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Can the new CEO bring about a change at Merit Packaging?

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Anyone who’s taken a single course of Economics or more importantly, even has an iota of common sense would know that the primary motivation for private businesses anywhere is the profit-making objective. You sell for more than what cost you to produce, or else there is no motivation to undertake the exercise.

For some godforsaken reason, Merit Packaging – a company owned by the famous Lakson Group – was doing things the other way. In 2020, the company endured gross losses, meaning revenues were lower than costs of goods sold – an anomaly for any established entity. But as the convention dictates, you can bleed for only so long, especially at the topline level. Hence to change that, the board finally shook things up.

A new chief executive was introduced during the last month foremost not only to change the structure of Merit’s financial statements but also its innermost culture. The new man is Amir Chapra, a seasoned packaging industry executive, who Mettis Global had a chance to talk with and learn about his upcoming plans.

The edited excerpts are presented below.

Can you give us a small run down about your professional background and how you will create value for Merit Packaging?

AC: I have been associated with the packaging industry from the beginning, starting out my career at Metatex Pvt Ltd, which was owned by my family. There was unfortunately a fire at the factory so I joined Korozo Ambalaj, the largest flexible packaging converter in Turkey, as a consultant. After an 11-month stint there, I moved to Kompass Pakistan as a Director Marketing and Technical and eventually to Cherat Packaging as the Executive Director Marketing. I have had the chance to serve in every area of the industry, giving me an all-rounded view.

Before you came onboard, Merit used to sell its products under cost? Has that changed now and what is the new strategy?

AC: It’s true that Merit Packaging used to sell under cost and had gross losses, which was baffling for a company that had been in business for as long. This also had a negative impact on the industry as other players tried to undercut their prices since customers quoted them our rates. As a result, the trust between buyers and sellers eroded.

Since my joining, first we have rationalized the pricing. Beyond that, the focus has been on regaining that trust – with buyers that Merit will fulfil the orders on time and has Century Paper and the entire Lakson Group behind. And with other sellers, that we won’t be selling at a price that’s lower than even the cost of goods sold. You will see this in the next quarter’s results where at least one item – gross profit – will be positive.

Your average age per employee was quite high previously. Will there be a major shift in your HR culture?

AC: Soon after joining, it was made clear that for the first year, I will be micromanaging everything since Merit currently lacks a layer of competent middle management. That’s the first thing we have changed and are bringing in senior people in four departments – HR, production, maintenance and marketing – within the next couple of months. After that, it would be up to these people to set up their respective departments and answer to me.

What is the role of sponsors? Have they stated their intention to completely support the company?

AC: This is one thing about Merit that all stakeholders should be very clear on: Lakson Group is behind us and are fully supporting the company. It was barely a month after some activist investors raised objections on the way the company was being run that they hired me. So, you can see the kind of urgency in execution on their part.

But let’s also remember: I am here to grow the company, which means the costs are also going to increase, not decrease. The same was communicated to the sponsors and they gave money in a heartbeat, but it’s not enough yet. I will be presenting them with a proposal for capital expenditure to the tune of Rs500-700 million the next month, which could either come from the market or the sponsors.

What has happened over the last few months in the printing packaging side following shortage of raw materials?

AC: The entire industry has been facing serious shortage of raw material, triggered by panic buying – instead of any change in fundamental. As a result, 6-8 weeks delay cycles have become quite normal and not just for the main inputs, but even for auxiliaries. Initially, we thought this would be rationalized by June but now it appears to last until at least the end of the year.

Any other area that we can expect a shakeup?

AC: Among the local players, Merit is unique that it has two facilities – one in North and the other in South, with the latter alone employing more than 70 people. None of the competitors have two plants so one naturally wonders why is it so?

You can’t have the two working in silos and that’s one of the things which needs to be addressed. Either more money be injected into the north facility’s upgradation that it becomes a self-sustaining unit or the plant be brought down to Karachi and add to our capacity here.

How do you view the printing and packaging business in Pakistan over the next few years?

AC: The packaging industry in Pakistan is very defined in the sense that the number of players is fixed who are all fighting for the same handful of customers. On the demand-side, there has hardly been any new additions of late so the growth won’t be more than 10% per annum for the next couple of years.

The only way out of this is either there is some consolidation of the market with smaller players exiting – who until now have somehow survived – or that the industry starts innovating and exporting. However neither seems to be happening at the moment.

Posted on: 2021-04-16T10:19:00+05:00