Recently, the company entered the world of retail with its brand ?So Kamal.? BR Research sat down with Ahmed Kamal to discuss the brand, the future of the company, and the ongoing issues in the textile industry. Below are edited transcripts of the interview.
Business Recorder Research: Tell us a little bit about your company and its history.
Ahmed Kamal: I?m a third-generation businessman. My grandfather started this company. He came back from Calcutta after independence and put up a factory in Faisalabad that was one of the first few factories that started in Pakistan. Then, we diverted towards the chemical side, but we came back to textile as we believed that textile is the basic industry of Pakistan and it had opportunity to grow because of cotton availability. So, the family concentrated towards the textile sector.
In our group, we have all the operations ? spinning, weaving, printing, processing, home textile, garment manufacturing, socks manufacturing, and now retail.
BRR: How many employees do you hire?
AK: Around 12,000
BRR: What is the total volume of your exports? Which markets do you export to?
AK: Kamal Limited is 95 percent export-oriented. As a group, we do around $150 million. Our growth is more than 10 percent every year. We are everywhere in the world ? US, Europe, South America.
BRR: Which is the lion?s share?
AK: Home textile ? about $100 million.
BRR: How did your business benefit from GSP Plus?
AK: GSP Plus has played a very key role and our business has grown 30-40 percent in Europe since then. It was a big advantage for Pakistan ? Bangladesh already enjoyed GSP Plus facility before, but now with this facility given to Pakistan I see a big opportunity in garments. In home textile, we always had an edge on Bangladesh and India, but when we talk about the progress in exports in Bangladesh it is all based on garments.
Garment is a segment that fetches more value-addition than home textiles. The key to their success was GSP Plus; that facility gave them the opportunity to grow their business to a level where buyers got interested in that country. And when the buyers got interested in that country, you?ll be amazed to know that today, directly and indirectly, there are more than 200 brands sitting in Bangladesh. If you talk about Pakistan, there are maybe 10 brands with their buying offices here.
In value-addition, our exports are $6 billion whereas out of Bangladesh?s $32 billion textile exports, $28 billion is garments. It is the customer that wants to come to the factory, wants to see the production in front of them, improve the techniques, learn what new products they can get from the factory, etc. If there is a free flow and the customer can come with security and peace to your manufacturing facility, it can really facilitate the growth of your business.
I talked to the Commerce Minister. I told him that instead of these expos and bringing in small retailers or unrelated ?delegates? to just fill up the slots, what we should do is make a proper strategy and target customers. As a Commerce Ministry, they should target ten big brands of garment, home textile, and knitted garments; we should approach them, visit them, give them the facility that they should come and open their offices here. I have been telling the Commerce Ministry that if you can have a diplomatic enclave, why can?t you have a buyer?s enclave? They should be treated like a VIP. If those brands come and have a presence in Pakistan, it will really boost our exports.
For example, we were supplying to Sainsbury?s. One day, Sainsbury?s called my team from UK and said they will not be able to buy from us anymore. They told us that although we had the highest marks in this category and were one of the best performers, their board has decided that we are not going to source our goods from a country where we cannot travel.
BRR: How do you differentiate our commercial counselors/commercial attach‚s to counterparts in India and Bangladesh?
AK: As far as their competence and commitment go, there is nothing wrong with them. They need the proper direction, tools, and resources to tap those accounts. Sometimes a commercial counselor doesn?t have that profile to go and meet the president of Sainsbury?s or Tesco or Disney or Wal-Mart. You might need your ambassador or commerce minister to go there; to invite them, call on them, and market as a country. The target for Commerce Ministry should be to bring 50 big brands to Pakistan.
BRR: Do you think cost competitiveness is an issue in our declining exports?
AK: Yes. In textile, the biggest cost after raw material is energy. You can have this energy produced by either gas, electricity, or burning. For example, in my processing area I have three kinds of energy resources: I need electricity to run my machines, steam to wash my cloth and heating for certain purposes. I make my electricity either from gas or I buy it from WAPDA.
The industry pays 100 percent of what it consumes from WAPDA. Yet, the government is imposing Rs 3.6 surcharge as theft surcharge. The cost of electricity is Rs 10 plus Rs 3.6 surcharge which other sectors are stealing. Why should I pay for somebody else?s theft? And when I will pay for that, I will put it in my cost. Why would Wal-Mart pay for that? How does that make me competitive?
The government asked me to put up coal steam boilers because there was no gas. I already pay 30 percent of the cost to bring the coal from Karachi to here and then when the whole of Faisalabad put up coal plants to make steam, they put duty on it.
In our factories, we have put up power plants three times. First, they asked us to put power plant on diesel, then they gave a policy that you should use furnace oil because they reduced the duty on it. Now they said gas will be available to you and then one fine morning, there was no gas for Punjab.
BRR: Tell us about the issue of refunds. Are you cash-strapped? Is it hindering your business?
AK: Of course. Today, 30-35 percent of our equity is stuck up in refunds, because for one year they have not paid us our sales tax.
There is no tax on an exporter as a sales tax. We were a collecting agent. They did a very good thing that from July 2016 they made us zero-rated. Still, the packaging material that you buy will be subjected to sales tax, no refund.
On a macro level, Pakistan is doing well and has seen industrial growth, but only those industries which are protected and pampered. You say power companies are doing really well. Why? You give them an upfront tariff of 17 percent. They are guaranteed a 17 percent return in dollar terms whether they produce or not. You say banking industry is doing really well. Where in the world is there a spread of six percent? Government is giving protection to banking, fertilizer, and automobile sectors. I am not against their protection. I am against the fact that on my sector, you are charging surcharge of theft done by others; you are making me a withholding agent and not paying my money back after one year. In China, it is refunded in seven days; my refunds are stuck up for 14 months.
I don?t have customers coming here because of law and order situation. I have to travel; at this time, three of my teams are traveling in different parts of the world. One is in Spain, one in Primark in Dublin, and one is in the US for my garments. I am paying for all of this.
BRR: Have you gone through any expansion in your textile business?
AK: Yes, we have just put up one more weaving unit using the facility of Long-term financing. That?s for our exports.
BRR: Is your spinning unit catering exclusively to your own use or are you giving it to the market as well?
AK: We mostly use it within the company. We buy a lot of yarn also as our spinning capacity is much less than our consumption.
BRR: Tell us about the company?s growth. What were your exports five years ago and what will your exports be five years down the line?
AK: Five years ago, exports were half of what they are today. We doubled in five years and if things are right, we can double it again! We have the capacities available. We need the resources; we need only our money should be paid back to us and the incentives that the government announced should be given.
BRR: How much of your installed capacity is being deployed?
AK: We are 20 percent under-utilized.
BRR: You have room to develop it by 20 percent, but you plan to double exports. Are you planning for that expansion?
AK: I am not planning anything per se, because I am not seeing a good opportunity for textile. I have been advised not to invest in textile anymore and divert to other areas.
BRR: Do you think that in CPEC, the Chinese would go back to the value-added industry within China after importing from here?
AK: It?s a very simple calculation. The freight for bringing in a 20-feet container from China is $2500-3000. If you want to send a 20-feet container back to China, it?s $30. That shows how many goods are coming from China.
When you are bringing in the container from China, they are charging you the freight for coming and taking the empty container back. That is your parity with China. What you are going to sell to China? You think that your productivity and labour cost is less? I have in my small factory 32 security guards. In China, a factory 100 times bigger than mine doesn?t have one security guard.
Business is done on competitiveness. Customers come to you when you are competitive.
BRR: When did you come into the retail business? Your brand is So Kamal. What do you make?
AK: Three years ago. We are concentrated mostly on lawn for women, stitched and unstitched. We have 25 stores ? we are present exclusively in Punjab.
BRR: How much of your revenues from retail are in proportion to your exports?
AK: Just three to four percent.
BRR: Where do you see that in the future?
AK: Depends on government policies! No retailer is making money right now. No one is expanding. Retail business is suffering because of the smuggled goods; just go to any local market and see how much fabric is from here and how much is from China. It?s a musical chair ? the brands are coming up, and non-branded goods are going down.
Before, there were non-branded sales. Now, the manufacturers are selling directly themselves because they are coming into retail, so you are seeing the brands: Sitara, Five Star, Gul Ahmed.
BRR: How many stores do you see by 2020?
AK: The growth in the business always comes with profit. If there is going to be profit, I?ll grow. We have 25 stores but now we are stagnant for the last six months. With CPEC and new developments, we are very cautious. We don?t know what is going to happen to the market. This country is becoming a trade, retail, import-oriented country.
At the moment, my retail is based on my own manufacturing. Many tiles manufacturers here, they have built their brand, but now they?ve closed down manufacturing and are bringing in tiles from China and selling under their own brand. Many shoe manufacturers are doing this as well; they were manufacturing here, but now they?re just importing from China.
If my manufacturing will stay competitive, my retail business will be increasing. If my manufacturing business will not stay competitive, my retail business cannot increase. This is the strategy for my business; I am not an importer and retailing it over here. I don?t bring anything to my retail shops which I don?t manufacture myself.
BRR: Do you think the current policies are business-friendly?
AK: Policies are very good, they are not implemented. They are business-friendly in the books. I don?t know who is responsible for non-implementation. When I meet the government officials, they look very positive.
BRR: Is sticky currency having an impact on your exports?
AK: When there is an ego involved, it is bad for business. Currencies in the world are rated with the market forces. Either you are a free economy or you are regulated. My father told me once that if you lie three or four times, you start believing it?s the truth.
When the Euro came down from $1.40 to $1.10, the whole world depreciated their currencies. Why did we not? With one rupee, with $70 billion of borrowing, you get a deficit of $700 million! If you do not devalue, you have to give some sort of support to your exports. One percent of devaluation is equal to five percent of rebate ? $700 million. They have realised it after four years, they have given the policy of DLTL, but let?s see if they implement it.
BRR: So Kamal is not into home textile retail. Why?
AK: We have it but it?s not our bread and butter. It is not a trend in Pakistani retail generally speaking ? Gul Ahmed, Al-Karam, they are also home textile retailers, but the percentage of home textile in their retail is very low.
BRR: What is the rent-to-sale ratio in order to be viable?
AK: It should be 1:10. Rent should be two to three days of your sale. Rents have gone very high. I have seen 1:5 and 1:6, and I don?t think those brands would be doing too well.
BRR: How much of your retail is online?
AK: It?s increasing. It?s about ten percent.
BRR: Twenty years from now, how do you see your retail growing? Currently you said it?s 3-4 percent of your revenues.
AK: Retail will be 10-15 percent.
BRR: What are your margins like?
AK: The margin in textile is usually 3-5 percent.
BRR: What about on your exports?
AK: It?s the same ? 3-5 percent. It?s the turnover that matters. Just look at any brand: look at Zara, look at target.
Copyright Business Recorder, 2017