Outside the box: Chenab raises $20m capital from European investors

ChenOne owner plans to expand its presence in the domestic retail market with “House of Chenab” chain.

FAISALABAD:

Having been rebuffed by the Pakistani banking sector, Chenab Ltd – one of the most vertically integrated textile companies in the country and best known for its “ChenOne” retail brand – has managed to raise $20 million in working capital financing from investment firms based in Europe and Dubai.

In an interview with The Express Tribune, CEO Mian Mohammad Latif sounded upbeat about his own company’s prospects, even as he acknowledged the difficulties the firm had run into over the past few years, when it has seen its revenues decline by about 50% during 2011 compared to the previous financial year.

“The biggest problem we had been facing is a shortage of capital,” said Latif. “We did not have enough cash flows to run our factory at full capacity, so it has been running at 30%. We hope this agreement [with the foreign financiers] helps us turn the company around.”

Chenab Ltd is the export-oriented textile manufacturer of the Chenab Group, which is a vertically integrated textile group that stretches from spinning ginned cotton into thread all the way to operating retail outlets under the ChenOne brand – a chain of 18 department stores across Pakistan and parts of the Persian Gulf. The company also owns the Pareesa brand of women’s lawn clothing.

The shortage of capital has forced Chenab to work only with buyers who are willing to make advance payments, which has dramatically reduced the scope of its market. For the first six months of the financial year ending June 30, 2012, the company saw its revenues drop by an even further 43% in addition to last year’s 50% drop. The company made a net loss of Rs623 million, which was less than the losses made in the same period last year.

Latif claims that once the company overcomes its working capital constraints, it will be able to earn export revenues of up to Rs20 billion. During 2011, it earned Rs4.4 billion in revenues.

According to the company’s latest available financial statements, Chenab Ltd has close to Rs10 billion in debt, most of which is from banks, though some of it appears to be private placements of debt from high net-worth individuals.

Latif says that the high interest payments on that debt have been a crushing burden on the firm, which led him to turn to foreign investors for financing, especially since local lenders appear to no longer be willing to provide capital to Chenab. Yet the company’s financial statements also show that it is operating on negative gross margins, which means that it is not able to sell its products for more than what it costs to make them.

Chenab had tried to attract foreign investment in 2010 as well, though that deal fell through. Company officials blame the State Bank of Pakistan for not providing guarantees to the foreign investors, though they did not specify what types of guarantees they were seeking.

Expanding retail business

The retail business appears to be what is keeping the Chenab Group afloat thus far. “ChenOne is running very successfully and giving us good profits,” said Latif. “We have a policy of adding at least two new outlets every year.”

The company appears to be focused on further diversifying its reach within Pakistan’s retail sector. “ChenOne stores are for the middle and upper middle class. We are now planning a new chain of stores to be called The House of Chenab that will target the lower middle class,” said the CEO.

Out of textile?

Ultimately, however, the company that has been in the textile business since 1975 is looking at options beyond the industry and carefully looking at agriculture and the livestock business.

“Our family has an agricultural background and we still have some agricultural land,” said Latif, whose family owns most of the firm. The group is looking at expanding into the production of fruit juices as well as selling fruits and vegetables in its retail outlets. “We will also establish ChenOne Grocery.”

Published in The Express Tribune, April 6^th, 2012.