"Aiming to offer one-window solution from red meat to white meat," CEO, Al-Shaheer Corporation

Meet Kamran Khalili - the man behind the formation of Al-Shaheer Corporation. He envisioned, took the initiative and started his own halal meat processing company from scratch, which is now the largest exporter of meat.
After gathering an overwhelming response from international exports, Mr. Khalili felt the need to pass on the benefit to local people with export quality meat products. It was due to this vision that he decided to introduce a concept meat shop in the local market by the name of Meat One.
Prior to Al Shaheer, Mr. Kamran was the member Karachi Stock Exchange for around 10 years and served as the CEO of Fortune Securities (Pvt) Ltd. He has also worked as Investment Banker in Muslim Commercial Bank, Pakistan.
Following the tremendous response in Al-Shaheer's book-building process, BR Research met Mr. Khalili on Friday to delve further into company's plans, its current market standing, the industry dynamics and its potential in the domestic and international markets. Below is the edited transcript of the conversation:
BR Research: How was the response in book building?
Kamran Khalili: Book building has now been closed; the interest was across the board including foreign funds, almost all leading institutions, high net-worth individuals, local corporate, and members of Karachi Stock Exchange.
While the floor price was set at Rs43 per share, the strike price came around Rs 95 per share, thereby resulting in an oversubscription of approximately three times.
BRR: What was the proportion of foreign and retail investors in the book building process?
KK: The share of foreigners was about 10-15 percent, whereby local institutions had a share of around 35-40 percent, and nearly 50 percent were high net-worth individuals and members of Karachi Stock Exchange investors
BRR: Give us a brief introduction about Al-Shaheer and its business model.
KK: Eight years ago, Al-Shaheer was formed as an outcome of a partnership concern. Later on, it became a private limited company and now becoming a public listed company by being listed on the stock exchange.
In the initial days, our principal focus was on export of fresh meat. But then, five years ago, we realised that all the good quality meat gets exported whereby locals and consumers are left with no option but to depend on butchers. So we thought there is a potential in the market and locals should be offered clean, hygienic meat. This thought of offering fresh, hygienic meat to locals led to the formation of Meat One! Later on, we realised that Meat One targets a limited market and hence the scalability is restricted.
SEC-A - the social economic sector - is our target audience for this brand. The response is great in this segment but the issue was that its branch could not be opened in every other area or lane of the city.
Hence, we came up with another brand with the name of "Khaas" - a low cost model - whereby its outlets are opened alongside butchers. Under Khaas, we sell the same quality meat at almost five percent premium. It is a low cost shop with a lean model consisting of 2-3 employees, where you can get the meat cut in front of your eyes. So that is another audience which is phenomenal. And its scalability is that in every corner of the country where meat is being consumed, Khaas can be provided.
We are planning that in the next three years, we will open 150 shops nation-wide of Khaas and 50 shops of Meat One, thereby adding a cumulative number of 200 new shops. At this point, we have a network of 45 shops including both Meat One and Khaas. By June 30, 2016, we will have 60 new Khaas shops and at least 20 more of Meat One outlets, thereby adding a total of 80 shops in this year. Based on this, we will hopefully have 125 shops by the end of 2016 with nation-wide reach.
BRR: How much pricing premium is being charged under the Meat One brand?
KK: Broadly speaking, pricing difference is about five percent. But if you compare the prices of Meat One, it looks 15-20 percent more expensive at first sight. This difference is owing to the fact that we sell trimmed meat, whereas at the roadside butchers, you get the meat, get it trimmed, and then it gets packed. During this process, you end up wasting 15 percent of the meat that nobody ever accounts for. In other words, you end up paying for one kilogram to the butchers and at the end of day you take home only 850 grams.
We carried a campaign at Meat One that ran as Meat One kilogram is always a full kilogram, so if you pay for one kg, you get a kg. The weight is constant and it is trimmed. While at butcher, you get it trimmed and hence the weight you get is lower.
We keep doing campaigns but as we get scalability and nation-wide presence then we will be able to market aggressively. If you go to any supermarket in Middle East, you will find our meat which is of same quality; it is internationally certified and the whole world is consuming it. Then my question is: Why not Pakistan?
I regret that all good quality rice, mangoes, which are Pakistani produces, gets exported and local consumers are left at the mercy.
BRR: But even then, your focus is on exports as export revenues make up over 75 percent of the firm's top line.
KK: Going back five years from now, this was at 100 percent. So exports have now diluted from that level over time. Within the next two years, I am expecting the mix of export and domestic sales to be at 50:50. Ideally, my target is to bring export and retail sales at the same level.
BRR: What is more profitable; exports or retail sales?
KK: Profit margins are higher in retail, and retail is a cash business. The margin in retail is somewhere around 9-10 percent whereas it is around 5-6 percent in exports.
BRR: What are your competitors' margins? Are you ahead of them or at par with them?
KK: In terms of competition, we have no competitors on the retail side. My competitor is butcher and I don't compete with him.
On the export front, there are competitors but I am earning better margins than them. Reason being: 1) I have firm contracts of the supplies 2) we have agreements with airlines 3) we have block spaces agreements with all major airlines where we book spaces at the start of year and 4) we have volumes so we get preferential rates hence we are able to save on that side.
BRR: Can you shed some light on the competition in the export market. Also, what is your market share in terms of exports?
KK: We are doing around 17 percent of total exports in fresh meat business and we are the largest exporter of meat. For the past 5 years, we have been securing the export performances award that Prime Minster grants every year.
There are around 14 other players. While 17 percent share is retained by us, the rest is divided among 14 other slaughter houses, so around six percent on an average is retained by them.
BRR: And what is your market share on the retail side?
KK: It will not be even 0.01 percent. Retail market is of Rs 1.25 trillion and I believe it is the biggest market share of meat in food sector.
Considering that meat is a big-ticket item used in cooking compared to oil and other spices, there is no player here; it is a virgin market. Even if 10 more players like me enter the market, market won't get hurt. In fact, the reach will increase, it will be easier to educate the masses, market size will increase which will be healthy for the market in the end.
BRR: Do you have your own plant for processing? If yes, what is the capacity?
KK: We have our own state-of-the-art facility that is at Gadap, ranging over 20 acres of land. Slaughtering and processing is done over there. And we have our own cold chain and in-house lab consisting of doctors. We can produce 80 tons of meat every day.
BRR: A new player is likely to enter the market soon. Will it hurt your market share?
KK: I believe it will be healthy for the market. If good players enter the market, it will help the industry grow rather than hurting existing players.
BRR: In terms of exports, which countries are competing against you?
KK: Nobody is competing with us! The reason is that Pakistan is the only producer of beef in the region. India has ethical issues, it produces mutton but not beef and slaughtering and export of beef is banned in the country.
So whoever wants beef in this region, Pakistan is the only source for them. And that is the strength of our country. Whatever is exported from Pakistan, 80 percent is beef and 20 percent is mutton. So clearly, the demand of Pakistan is in beef and we have an edge in this on other markets. Talking about goat or lamb, there are other producers as well but in beef there is no competition.
Pakistan has a monopoly here. I think, for a country like Pakistan which is an agri-based economy, the name of the game will agriculture going forward. It is our strength and dependency of the masses is on it. If agriculture improves, agri-yields will increase which can alleviate poverty as farmers will get a better standard of living and hence people at grass root level will be able to make money. Also, with the generation of business, it results in CSR.
In my opinion, Pakistan can do miracles. And this government seems to be very interested in fostering this area; they have also done many good things for the market. Like previously, Pakistan used to export livestock animals in massive quantity, the government has now banned it, which is a very good initiative. Due to this, local industry grew, price became competitive and rather than exporting live animals, we are exporting value added products. Consequently, Pakistan will be able to make more money, more dollars will come in. Also, in budget many incentives have been provided to the food and agri-sector
So going forward, a lot of potential is present. New entrants have a very good opportunity to capitalise on the growing potential.
BRR: What is your unique selling proposition?
KK: On the retail side, it is hygiene and quality. Meat One's model is a self service shop; anybody who goes there will get the same quality meat. Besides, it offers convenience, home delivery, and is opened seven days a week. On top of it, it provides 100 percent money back guarantee even without receipt if the customer is not satisfied.
BRR: What is done with the by-products?
KK: We sell our by-products to the secondary market for further processing. We have long-term contracts with them. They add value to it and subsequently it is exported.
BRR: What are your future plans?
KK: We will be setting up a slaughter house in Lahore for red meat. Besides, we will also be setting up a chicken slaughtering line and a further processing line. So we will end up having one window solution from red meat to white meat. We already have outlets and shops, our brand is established, we have captive customer which is an edge. Chicken market is twice the size of red meat and processed meat is also exported. Export has potential and local chicken has a huge demand and its growing. So we will start chicken in Lahore.
BRR: What are your plans with regards to the frozen meat business?
KK: We have a frozen meat facility and hopefully from next quarter we will start exporting frozen meat as well.
BRR: What is the potential of frozen meat?
KK: To me, it has limited potential because it is inferior meat than fresh meat. Its consumption is of industrial use, and not for retail. Households don't prefer frozen food for cooking purpose in daily use. Secondly, Brazil and Europe export frozen meat. Euro has gone down massively due to which European meat has become very competitive. Compared to them, Pakistan's frozen meat is too expensive and I think it will be very difficult for anyone to do a sizable business to compete in this market.
BRR: What top line and bottom line growth is being targeted for the next five years?
KK: In terms of sales, our compounded annual growth for the last five years has been over 30 percent and we hope to continue that. Profitability will definitely improve; with money coming in, efficiencies will go up which will further bolster our margins. And accordingly, we will be able to deliver consistent growth in both top line and bottom line in coming years as well.
BRR: Why is there a sudden jump in your debts?
KK: Nothing is long-term; it is just that our working capital has been financed. We buy on cash and sell on credit. Credit is of 30-35 days.
BRR: Would you like to give any message to the readers?
KK: I would like to thank all the investors who trusted us. I hope it turns out to be a great investment and in the long-run (say 3-5 years); the company will do very well. Allah has been kind enough throughout these years of our operations. From our side, we will try our level best to work with all honesty to maximise shareholders' wealth.