Khalid S. Subhani is the President of Engro Corporation Limited since 2015 and the CEO of Engro Polymer & Chemicals Limited until a new CEO for the company is announced by the EPCL Board.
He is a Director on the Boards of Engro Corporation Limited, Engro Fertilisers Limited, Engro Eximp (Private) Limited, Engro Polymer & Chemicals Limited, The Hub Power Company Limited and Laraib Energy Limited. He is Chairman of the Board of Engro Polymer Trading (Private) Limited. He has also served as Chairman of the Board of Avanceon in the past. BR Research sat with Khalid Subhani to discuss the company's future plans and strategies. Below are the edited excerpts from the conversation.
BR Research: How are things with the different arms of Engro Corporation? How challenging has been this year thus far?
Khalid Siraj Subhani: All our businesses are performing well. The commodity side of the business hasn't been great because of the slum in the international market. Businesses like polymer and some of the agri-commodities are suffering. Other than that everything is on the right track. We have recently completed our LNG project which is operational and is another achievement of this year.
BRR: Starting with the fertiliser, do you see the raw material prices going up?
KSS: Government has been working for quite a while on gas prices. Generally gas prices used to go up twice a year. It is expected that it might happen again. The gas prices were supposed to increase on July 1, which is officially conveyed to the IMF. The businesses will surely get impacted with the price increase although certain businesses may have the capacity to pass through.
BRR: Will it be a simple pass through then?
KSS: It all depends on the impact and the nature of that business. There are certain businesses in which you may not be able to pass it through and in certain businesses you may be able to pass it through. For example: in our polymer business the prices are set according to whatever is going on internationally. Specifically, for fertilizer business, if you look historically, that's how it has been happening. We will have to wait and watch the quantum of the increase.
BRR: How much have the urea prices gone up after GIDC imposition?
KSS: They have not gone up yet because we have a stay on 70 cents gas price and on our regular payments also we have gone to the court because we feel that both these issues should be resolved in tandem.
BRR: What is the status of the gas availability on the plant side?
KSS: Both our plants are running, not on full capacity but we are getting sufficient gas to run both our plans at minimum possible load.
On the KPD project, there is no substantial movement as such where proper allocation could be done on what will go to fertilizer sector or what will go to others. So all these various gas fields which are available are under discussion but as such there is no position as of now.
BRR: Moving on to Engro Foods which saw stellar returns of late, what made the margins jump so much?
KSS: Well, there was a lot of rehashing of the overall business, after a very good patch which we had. Some of it was because of our inability to take right decisions at the right times and some of it was because of international changes as well. So we have worked on both the aspects. The milk powder prices which all food companies import substantiate whatever they produce to meet the delta. They had gone down in international market which obviously contributed towards better margins.
BRR: Is this cost component that significant?
KSS: It is sizeable but it is not everything. Our internal marketing policies and philosophies were also re-looked at, and it's a combination of many things which happened over last one year.
BRR: Do you see things settling there or thinking of new business lines?
KSS: Look, food and FMCG are very dynamic businesses. You cannot settle with whatever you have all the time, you have to keep looking how existing business portfolios are performing and what you want to do in future. We are looking on all the possible avenues we can go in and trying to capitalise on whatever we have.
Food right now is predominantly dairy sector and that's where we are working on, as such there is no major shift taking place.
There is a lot of buzz surrounding meat business. We did a pilot on meat but it went unsuccessful so we closed it down, so we are not working on meat anymore.
BRR: How is the operations and procurement going on with LNG?
KSS: As far as the terminal goes, our responsibility was to do it in a minimum possible time within the cost and we did that in 300 days it was delivered and it's a world record that this type of facility is provided in such a short time. It was done timely and safely, no incidents of any kid happened and it is performing very well. So whatever gas is coming we are supplying it through our systems.
BRR: What is the progress on Thar project?
KSS: Thar is going very well. The work continues on all fronts. Mining has been started. A lot of progress has been made on power side as well, working very closely with all the agencies. We are planning very hard to do the financial close before the end of this year.
The total project cost, mining plus power is US $2billion and $1.1bn goes to the power plant and $0.9bn to the mining side. Chinese are on the mining side and on power side there are other consortium with which is on 49 to 51 ratio, the later is with the government on the mining side.
The way we are doing is that we are bringing in more partners into it so we form a consortium and there will be other equity holders as well. And we expect the financial close before the end of the year.
I am absolutely convinced that we are almost there, so it's definitely going to happen. I must compliment all the government agencies who really worked hard to make it happen along with Engro. Sind government especially they are the major stakeholders and they facilitated the whole process. So today, I think we are very close to make it happen.
All policy decisions are there right now. I am telling you with 100 percent confidence that before the yearend, there will be a financial closure on such a big deal and project.
BRR: On the Polymer side, are the margins still depressed?
KSS: There are two aspects to polymer business, one is the things which are in our control like running the plants, producing and maintaining efficiency because we had issues with polymer on these counts few years back and we have resolved everything. But international margins are very low, in fact if you look at the core margin, they are probably the lowest in last 9 years right now. So that's where we are losing out but it's a slump in international market, you can't help it.
BRR: Any new business lines the company is looking at right now?
KSS: The way we define our strategy now is that we have carved out few key areas, one is foods. The other is energy sector - power generation, LNG and Thar all fall in that domain and third one which we feel is necessary to develop is the staple side of the business. These are the three key pillars of our future strategies. All our investments will go in these areas until and unless something really exciting comes up. We are also working on a power project based on LNG right now. It's on the drawing board right now.
BRR: How big it will be and how soon can we expect it to come online?
KSS: It will be big in a sense that something around 250MW can be put in that range. We need to align that in accordance with the infrastructure available there because this plant will be in Port Qasim area. But there will be few issues because K-Electric will be an off taker coupled with few evacuation issues.
We have also gone abroad for the energy sector. We have already done a small project in Nigeria and we are doing another which is under implementation right now. So we are looking abroad in various sectors where we find opportunity to capitalise on our resources.
BRR: So do you think your energy or food side will take over fertiliser sector or you still think fertiliser will remain the flagship for Engro Corporation?
KSS: Within Pakistan, fertiliser is limited now. I don't see any further investments coming in fertilisers because of the raw material issue. So whatever business we have here we will try to keep that running but we are not writing off fertiliser as such and Engro fertiliser is looking for opportunities outside where we are looking for a country where gas is available at a rate where it makes economic sense to make investments or to get in any joint venture.
We have in this regard identified two to three opportunities in Africa and the discussions are going on. So that's how we are looking to expand our fertiliser business outside if not in Pakistan.
Comments
Comments are closed.