the beef animals, buffalo and cattle, were typically slaughtered very young when
they had not attained the appropriate weight for good quality meat or when they were too old.
Animal breeding for meat was done on some organized feedlot farms with a trained workforce. There
were two types of feedlot players in Pakistan: small-scale and capital-intensive larger farms. The small-
scale feedlot farmers focused on earning premiums by raising a small herd of animals (around twenty)
for sale on Eid al-Adha and the larger feedlots focused on volumetric sales and value addition and had
contracts with the exporters. Better protein-rich feed, proper husbandry and veterinary care at these
farms resulted in high yielding meat animals and high-quality meat. However, feedlot fattening farms
were a relatively new phenomenon in Pakistan but the concept was gaining traction.7
8 Asian Journal of Management Cases 14(2)
There were rural-based slaughterhouses, government abattoirs and private export-oriented slaughter-
houses in the urban areas. In 2012, there were eleven slaughterhouses in Pakistan that met international
standards—five in Karachi and Lahore each, and one in Peshawar. In total, there were 350 slaughter-
houses in the public sector and around forty in the private sector (Bradfield & Ismail, 2012). Meat prices,
in the domestic market, were regulated by the government, resulting in low margins for butchers and
meat shops. On the other hand, the processed meat industry did not face regulatory price controls. Their
operations ranged from slaughtering of meat animals to processing meat into ready to cook, fermented,
packaged and preserved forms. The major players included Al Shaheer Corporation, Zenith Associates,
Syed Traders, PK Foods, Abedin International, KATCO International and Tazij Meat and Foods.
Meat was channelled via wholesalers and retailers to various hotels and restaurants, food service
providers, suppliers and super markets. Meat was mostly bought fresh in the wet market by consumers
at the butcher shops where it was cut according to individual customer preferences. Over the years, how-
ever, a number of specialty retail meat shops offering consumers a clean and hygienic environment were
opened to cater to the demand of a growing urban middle class. These included Meat One, Khaas,
Zenith, Meat Dukan, Meat Pro and TATA Best Foods.
In order to ensure ample supply of meat to the domestic and international markets, the government
encouraged the private sector to invest in the livestock business to promote commercial livestock farm-
ing. An export-led growth strategy was envisaged with a focus on high-quality livestock and value-
added products to enhance existing exports and to help the meat industry make inroads into new markets
(Aslam, 2013). For example, the Punjab government established the Punjab Agriculture and Meat
Company (PAMCO) under Section 42 of the Company’s Ordinance, 1984, with a state-of-the-art slaugh-
terhouse to develop the meat sector.
looking into the IPO of Al Shaheer Corporation. Engro Foods was priced at PKR 25 per share which was
more than twenty-five times the projected 2011 earnings of the company, a steep premium over the then
prevailing market P/E multiple of less than eight. The stock had performed extremely well and traded
at more than PKR 68 per share, a year after the listing (Tirmizi, 2012). Asad had a discussion with the
senior manager research, Ali Asghar, about the next IPO from the food sector and decided to attend the
pre-IPO company presentation. While driving back from the presentation, Asad pointed out that this IPO
could turn out to be another success story:
The company has started investing in human resources, filling key management positions with employees from
various multinational companies in the country. So, instead of learning through trial and error, it can catapult its
growth story by learning from the experience of these individuals.
Asad asked Ali to look into the IPO and conduct an in-depth analysis of the company. He eagerly awaited
the analysis report from the research team before he could decide on participating in the IPO.
Amidst positive developments in the capital market in Pakistan, Al Shaheer Corporation decided to
go public by offering 75 per cent shares of the total issue via the book-building mechanism and the
remaining 25 per cent shares to the general public. The company had experienced high growth but the
lack of funds had constrained its expansion and development plans. During the company’s presentation,
a senior executive at Al Shaheer remarked:
The extraordinary growth of the company compelled us to consider going public to raise funds so that higher
level of investments sustain our growth and bring greater efficiencies to the business yielding superior returns
for our stakeholders.
He further elaborated:
In the last few years, there were significant growth opportunities in the food sector in Pakistan. But due to lack
of sufficient funds, Al Shaheer was unable to fully benefit from those business opportunities. We believe that we
can achieve the forecasted profits with the funds raised and provide attractive returns to the public, investing in
the company.
Al Shaheer planned to use the proceeds of the IPO to set up a poultry unit and meat processing factory,
extend the retail network of the company, and meet the working capital requirements of the company.
Exhibit 4 gives the proposed utilization of the IPO proceeds for each project category.
The company aimed to enhance its foothold in the poultry business by establishing a fully vertically
integrated enterprise from hatchery to final production in Lahore. Exhibit 5 shows the project milestones.
The plant was expected to start commercial production in June 2017 with a capacity of 5,000 birds per
hour. Also, a meat-processing facility was to be established to produce frozen, ready to cook products
which had a year-long shelf life. The processed meat would be distributed nationwide through retail shop
chains and super markets.
The company had retail outlets, Meat One and Khaas, in Karachi, Lahore, and Islamabad, catering to
socio-economic classes (SEC) A and B. Since 9 per cent of the population of Pakistan fell under SEC A
segment and 12 per cent under SEC B classification, the total local market size for Meat One and Khaas
was estimated to be 649.69 million kg (Table 2). Al Shaheer planned to capitalize on this huge market by
opening retail shops at prominent locations throughout the country. Part of the IPO proceeds were to be
used to open thirty-five retail outlets and store-within-stores under the brand names of Meat One and
Khaas.
The remaining PKR 294.5 million of the IPO proceeds were to be used to fulfil the short-term
working capital requirements of the company. The lack of working capital had severely restricted the
10 Asian Journal of Management Cases 14(2)
SEC Total Per Capita Market Size Market Size Market Size
Group Population Availability (Volume in kg) (Value in PKR) (Value in US$)
A 16.12 million 278.39 million 111.35 billion 1.1 billion
B 21.5 million 371.30 million 148.5 billion 1.4 billion
Total 37.62 million 17.27 kg 649.69 million 259.87 billion 2.5 billion
Source: Al Shaheer Corporation Preliminary Prospectus.
operations of the company. According to Ali, Al Shaheer needed liquidity to pay its creditors and make
room for more credit purchases.
The next step would be the general public offering. The underwriting agreements for the public
portion would be finalized within ten working days from the closing of the bidding period and the
Final Prospectus would be published within seventeen working days of the closing of the bidding period.
A total of 6,250,000 ordinary shares of Al Shaheer Corporation would be offered to the general public
and the subscription period of these shares would be within seven and thirty days from the publication
of the final prospectus. The estimated issuance cost of the offering was over PKR 63 million (Exhibit 7).
This market is so huge that one can comfortably retain a decent market share even if there are as many as
50 players competing against each other.
The government had announced a tax holiday for four years to new halal meat producers, setting up
their facilities and acquiring halal certification by December 2016 (Ali, 2015). Benefiting from the tax
holiday, Fauji Meat Limited, a meat subsidiary of Fauji Fertilizer Bin Qasim Limited (FFBL), could
become a strong competitor of Al Shaheer.
Ali had found that Al Shaheer was operating significantly below its full capacity. The daily slaughter-
ing capacity of Al Shaheer was 60 tons of beef and 80 tons of mutton, whereas the actual capacity utiliza-
tion, in 2014, stood at 24 tons of beef and 6 tons of mutton (Al Shaheer Corporation Limited Preliminary
Prospectus, 2015). Another concern of Ali was the poultry business in Pakistan. ‘Engro Foods pilot meat
project had failed leading to significant book losses,’ Ali cautioned. On the positive side, Pakistan was
the third largest consumer of goat meat and ninth largest beef eating nation in the world (Hussain, 2015).
Al Shaheer had immense potential to cater to the local demand along with tapping into the global halal
meat market. The company had recently received a go ahead for exports to Egypt and was exploring
business opportunities in Iraq and China to broaden its clientele base. On the local front, Al Shaheer
intended to expand its retail network. While analyzing the financial data of Al Shaheer, Ali realized that
Meat One offered higher margins than export sales. However, the outlets needed good traffic flow and
time to break even.
Based on their analysis, the research team came up with some key assumptions to be used in
determining the target stock price of Al Shaheer. They used a risk-free rate of 8.2 per cent9 and the market
risk premium of 6 per cent at the time. In the debt market, Al Shaheer faced borrowing cost of about
16 per cent with target debt to total value ratio of 36 per cent. A beta of 1 was used for Al Shaheer by the
research team in estimating the cost of equity capital. The team arrived at the forecasted sales and mar-
gins as indicated in Table 3 for the five years (2016–2020) as the base-case values. The revenue projec-
tions implied a significant growth over the next five years and then tapering down to the long-term
growth rate of about 4–5 per cent. The tax rate for the next four years (2016–2019) was assumed to be
zero because of the tax holiday announced by the government over the next four years. However, 2020
onwards, an effective tax rate in the range of 10–20 per cent could be assumed after adjusting for subsi-
dies and tax rebate on exports. The capital expenditure and working capital requirements were to be met
according to the proposed year-on-year projected needs of the company from the IPO proceeds.
Depreciation was assumed at 10 per cent of the net non-current assets at the end of each year. The com-
pany was not expected to pay out dividends during the next five years. Its focus would be to consolidate
the business through expansion and retain any surplus cash in the business.
The analyst report on the IPO was fairly comprehensive, highlighting the key value drivers, risks
faced by the company, and indicative prices based on the two commonly used approaches to price IPO
shares, namely market multiples and DCF. Since the two methods indicated significantly different prices
for the IPO, Asad had asked you to conduct an independent analysis and valuation of Al Shaheer stock
over the weekend and share your findings with him early Monday morning. Asad had indicated to you
that MIF could allocate a significant amount to the IPO, depending upon the upside potential of the
opportunity. He had also given you an extract from the Al Shaheer bidding form (Exhibit 11) to pencil
in your suggestive bid type and quantity of shares at the bid price(s) based on the available information
and your analysis. You should be ready to present your findings and defend your position convincingly
when you meet Asad on Monday.
Exhibit 1. Details of IPOs in Pakistan
Price 1
Week
After
Formal Earnings Formal
Company Listing Per Share Listing
Name Industry Total Issue Book-building Portion General Public Portion Date (EPS) Price to Earnings (P/E) Multiple Date
No. of No. of
Ordinary Per Share Ordinary
(No. of Shares Floor Shares (%
Ordinary (% of Total Price/Price Bidding of Total Per Share Subscription
Shares) Issue) Band Date Issue) Price Date
Company KSE 100 Industry
(PKR)
2012
Next Financial 10 million 7.5 million PKR 10 21–22 Feb 2.5 million PKR 10 20–21 Mar 27 Ap –1.51 N/A N/A N/A PKR 9.52
Capital Ltd. Services (75%) 2012 (25%) 2012 2012
TPL Technology 30 million 20 million PKR 10 2–3 May 10 million PKR 10 5–6 June 2012 16 July Pre-IPO: Pre-IPO: N/A N/A PKR 9.27
Trakker Hardware and (66.7%) 2012 (33.3%) 2012 0.11 90.91x
Ltd. Equipment
Post-IPO: Post-IPO:
0.09 111.11x
Aisha Steel Industrial 10 million – – – 10 million PKR 10 3–4 July 2012 6 Aug N/A N/A N/A N/A PKR 11.5
Mills Ltd. Metals and (100%) 2012
Mining
2013
SFL Ltd It was listed without public offering after the demerger of Sapphire Fibres Limited under a Scheme of 7 Jan 2013 – – – – –
Arrangements sanctioned by the Honourable High Court of Sindh through its Order dated 28 April
2011.
Lalpir Electricity 37.984 28.488 PKR 15 18–19 9.496 PKR 22 3–4 July 2013 20 Aug N/A N/A N/A N/A PKR 22.03
Power Ltd. million million June 2013 million 2013
(75%) (25%)
Engro Chemicals 75 million 56.25 PKR 20 19–21 18.75 PKR 28.25 16–17 Dec 17 Jan N/A N/A N/A N/A PKR 37.83
Fertilizers million Nov 2013 million 2013 2014
Ltd. (75%) (25%)
Avanceon Technology 25.166 18.87 PKR 14 27–28 Nov 6.29 PKR 14 7–8 Jan 2014 11 Feb N/A Pre-IPO: 10.19x N/A PKR 19.25
Ltd. million million 2013 million 2014 2.51x
(75%) (25%)
(Exhibit 1 continued)
(Exhibit 1 continued)
Price 1
Week
After
Formal Earnings Formal
Company Listing Per Share Listing
Name Industry Total Issue Book-building Portion General Public Portion Date (EPS) Price to Earnings (P/E) Multiple Date
No. of No. of
Ordinary Per Share Ordinary
(No. of Shares Floor Shares (%
Ordinary (% of Total Price/Price Bidding of Total Per Share Subscription
Shares) Issue) Band Date Issue) Price Date
Company KSE 100 Industry
(PKR)
Post-IPO:
3.35x
2014
Hascol Oil and Gas 25 million 18.75 PKR 20 4–5 Mar 6.25 PKR 56.5 8–9 Apr 2014 14 May 5.97 3.36x 9.49x 7.7x PKR 67.2
Petroleum million 2014 million 2014
Ltd. (75%) (25%)
United Bank Commercial 160 million 160 million PKR 155 12 June – – – Already N/A N/A N/A N/A N/A
Ltd. (SPO) Banks (100%) 2014 Listed
Pakistan Oil and Gas 70 million 63 million N/A 26–27 June 7 million N/A N/A Already N/A N/A N/A N/A N/A
Petroleum (90%) 2014 (10%) Listed
Ltd. (SPO)
Engro Power 40.475 – – – 40.475 PKR 30.02 22–24 Sept 27 Oct 3.36 8.93x N/A N/A PKR 38.54
Powergen Generation million million 2014 2014
Qadirpur (100%)
Ltd.
Saif Power Power 48.3085 36.2315 PKR 18 to 30 Sept 12.077 PKR 30 11–12 Nov 15 Dec 3.15 5.71x 10.71x 7x PKR 34.1
Ltd. Generation million million PKR 30 2014 million 2014 2014
(75%) (25%)
Allied Bank Commercial 131.27 131.27 N/A 10–11 Dec – – – Already N/A N/A N/A N/A –
Ltd. (SPO) Banks million million 2014 Listed
(100%)
Price 1
Week
After
Formal Earnings Formal
Company Listing Per Share Listing
Name Industry Total Issue Book-building Portion General Public Portion Date (EPS) Price to Earnings (P/E) Multiple Date
No. of No. of
Ordinary Per Share Ordinary
(No. of Shares Floor Shares (%
Ordinary (% of Total Price/Price Bidding of Total Per Share Subscription
Shares) Issue) Band Date Issue) Price Date
Company KSE 100 Industry
(PKR)
Sindh Modaraba 13. 5 – – – 13.5 PKR 23–24 Dec 23 Jan N/A N/A N/A N/A PKR 8
Modaraba million million 10 per 2014 2015
certificates certificates certificates
(100%)
Systems Information 13 million 9.75 PKR 25 to 5 Dec 3.25 PKR 40 29–30 Dec 3 Feb 2015 Trailing Pre-IPO: 8.24x N/A PKR 51.01
Ltd. Technology million PKR 40 2014 million 2014 Pre-IPO: 5.46x
(75%) (25%) 4.58
Trailing Post-IPO:
Post-IPO: 6.27x
3.98
Synthetic Engineering 19.35 14.512 PKR 23 to 8 Dec 4.83 PKR 30 6–7 Jan 2015 10 Feb 2.1 10.94x N/A 24x PKR 35.51
Products and Allied million million PKR 39.1 2014 million 2015
Enterprise (75%) (25%)
Ltd.
2015
Mughal Iron Steel and 27.35 20.512 PKR 20 to 16 Feb 6.838 PKR 34 16–17 Mar 15 Apr Trailing Pre-IPO: 9.7x N/A PKR 44
and Steel Allied million million PKR 34 2015 million 2015 2015 Pre-IPO: 4.2x
Industries (75%) (25%) 4.76
Ltd.
Trailing Post-IPO:
Post-IPO: 5.6x
3.57
Habib Bank Commercial 250 million 250 million PKR 166 7–10 Apr – – – Already N/A N/A N/A N/A N/A
Ltd. Banks (100%) 2015 Listed
Dolmen REIT 555.925 416.94375 PKR 10 8–9 June 138.98125 TBA TBA TBA – – – – –
City REIT million million 2015 million
units units (75%) units (25%)
Al Shaheer Food 25 million 18.75 PKR 43 10–11 June 6.25 TBA TBA TBA HY-2015 – – – –
Corporation Producers million 2015 million Pre-IPO:
Ltd. (75%) (25%) 1.7
Source: Case writers’ analysis based on data from Securities and Exchange Commission of Pakistan, company documents and online news.
16 Asian Journal of Management Cases 14(2)
Cost in PKR mn
Land 8 Acres at 5,000,000 per acre 40
Construction PKR 1,500 per sq. feet at 50,000 sq. feet 75
Stork Chicken Slaughter Line (5000 birds per hour)— 60
Purchased in 2015
Blast Freezer 50
Spiral Freezer 20
Air Chilling System 10
Cold Rooms 10
Plant Design 5
Plant Installation 15
Miscellaneousa 10
Total Cost for Poultry Business 295
Total Cost of Meat Processing Plant 85
Working Capitalb 200
Total Cost 580
Cost in PKR mn
Furniture and Fitting, Equipment and Misc. per Outlet A 5.72857
No. of Outlets to be Opened B 35
Total Cost for Network Expansiona A×B 200.5
Source: Adapted from Al Shaheer Corporation Preliminary Prospectus.
Notes: The breakup of IPO proceeds utilization is based on full subscription at the Floor Price of PKR 43 per share.
a
Costs to be spread evenly over five years (2016 to 2020).
b
Utilized after the start of commercial production, that is, in 2018.
18 Asian Journal of Management Cases 14(2)
Project Milestones Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Apl-16 Jan-17 Mar-17 Apl-17 Jun-17
Land Purchase
Design and Drawing
Approval for Construction
Ground Breaking
Purchase of Equipment
Arrival of Equipment
Completion of Installation
Trial Production
Commercial Production
Source: Al Shaheer Corporation Preliminary Prospectus.
Shariah compliance of stocks is done under the guidance of qualified and reputed Shariah experts.
For stocks to be ‘Shariah compliant’, it must meet ALL the six key tests given below.
Business of the Investee Company
Core business of the company must be halal and in line with the dictates of Shariah. Hence, investment
in securities of any company dealing in conventional banking, conventional insurance, alcoholic drinks,
tobacco, pork production, arms manufacturing, pornography or related activities is not permissible.
Debt to Total Assets
Debt-to-asset ratio should be less than 37 per cent. Debt, in this case, is classified as any interest-bearing
debts. Zero coupon bonds and preference shares are, both, by definition, part of debt.
Non-compliant Investments to Total Assets
The ratio of non-compliant investments to total assets should be less than 33 per cent. Investment in any
non-compliant security shall be included for the calculation of this ratio.
Non-compliant Income to Total Revenue—Purification of Non-compliant Income
The ratio of non-compliant income to total revenue should be less than 5 per cent. Total revenue includes
gross revenue plus any other income earned by the company. This amount is cleansed out as charity as a
pro rata ratio of dividends issued by the company.
Illiquid Assets to Total Assets
The ratio of illiquid assets to total assets should be at least 25 per cent. Illiquid asset, here, is defined as
any asset that Shariah permits to be traded at value other than the par.
Net Liquid Assets to Share Price
The market price per share should be greater than the net liquid assets per share calculated as: (Total
Assets – Illiquid Assets – Total Liabilities) divided by number of shares.
National Rafhan
(FY2014) Engro Foods Foods Nestle Unilever Maize Mitchells Shezan
Year End Dec-14 Jun-14 Dec-14 Dec-14 Dec-14 Sept-14 Jun-14
Book Value per 15.1 24.28 278.45 127.22 1050 73.51 188.49
Share (PKR)
Annual EPS 1.13 8.23 174.85 190.29 272.48 13.65 32.5
(PKR)
Closing Price 133.12 339.46 9990 7277.5 9000 401.08 900
(1 June 2015)
(PKR)
P/E 117.81 41.25 57.13 38.24 33.03 29.38 27.69
P/B 8.82 13.98 35.88 57.20 8.57 5.46 4.77
EBITDA Multiple 26.27 34.03 26.88 32.47 23.67 27.04 11.63
Source: Bloomberg.
Bid Details
No. of Shares Bid For Bid Price per Share Total Amount
Bid Option (Please tick) (In Figures) (In Figures) (In Figures)
Limit Order
Step Order:
Option (1)
Option (2)
Option (3)
Option (4)
Total (Shares and
Price)
Important Instructions:
1) Bids should be placed for a minimum amount of PKR 1,000,000/-. It should also be noted that no. of shares bid for
should be rounded and fractional shares will not be accepted. Please ensure that after rounding the number of shares
multiplied by your bid price, is at least PKR 1,000,000/-.
2) Any bid received below the floor price will not be accepted by the Joint Book Runners.
Source: Next Capital Limited.
Seyyed et al. 23
Notes
1. US$1 = 105 Pakistani rupee.
2. Denoting or relating to meat prepared as prescribed by Islamic law.
3. British term for slaughterhouse.
4. Literal translation from Urdu is ‘special’.
5. A Muslim festival.
6. Literal translation from Urdu is ‘sacrifice’.
7. Information on feedlot farms was based on discussions with industry experts and practitioners.
8. This section was based on information collected from company sources and preliminary prospectus of Al Shaheer
Corporation.
9. Five-year Pakistan Investment Bonds (PIB) Rate.
References
Abduhu, Salman. (2014, January 6). Five more companies to offer IPOs by FY14 end. The Nation. Retrieved 23
February 2016, from http://nation.com.pk/business/06-Jan-2014/five-more-companies-to-offer-ipos-by-fy14-
end
Al Meezan Investment Management Limited. (n.d.). Retrieved 10 June 2016, from https://www.almeezangroup.
com/
Al Shaheer Corporation Limited Preliminary Prospectus. (2015). Al Shaheer Corporation Limited Preliminary
Prospectus. Retrieved 23 February 2016, from http://www.nextcapital.com.pk/ASCL_Preliminary%20
Prospectus.pdf
Ali, Kalbe. (2015, June 6). Special incentives for manufacturing, agriculture, construction sectors. Dawn. Retrieved
1 March 2016, from http://www.dawn.com/news/1186525
Aslam, Nauman. (2013). Enhancing livestock sector export competitiveness. Trade Related Technical Assistance
Pakistan. Retrieved 17 June 2016, from http://trtapakistan.org/wp-content/uploads/2012/04/Livestock.pdf
Baloch, Farooq. (2015, October 8). Post-IPO results: Al Shaheer’s profit up by 168%. Express Tribune. Retrieved
18 November 2015, from http://tribune.com.pk/story/969273/post-ipo-results-al-shaheers-profit-up-by-168/
BMI Research. (2015). Industry trend analysis—Global Halal food industry—Where are the opportunities?
Mar 2015. Retrieved 19 November 2015, from http://www.foodanddrinkinsight.com/industry-trend-analysis-
global-halal-food-industry-where-are-opportunities-mar-2015.
Bradfield, Michael, & Ismail, Tahir. (2012). Meat value chain assessment of the livestock sector in Pakistan.
Agribusiness Support Fund. Retrieved 8 December 2015, from http://www.asf.org.pk/Publications/2-Meat-
Value-Chain-Assesment-Dec-27-2012.pdf
Business Recorder. (2015a, March 12). Meaty affairs. Retrieved 4 May 2016, from http://www.brecorder.com/br-re
search/44:miscellaneous/5259:meaty-affairs/
———. (2015b, June 10). The meaty IPO! Retrieved 19 November 2015, from http://www.brecorder.com/br-resea
rch/44:miscellaneous/5541:the-meaty-ipo/
Hussain, Dilawar. (2015, June 15). A meaty business. Dawn. Retrieved 19 November 2015, from http://www.dawn.
com/news/1188169
Memon, Noor A. (2013a). Pakistani halal meat gaining ground in international market. Pakistan Food Journal,
(November/December), 20–23. Retrieved from http://www.foodjournal.pk/
———. (2013b). Poultry: Pakistan’s fastest growing industry. Pakistan Food Journal, (July/August), 24–26.
Retrieved from http://www.foodjournal.pk/
Ministry of Finance, Government of Pakistan. (n.d.). Pakistan Economic Survey 2013–14. Retrieved 17 June 2016,
from http://www.finance.gov.pk/survey_1314.html
Thomson Reuters. (2015). State of the global Islamic economy report 2015/16. Retrieved 9 March 2016, from http://
www.halalbalancing.com/Downloads/Events/2015/SGIEReport2015.pdf
Tirmizi, Farooq. (2012, August 14). IPO anniversary: A year on, Engro Foods wins over the sceptics. Express Tribune.
Retrieved 23 February 2016, from http://tribune.com.pk/story/421712/ipo-anniversary-a-year-on-engro-foods-
wins-over-the-sceptics/