The growth of the “billion dollar club” in Pakistan
While there is currently no Pakistani corporate colossus that spans the globe, and certainly no Pakistani equivalent of Tata Sons, many Pakistani companies appear to be growing in size and are reaching the stage where they may begin to consider global expansion. The growth in size of some of these companies is also likely to have a significant impact on the economy as a whole.
In this special report, The Express Tribune takes a look at the 19 companies that are part of the “billion dollar club”, companies that have reported more than US$1 billion over a financial year. We have taken revenues net of any sales taxes or federal excise duty, unless such a number was not available, in which case we have simply taken the number reported by the company on its financial statements.
We recognise that revenues are by no means a perfect measure of looking at how big companies are. But given the relatively small size of Pakistan’s public equity markets, we felt that many other measures – such as profits or market capitalisation – would provide too narrow a picture of the economy since such information would not be available for a large number of companies.
For the exchange rate, we have used the average interbank exchange rate during the financial year ending June 30, 2012. We recognise that the dollar is currently trading significantly higher now than it did last year, but we decided to use the exchange rate that corresponds with the period under consideration.
For banks, we have used their net interest income – before taking into account any impact of loan write-offs and provisioning for bad debts – and added their non-interest-based income.
We have also not included any conglomerates that do not have a unified holding company that releases public data. So, for instance, the Nishat Group does not make the list because there is no single holding entity, but instead a series of interlocking ownership between the companies, owned ultimately by Mian Muhammad Masha and his family. Were it a single company, the Nishat Group would most certainly be part of the billion dollar club.
We have also excluded such conglomerates as the Atlas Group, which does have a unified holding company – Shirazi Investments – but does not report its consolidated financial information publically. Were that data available publicly, we estimate that it would easily qualify to be part of the list.
Nonetheless, the list we have compiled is a remarkable one and tells the tale of what has been going on in the Pakistani economy. The most noticeable element of the billion dollar club is just how many of them are state-owned, and how a disproportionately large number of them are in the energy sector. Indeed, all but three of them are energy companies and eleven of them (more than half of the list) have substantial shareholding – in most cases the majority – by the government of Pakistan.
And this list does not even take into account the many government entities that are part of the energy chain, but for which no reliable data is available. The best estimate we have been able to get is for the National Transmission and Dispatch Company, which reportedly had revenues of nearly $5.5 billion.
The picture painted by the billion dollar club is a decidedly unhappy one: where the largest companies in the country are mostly state-owned, and operating highly inefficiently, compared to their private sector counterparts. Many of these companies are, at least in theory, up for sale, though the current administration, led by the left-leaning Pakistan Peoples Party does not appear to be in the mood to revitalise the privatisation process.
The energy sector typically does have higher revenues than most other sectors, and similar lists compiled for developed economies also yield lopsided results favouring energy, particularly the oil and gas sector.
Yet the dominance of state-owned companies on this list represents the outsized role played by the state in creating large-scale industries in Pakistan. This is a pattern of development that has historically been adopted by other countries too. Some of the largest companies in Brazil and Mexico, for instance, are still state-owned.
But in most cases, governments have unlocked the massive untapped economic potential of these slumbering state-owned giants by eventually privatising them. Pakistan has certainly experimented with that technique, to a considerable degree of success. The banking sector went from being overwhelmingly state-owned to overwhelmingly private-owned and has gone from needing bailouts every year to being one of the biggest taxpayers in the entire economy.
The energy sector, however, appears to be one area where the government refuses to let go, retaining control over nearly all of the electricity supply and most of the oil and gas exploration and distribution systems in the country.
This is not to suggest that there is no private-sector presence in the energy sector. Three of the 19 “billion dollar” companies are part of the Attock Group, a private sector energy conglomerate owned by Saudi billionaire Ghaith Pharaon. The largest electricity companies – the Karachi Electric Supply Company and the Hub Power Company – are both mostly owned by private investors.
The only two private sector non-energy companies on the list are the Engro Corporation and Pakistan Mobile Communications. Engro is a large industrial conglomerate with interests in fertilisers, food, petrochemicals, energy, chemical storage, and commodity trading. PMCL operates under the brand name Mobilink, the largest mobile services provider in Pakistan.
Nonetheless, while the billion dollar club illustrates where this economy has been – a large dominance of the state in capital-intensive industries – our “near billion dollar club” list shows where this economy is going: a place where global and local companies compete for an every greater share of the rising middle class consumers’ pockets.
The Billion Dollar Club
1. Pakistan State Oil Company
Revenues: $11.57 billion
Joined club: Before 1986
Pakistan State Oil is the largest oil marketing company in the country, with a 67% share in the retail fuel market. It is owned by the government of Pakistan and was established in 1976.
2. Pak-Arab Refinery
Revenues: $3.00 billion
Joined club: 2000
Pak-Arab Refinery (PARCO) is the largest oil refining company in the country. It was set up in 1974 as a joint venture between the governments of Pakistan and Abu Dhabi.
3. Sui Northern Gas Pipelines
Revenues: $2.52 billion
Joined club: 2004
Sui Northern Gas Pipelines is one of three gas distribution companies in Pakistan, with mandate to supply gas to Punjab and Khyber-Pakhtunkhwa. It is owned by the government of Pakistan.
4. Shell Pakistan
Revenues: $2.38 billion
Joined club: 2000
Established in 1928 as Burmah Shell, this company is the oldest oil marketing company in Pakistan and the second largest. It is the Pakistani subsidiary of global oil giant Royal Dutch Shell.
5. Oil & Gas Development Company
Revenues: $2.23 billion
Joined club: 2005
OGDC is the largest company in the country by market capitalisation as well as being the largest domestic oil producer. It is owned by the government of Pakistan.
6. National Refinery
Revenues: $1.97 billion
Joined club: 2005
The second largest oil refinery in the country by revenues, National Refinery is one of two refineries owned by the Attock Group, the largest private sector oil conglomerate in Pakistan.
7. Hub Power Company
Revenues: $1.97 billion
Joined club: 2009
Hubco is the largest private sector power generation company in Pakistan and originally established by French power companies. It is now owned in part by the Dawood Hercules Corporation.
8. Karachi Electric Supply Company
Revenues: $1.84 billion
Joined club: 2008
Established in 1912, the Karachi Electric Supply Company is the oldest utility company in Pakistan and the oldest company still listed on the Karachi Stock Exchange. It is owned in part by Abraaj Capital.
9. Attock Refinery
Revenues: $1.74 billion
Joined club: 2008
The third largest oil refinery in the country by revenues, Attock Refinery is one of two refineries owned by the Attock Group, the largest private sector oil conglomerate in Pakistan.
10. Attock Petroleum
Revenues: $1.72 billion
Joined club: 2010
APL is the second-largest private sector oil marketing company, with more than 350 retail outlets across the country. It is owned by the Attock Group, the largest private oil conglomerate in Pakistan.
11. Lahore Electric Supply Company
Revenues: $1.49 billion
Joined club: 2006
Lesco came into existence in its current form in 1994, when the government of Pakistan split up the state-owned power distribution company into regional groups. Lesco remains state-owned.
12. Pakistan Refinery
Revenues: $1.44 billion
Joined club: 2011
The oldest oil refining company in Pakistan, PRL is one of only two refineries that is still at least partially state-owned. It is set to become the smallest after Byco’s new refinery comes online in 2013.
13. Sui Southern Gas Company
Revenues: $1.38 billion
Joined club: 2005
SSGC is the second largest gas distribution company in the country, serving the populations of Sindh and Balochistan. It has remained state-owned since it was created in its current form in 1989.
14. Pakistan International Airlines
Revenues: $1.36 billion
Joined club: 2005
Founded in 1956, Pakistan International Airlines is Pakistan’s national flag carrier. This company is begrudgingly included in the billion dollar list, since its expenses vastly exceed its revenues.
15. Engro Corporation
Revenues: $1.29 billion
Joined club: 2011
It is one of the largest private sector industrial conglomerates in the country with interests in fertiliser manufacturing, food, energy and others. Its largest shareholder is the Dawood Hercules Corporation.
16. Pakistan Telecommunications Company
Revenues: $1.25 billion
Joined club: 2000
PTCL was once a monopoly provider of telecommunications services in Pakistan and is still the largest player by revenues. It is jointly owned by the government of Pakistan and Etisalat of the UAE.
17. Kot Addu Power Company
Revenues: $1.14 billion
Joined club: 2012
Kapco is the second largest power generation company in the country. It is partially owned by the government of Pakistan and supplies power to southern Punjab.
18. Mobilink
Revenues: $1.11 billion
Joined club: 2006
Formally known as Pakistan Mobile Communications Ltd, Mobilink is the largest telecommunication provider in Pakistan and is owned by Egypt-based Orascom Telecom.
19. Pakistan Petroleum
Revenues: $1.09 billion
Joined club: 2012
PPL is the second largest oil exploration and development company in the country and is majority-owned by the government of Pakistan. It was founded in 1950 as the subsidiary of a British oil firm.
Published in The Express Tribune, December 24th, 2012.
COMMENTS (21)
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@Kosher Nostra: Is US$ really loosing its sheen? Last time I checked (a few minutes ago) it was trading high against all major currencies including Yen.
@Asif: "Would be interesting to see Margins alongside their revenue. Afterall the value of a business is determined by its margin."
A large number of Karachi listed companies have reported record profits driving the KSE-100 shares index to new highs this year.
Middle class consumers with rising disposable incomes are spending. Indus Motors announced 57% jump in profits on record sales of Toyota Corolla cars. It was followed by Lucky Cement Ltd. (LUCK), Pakistan’s largest producer of the building material, announcing 71 percent surge in profits to a record as an increase in domestic sales offset a decline in exports. Pakistan Petroleum Limited (PPL), the country’s second largest oil and gas explorer, said its profits soared 30% to Rs40.9 billion in fiscal 2012. Strong earnings have also been reported by several big-name companies this year.
http://www.riazhaq.com/2012/08/strong-earnings-propel-pak-shares-index.html
Would be interesting to see Margins alongside their revenue. Afterall the value of a business is determined by its margin.
There is a circular debt issue in the power sector in Pakistan where a majority of these companies belong. Thus it would be interesting to find out how much of this revenue of these power companies was actually realized and how much of it is bad debt that will be never collected. Other commentators have also made some valid points which I would like to summarize: 1. Most of these are government companies which makes one question - is the persistent fiscal deficit crowding out private sector investment and growth? 2. When actual income is not realizable (due to circular debt issue), is income the best metric to evaluate success? Would net profit or market capitalization not have been better indices? 3. IF monopolistic or oligopolistic companies are the only ones showing revenue growth, what does it say about consumer's situation? 4. Energy prices have tripled in the past decade globally and income of Pakistani energy sector companies are automatically indexed to that. How much of this growth comes from increased generation or capacity utilization?
@Riaz Haq Your url did not support the claim that you were making in your post.
revenue cant be only indicator as they say " revenue is vanity and profit is sanity".
One of the reason is US paper dollar is loosing value due to QE Infinity.
@ Zeux
my point is- where are the engineering companies? Any Tom, Dick and harry can sell oil and Power. A countries caliber depends on the engineering industry- as rightly mentioned in the article (no equivalent of Tata Sons).
compare them with Indian companies. Coincidentally, this appeared in today's papers.
http://www.rediff.com/business/slide-show/slide-show-1-largest-firms-of-india/20121221.htm
@Zalim singh: Stop living in Mars. Oil and Power companies are expanding their network all over the world
How much tax paid by them? What is their contribution in the social sector how many hospitals and schools opened by these ?
Revenue is a good indicator but it doesn't necessarily reflect good health for a company. Profit is a better indicator.. half of the companies mentioned above are in dire conditions...
good one..
one common factor in the list (excluding Engro) is the direct correlation with the population (for Oil and Gas and Utilities).
any report that factors that in and shows only growth through business? new facilities? new markets?
Interesting - and the strong presence of state-owned energy companies in an energy starved nation is not really good news. As a comparison, there are 22 firms on the BSE with just net profit of USD 1 bn and more - total net profit of BSE firms is USD 71 bn (2011). Net profit or EBIT would be better indicators than topline.
The rise of big corporations and creation of millions of new jobs in industrial and service sectors has accelerated urbanization in Pakistan and contributed to increasing economic mobility and social change in the country.
http://www.riazhaq.com/2012/12/violent-conflict-is-part-of-pakistans.html
These companies are nothing but oil and power companies. Hardly the kind which will compete in international markets.