Case Study Nishat Group 172e2a

CASE STUDY NISHAT GROUP

Nishat Group is one of the leading and most diversified business groups in South East Asia with fixed/ current assets of over Rs.300 billion (US$ 5 billion), it ranks amongst the top five business houses of Pakistan. The group has strong presence in three most important business sectors of the region namely Textiles, Cement and Financial Services. In addition, the Group also has reasonable market share in Insurance (Adamjee and Security General), Power Generation, Paper products ( Nishat Shoaiba Paper Mills) and Aviation ( Phonix Aviation). It also has the distinction of being one of the largest players in each sector. The Group has a remarkable position in the market as good as any multinationals operating locally in of its quality of products, services and management skills. Mian Muhammad Mansha is the chairman of Nishat Group. He is a prominent industrialist and entrepreneur of the country. He is considered to be the main driver behind the phenomenal success of this group. Textiles Nishat Mills Limited, the flagship company of the group was established in 1951. Its annual turnover for the year 2009 is over Rs.17 billion (US$ 283 million). NML with the production facility of 270,000 spindles, 740 looms and dyeing & printing capacity of 7 million meters (7.65 million yards) makes Nishat the largest composite textile set up in Pakistan. Mansha’s family is playing a leading role in Nishat’s expansion. Naz Mansha wife of Mian Muhammad Mansha supervises eight factories that handle every phase of textiles -- from spinning and weaving to dyeing and sewing. She’s opened Nishat Linen in a swanky, five-story glass building in Lahore, one of three Nishat stores that feature sheets, tablecloths and aprons in exotic prints. Cement D.G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is the largest cement-manufacturing unit in Pakistan with a production capacity of 5,500 tons clinker per day. It has a countrywide distribution network and its products are preferred on projects of national repute both locally and internationally due to the unparallel and consistent quality. It is listed on all the Stock Exchanges of Pakistan. Furthermore, the Group has also set up a new cement production line of 6,700 TPD clinker near Kalar Kahar, Distt. Chakwal, the single largest production line in the country. Raza Mansha son of Mian Mansha is the chief executive of DG Khan cement.

Nishat Group acquired DG Khan Cement in 1992 under the privatization initiative of the government. Starting from the privatization, the focus of the management has been on increasing capacity as well as utilization level of the plant. The company undertook the optimization by raising the capacity immediately after the privatization by 200tpd to 2200tpd in 1993. Mian Muhammad Mansha had to face lot of violence and security issues at the time of taking over DG Khan cement factory, he was even fired at while visiting the factory from a close range he miraculously escaped the killing attempt. Instead of being scared he decided to open up jobs for the local people, started a school and hospital for the local people. This reduced lot of security issues in the area and resentment against him also subsided. Cement industry of Pakistan experienced growth of 15 % due to price war in the current year 2010 industry and export of cement was also flat. DG Khan Cement capacity utilization in the current year was 115 %. The biggest flood in the history of Pakistan has crushed almost everything that came in its way in the current year 2010. Flood water founds its way and moved through Punjab province and ended up with devastating damage in Sindh province. Huge loss caused to agriculture, housing, infrastructure and industrial set ups. Although correct damage assessment is underway but estimates are that losses would be in billions of dollars. This huge and wide spread damage is expected to affect the economy of the country in years to come. Although this natural disaster may turn into a great opportunity to build the infrastructure and residential of the masses which will provide demand stimulus for the cement industry. It is anticipated that reconstruction of road networks and infrastructure across the country will generate a new wave of economic activities for next few years. It is also expected to generate a lot of new job opportunities and number of industries will get demand stimulus for next couple of years.

Financial Services

Mission Statement of MCB Bank Mission Statement We are a team of committed professionals, providing innovative and efficient financial solutions to create and nurture long-term relationships with our customers. In doing so, we ensure that our shareholders can invest with confidence (End of Mission Statement) Muslim Commercial Bank (MCB) is one of the leading banks with a deposit base of about Rs.230 billion (US$ 3.8 billion). MCB with more than 1200 branches country wide is the largest private bank of Pakistan also operating Internationally. Since its acquisition, the management has improved its financial performance and now it is one of the most profitable banks of the nation.The focal point of Nishat Group is MCB, the best financial service provider in the country and Pakistan’s largest private bank. MCB has also managed to outperform the Karachi Stock Exchange, not bad going in a year in which financial services companies have been performing poorly around the globe.MCB has posted consistently high profits. MCB is also the first Pakistani bank to be enlisted at London Stock Exchange in October 2006 after attracting US $700 million worth of demand for its US $ 150 million GDR issue.MCB is considered to be best performing bank in Pakistan.MCB sold its 20 % shares in 2008 to one of the state controlled bank’s of Malaysia “Mybank “ first 15 % share for $ 700 million and another 5% for $ 300 million. In 2009 MCB delivered a profit before tax of Rs. 23.2 Billion ing a growth of 6% over last year. This growth is directly attributable to an increase of 14% in deposits, 21% in revenues and a tight control on expense base enabling the management to retain position of MCB as one of the most profitable banks in the country.

In 2009, MCB also delivered a superior return on equity of 27.4% and total assets crossed the Rs. 500 Billion mark. This performance is all the more remarkable keeping in view the economic & political challenges faced by the country during the past year. MCB fundamental belief is that a financial services company can only succeed if it meets it’s customers’ needs. If a bank can understand customers objectives then right products and services can be offered. MCB Bank is determined to maintain its leadership in the financial sector and is continuously innovating new products that will provide the high returns to its share holders. During 2009, MCB took several initiatives to bring Bank closer to customers. With the launch of MCB Privilege, MCB became the first local bank to offer a dedicated proposition for the affluent segment; to meet the growth and protection needs of their customers, MCB is providing ATM, SMS, online banking and Investment Products in many of their branches; to enhance transactional convenience for customers, MCB became the first Pakistani bank to launch mobile banking. These coupled with several other initiatives enabled the bank to continue on the path of growing customer base and profitability. MCB will continue to invest in branches in year 2011to make them more sales and service oriented. Through introduction of new sales and service model, MCB Bank is adopting Balanced Score Card approach for aligning its strategies. MCB intends to invest heavily on employees training as the management believes that no organization can deliver without investing in its employees. In order to consistently deliver the expected high growth targets, MCB will have to further strengthen the present reserve of human resource. MCB is working on improving internal processes and controls to avoid any banking frauds and mismanagement. Special attention is being given to improve financial risk management. Bank is worried that present textile crises may result in loan defaults by some of its customers. CSR activities and corporate governance processes are bit weak and need to be strengthened. Adamjee Insurance Company Limited (AICL) was incorporated as a Public Limited Company on September 28, 1960 and is listed on all three stock exchanges of Pakistan. The Company is also ed with the Central Depository Company of Pakistan Limited (CDC) and is involved in the business of general insurance. The Company commenced operations with a Paid-up Capital of Rs. 2.5 million, which has grown phenomenally in the past 5 decades. As of 2008 the Paid-up Capital of the Companyis Rs. 1.022 billion, which is the highest amongst all the General Insurance companies in Pakistan. AICL enjoys a competitive edge in the insurance industry due to its strong asset base, paid-up capital, substantial reserves, balanced portfolio mix and steady growth in gross .The company made Rs. 2.5 Billion net profit after taxes in year 2009 which was 218% more as compared to 2008.

NISHAT GROUP Mian Muhammad Mansha was born in Lahore to a wealthy Chiniot family, his privileged upbringing allowed him to enjoy an early business education at top university in London. His father died in 1969,Mansha then 22 negotiated with his uncles for Nishat textiles mills located in Faislabad and sacrificed financial stake on factories located in East Paksitan. At that point in history he was known in the family as a weak negotiator who could not stand for his due rights. In 1971 his uncles lost all their properties when Bangladesh was created, his critics in the family were stunned by his long term vision. Mansha became CEO of Nishat Mills, which today has the nation’s largest textile processing and sewing facilities and has several top American brands like Gap Inc. and Sears Holding Corp. as customers. As Mansha grew as a textile entrepreneur, Pakistan’s banking industry was in government hands. Banks were facing huge losses because of bad loans to politicians. It was decided by the ruling Government that state run Banks will be privatized.

Mansha and 11 other entrepreneurs formed National Group in 1991, which won the right to acquire Muslim Commercial Bank, today’s MCB. Their bid was the third highest of five. Even so, Nawaz Sharif’s government chose it as a winner. Mansha recalls the incident clearly. “When we bid for this bank, somebody else also bid much higher than us, a person with dubious reputation,” he says, without naming anyone. “He probably had no genuine intent. He just wanted us not to buy the Bank and disrupt the process .” Mansha says he didn’t have ties to Nawaz Sharif. “People think that we bought a lot of things during Nawaz Sharif’s time and that I am very close to him,” he says. “I have never met Nawaz Sharif, one to one, in my life. I have never met Mr. Zardari in my life other than at one wedding. I never met Benazir Bhutto. I have never bribed anyone.” When MCB Bank was readying the sale of $150 million of global depositary receipts in June 2006, the Karachi index tumbled to a seven-month low. Top executives of MCB has urged postponing the sale. Mansha pushed ahead, saying the drop would be temporary. The bank got offers for $707 million of GDRs, more than quadruple the amount available. At MCB, Mansha made decisions that sometimes went against his executives’ advice, says Farid Khan, director for equities at Credit Suisse Pakistan Ltd., “Maybe it’s his intuition, his vision, maybe his good luck, but one learns to respects his decision-making ability,” Khan says. Mansha can be ruthless, according to one analyst. With MCB, “after he got control, he didn’t spare even friends and family who were defaulters,” He even turned down a loan request from a childhood friend, which strained their relationship. In 2007, MCB chief executive and president, Muhammad Aftab Manzoor, who had been at the top position of the bank for seven years was fired and given 24 hours’ notice to pack his bags and leave". This created lot of tension in the Bank because lot of people felt that Aftab Manzoor was fired for resisting sale of shares of MCB to foreign banks. Mansha monitors each Nishat Group company by talking with 20- 30 managers a few minutes every day. “You could be hanging from a thread off a cliff, and he’ll let you be, but he won’t let you fall,” says Ahmed Jahangir, a nephew of Mansha’s who oversees Nishat Mills’ textile business as executive director. The boss knows the bottom line by staying in touch through random calls. “A bad month or a good month, he doesn’t have to be told,” Jahangir says. “He knows exactly what’s coming.” Mansha says he personally makes key strategic decisions, such as choosing to sell the MCB Bank stake of 20 % to a state-controlled lender in Malaysia rather than to the public companies in Europe the bank had considered. Overnight, the deal turned MCB into a big player in the fast-growing Islamic banking and Islamic finance markets – key areas of growth for Mansha and his flagship lender. But that is just the start. With the backing of Maybank’s extra capital and Islamic finance skills – and with many lenders under the cosh because of the credit squeeze – Mansha and MCB are aggressively pursuing undervalued foreign banking assets. "Alongside Maybank we are putting together a business strategy that will expand our customer base in many countries – Russia, central Asia, the Middle East and Africa," says Mansha. "We are even looking at acquiring a bank in either of Europe or the US. We intend to buy a bank in Indonesia. Maybank has more capital and better technology but we have 7.5 million Pakistani expatriates living all over the world, and we have already applied for a banking licence in Toronto. We have a budget of around $1 billion to buy a bank as far afield as Brazil, and we are looking at potential banking acquisition possibilities in the likes of Kazakhstan.

Aqeel Dhedhi a famous trader in stock market says “Nishat Group is one of the best-run groups in Pakistan.” Mansha’s wider ambitions for his group is in from power production to agriculture. “The future of the world will belong to whoever can harness energy and food,” says Mansha, who’s been buying land for a new business of largescale farming. Agriculture is the biggest job source for Pakistanis, ing for 44 percent of the labor force and 21 percent of GDP in 2007. If yields of major crops -- wheat, sugar cane, cotton and rice -- match Egypt’s in five years, Pakistan may add 11.5 percentage points to its annual agricultural GDP growth and 2.4 points to total GDP growth. Nishat Group has grown during six decades of turbulence. If Mansha can expand with the economy in shambles and a new government struggling with violence and corruption, he may provide a model to help Pakistan’s companies -like their neighbors in India -- move onto the world stage. Yet Mansha remains upbeat. "I’m very optimistic about Pakistan’s future," he says. "There are external problems afflicting us but there are lots of misconceptions about the country." He believes the best way to pull Pakistan from terrorism, and to boost a slow economy, is to create more jobs and prospects for young people by throwing open its borders, particularly those with India. "I say let them India come and invest with us. I’m one of the few Pakistani entrepreneurs who believes the best way to expand is to open our borders with India. There are people here, who are afraid of competition from over there, but our ports are cheaper for them at least – we have ports that are much quicker, with better infrastructure, and much cheaper, than India. We need a bigger market and more competition and they need the same." Atif Bajwa, President and CEO of MCB reportedly has declined to take another term with MCB in July 2010 amid a noise in the market that the Mr. Mansha is not happy with large losses (Rs2.5 billion) that the bank is incurring on consumer financing. For the interim period a retired banker M.A. Usmani has been given the position, while there are reports that the board might opt for an internal promotion from with in the bank. Mansha stated that he prefers conventional approach on the financial sector and would not encourage extremely aggressive strategies on this sector as bankers need to be careful as they handle the depositors’ money. High profile US delegation led by David Lipton, senior economic advisor of President Obama met Mian Mansha in his office in the June 2010 and discussed how US can contribute in the development of the country and its infrastructure. The delegation discussed the possibilities of opening state of Art University in collaboration with Nishat group also. Mansha has proceeded to venture into new terrain, executing deals with state-owned WAPDA (Water and Power Distribution Authority) to sell excess power capacity installed at Nishat's various facilities. This led to the founding of Nishat Power, which is now going from strength to strength his son Qasim Mansha also laying important part in his decisions.Nishat group acquired AES Lal Pir and AES Pak Gen from AES Corporation of USA.This particular transaction was declared as the best 'Project Finance Deal-Asia' by 'The Asset' in December 2009. AES Lal Pir and Pak Gen are power plants located in Muzaffargarh and were established in late 1990 under 1994 IPP Policy. The generation capacity of these two units is 727 MW. The technology used is state of the art steam turbine technology. The acquired plants are managed, controlled and run by an excellent and dedicated team of professionals. In this acquisition Nishat Group and Associates own 50 per cent of the shares whereas Abu Dhabi Investment Council (ADIC) which is owned by the Government of Abu Dhabi acquired 30 per cent and City School 20 per cent. With this acquisition Nishat Group has become a major energy provider within Pakistan, generating over 1200 MW excluding Captive Power and playing a significant role in supplying much needed electricity to WAPDA and PEPCO.

Nishat Group and its consortium are optimistic about the future of energy sector in spite of the present concerns over circular debt and is totally committed to build upon and expand its generation capacity within Pakistan hence playing its due role to reduce the energy shortfall and particularly providing affordable energy to PEPCO for distribution.