Bottom line fueled by Covid-19 demand, long-term contracts: GGL CEO

Rewind to the June of 2020: the first wave of Covid-19 is in full swing, whoever has the privilege to stay indoors is doing so, the hospitals are at full capacity and the only thing one can see on their social media feed is people looking for leads regarding ventilators or oxygen cylinders.

It’s like an apocalypse, only that this time we are not protected by a LED screen.

Anyways, during this entire health crisis, one company came to the center stage. Ghani Global, which owns a subsidiary that produces industrial and medical gases, found a sudden spike in demand for oxygen, probably like never seen before. Amid this “crisis”, the company’s topline grew manifold to over Rs2.2 billion in 9MFY21, from Rs1.26bn in the same period of the preceding year.

That’s just the industrial and medical gases, which the group restructured into a holding company over a year back. Then we have Ghani Glass that produces tubes and vials and supplies to pharma sector for their packaging needs. Revenue from this stream rose too, albeit not as steeply, to Rs894.5m in the nine months ending March 2021, from Rs832.3m in the same period of FY20.

Now the group is eyeing to scale further, pinning hopes on the recent expansion drive including a plant in Khyber Pakhtunkhwa as well as some long-term contracts. For glass, they plan to take the business international and set up manufacturing in Serbia.

Mettis Global recently interviewed GGL’s chief executive officer, Mr Atique Ahmed Khan, who is a mechanical engineer by academic training and has been at the helm of the business for around two decades.

Below are the edited excerpts.

The interim results saw a major increase in consolidated profits of Ghani Global Holdings. What were the drivers?

This performance came on the back of contributions from all sectors. Obviously, the oxygen demand triggered by Covid-19 was a major factor, which we were able to meet thanks to the expansion drive a year back. At the same time, the company secured some long-term contracts, such as the one with Attock Refinery or that with Engro Polymer and Chemicals, among others. We had increased our installation base, which is a requirement for liquid and compressed business, along with investing in the logistics side. Once the full year results come in, you will see its impact in both the top and bottom lines, Insha’Allah.

On the glass side, we are the only company in Pakistan catering to pharma packaging and are working with most players. Almost 70-80% of the supplies are being provided by us in fact, a number that should hopefully only increase as our new packaging lines start coming live. On top of that the government’s drive to do import substitution has given a major boost to the business and as a result, we are confident that FY21 numbers will show a solid picture.

Who are your major customer segments? Can you tell us about the demand and supply dynamics?

Healthcare – along with all the related industries – is obviously a major sector and accounts for 20-25% in our top line. Merchant markets, such as Gidani or Sher Shah around Karachi or Misri Shah in Lahore, are also a key contributor, bringing in roughly 40% of our total revenues. Then there are the use cases in cutting or the processing industries, which can be anything from food packaging to furnace. For example, argon is used for welding.

What has happened over the last year or so, partly due to the government’s efforts, is that the demand for oxygen has become more organised. That change was accelerated by Covid-19, with the healthcare sector working on the required infrastructure such as installing pipelines, which created a lot of unconventional demand. Towards supply, there are long-term contracts with EPCL or Attock Refinery. Once the plant in Khyber Pakhtunkhwa comes live, expected before September 30, 2021, it will take our supply to over 700 tonnes, which would more than 50% of the entire country’s overall installed capacity.

Currently our gross profit margins are already around 30-35%, which is better than the industrial norms, but they should further improve after the expansion as fixed costs will be better spread out.

What’s the rationale behind setting up a plant in Serbia of all countries? Where does the project currently stand?

You know the world is becoming a global village with every passing day so the idea was to have a footprint beyond Pakistan. When we visited Serbia, we found there to be no local ampule or vial manufacturer and the entire demand, in fact for the broader former Yugoslavia, was being met through imports. The group is already exporting the glass tubes to various countries across the world and has the technology and expertise, so we feel it will provide us a good avenue.

Serbia is well connected with all of Europe and is on its way towards EU membership as well. Currently they are already importing raw material as no local options exist and have expressed interest in the project. As for operational challenges, those exist everywhere. The company is in discussions and moving forward with it, that’s all I can say.

Electricity prices have steeply gone up over the last two years while the rupee continues to slide. What impact do you see?

Generally, whenever the power prices increase, we try to pass it on too. As you know there is a demand-supply gap in the market at the moment, with demand exceeding supply, it makes it easier to transfer the impact. The industry is able to digest that and we don’t see any major risk arising from these two factors.

What trends are you noticing in vial demand? Can you tell us about your export market?

Vials have a growing demand, not just in Pakistan but the world over as a share of medicine packaging is converting from ampules. Over the next year, you will see up to 100% growth in this business. Exports account for about 7-8% of our top line, with our supplies going to countries like Egypt, Bangladesh, Argentina, Mexico etc. That figure will increase in the coming future as our new capacity comes online. On top of that, the base will also be broadened, especially in South America where there is a major demand. We are also looking at Europe and are exploring setting up some facility in the south of Italy, in addition to the plans in Serbia.

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