The share of the Organic Meat Company, Pakistan’s second largest meat exporter, hit its upper limit on Monday, rising by 7.5% of its opening value shortly after the stock traded for the first time on the Pakistan Stock Exchange since its listing on the bourse last month.
The trading in TOMC’s shares started for the first time on Monday and its stock rose by Rs1.5 per share, the maximum increased allowed in a day, to Rs21.5 per share before trade suspension came into force. A total of 17,000 shares were traded.
The exporter sold 40 million shares or 35.% of its sake in the business through an Initial Public Offering (IPO) last month achieving a strike (issue) price of Rs20, which was 11% higher than the floor price of Rs18 in its book-building registration that started on June 30 and closed on July 7. The year’s first Initial Public Offering (IPO) was subscribed by 1.7 times, indicating a positive response by investors despite the pandemic that has slowed down the economy and pushed GDP into negative territory for the first time since 1952.
The outcome of the IPO matched market expectation. More than half a dozen analysts had told SAMAA Money that they expected the highest bid price to be Rs20. TOMC has been steadily growing revenue and profit. In five years, the profits increased six times to Rs264 million, and sales climbed more than three-fold to Rs3.3 billion. It has no long-term debt. Since 90% of TOMC’s sales come from exports, it benefited from the rupee devaluation last fiscal year in which the dollar rose more than 30%. They are now planning to add new markets to their export base.
TOMC launched in 2011 with two products, fresh chilled beef and mutton and frozen boneless beef. It has become a leading Pakistani halal meat exporter with the largest portfolio in the country, which gives it greater access to immigrant markets: Gulf countries, Malaysia, and parts of Europe and Central America. It also caters to the Far East market for meat offal. It has value-added products and is the only player in the high-margin offal segment. The company wanted to raise Rs720 million through the IPO so it could increase its current product output as well as set up two new facilities for the processing of offal.
According to market analyst Adnan Sami Sheikh, TOMC has a greater chance to perform better than other companies because it sells meat, an essential product for which the market is stabilized as people don’t stop eating and global demand for meat is going up.
The company plans to add China, Russia and Eastern Europe to its exports base to boost its revenue, but the stock doesn’t come without risks. The IPO, only the third in two years, came at a time when there is a lot of uncertainty around the globe. The IMF has revised the global growth forecast for 2020 to a negative 4.9% and projected a slower recovery than previously anticipated.
Pakistani meat exporters face stiff competition in the international market from Australia and Brazil. China could be a lucrative market for TOMC, but they have yet to secure access to it.
There is a risk of export and import suspension for a longer period due to the pandemic, which can result in lower sales for them. Any delay in making those facilities may reduce investors’ confidence in the stock. However, the company seems to be aware of it as it plans to use the majority of the IPO proceeds to set up new facilities. The company started delivering by sea last year because it was cheaper compared to exports by air. TOMC is the only company from Pakistan that exports by sea and that worked to its advantage after air traffic was suspended to contain the spread of COVID-19.
Presently, Western markets are difficult to access because of the rigorous hygiene and health standards. They have a very strict screening process for Mad Cow disease, TOMC’s CEO Faisal Hussain said in an interview with the Business Recorder. However, Pakistan is among the countries that never faced this outbreak and Hussain is confident they will be able meet the EU requirements and access that market after the organic certification authority becomes functional.
Speaking about prospects of exports to China, the largest importer of meat in the world, the CEO said the mechanism for disease-free certifications has yet to be established, which may take another year.
“We expect that TOMC will be among the first few companies to be granted license to export meat to China,” Hussain told the newspaper, noting Pakistani products will be cheaper after removal of regulatory duties.