TMOC, one of Pakistan’s largest meat exporters, will offer 40 million shares, or 35.7 per cent of its stake in the IPO, through book-building, at a floor price of Rs18 per share, with a maximum price band of up to 40 per cent.
AKD Securities is the book runner, while Topline Securities and Intermarket Securities are the consultants for this transaction.
In an IPO, a company offers shares to the public in return for capital it can use, usually for expansion or operational purposes. Book-building refers to a period when the IPO is open and bids are collected from investors at various prices, which are above or equal to the floor price. After this, an offer price is determined, that is used for shares to the general public.
Book-building registration for TMOC will start on June 30 and close on July 7, 2020, while the book-building bidding period will span from July 3 to July 7. Public subscription for the IPO is due to take place between July 14 and July 16.
Initially, 75 per cent of the issue size, or 30 million shares, will be allotted to successful bidders during the book-building process. The remaining 25 per cent of the issue size, or 10 million ordinary shares, will be offered to the general public.
Part of the Rs720 million expected to be raised will be used for two specific facilities. The first is an offal processing facility in Korangi to process locally collected offal, costing about Rs167 million. The second is an offal production facility at Karachi Export Processing Zone (KEPZ) for exports to China and Vietnam, costing around Rs104.4 million. The remaining funds will be used to increase TOMC’s product portfolio.
Another major reason for the IPO is to reduce TOMC’s dependence on banks. Historically TOMC has depended on short term borrowing from various banks for working capital requirements. Currently, TOMC has short term borrowings of Rs718.7 million. However, the currency devaluation forced the company to consider reducing its dependence on banks.
What is the Organic Meat Company?
TOMC, a halal meat processor and exporter, was incorporated in 2010 and commenced operations in 2011. Initially, it only had two products, and a capacity of three tonnes per day for beef, and five tonnes per day for mutton. Currently the company has a daily production and chilling capacity of 75 tonnes per day.
TOMC has four product categories: frozen meat, vacuum meat, fresh chilled meat, and offal. According to the company’s prospectus, this makes up 46 per cent, 39 per cent, 4 per cent and 1 per cent of revenue in fiscal year 2019.
The company also owns a 9.8 acres slaughterhouse and a processing facility in Gadap, Karachi, with sufficient animal holding area for 2,000 goats and sheep and 2,000 cows. Its current slaughtering capacity stands at 60 heads per hour for beef and 120 heads per hour for mutton.
According to TOMC, it is the only company which deals in white offal products and also the only company which is currently exporting to middle-eastern region via sea. The company also expects to become the first company from Pakistan to export to China.
The company is also heavily reliant on exports. Last year, its export sales were approximately Rs2.3 billion, or 93.1 per cent of total sales.
Meat industry potential
According to the Economic Survey of Pakistan for fiscal year 2020, livestock contributes around 60 per cent to the total agriculture sector, 11.7 per cent to total Gross Domestic Product and 3.1 per cent to Pakistan’s exports.The gross value addition of livestock segment has grown from Rs1.3 trillion to Rs1.5 trillion at a 5-year CAGR of 3.2 per cent.
While Pakistan is a large meat producer, it only ranks 18th in world meat exports, and only serves 3 per cent of the global market.
However, the halal industry is set to expand around the world (with around 30 per cent of the world’s population being Muslim), and is expected to grow by 6 per cent in 2020. The industry is worth around $3.4 billion
Against this backdrop, TOMC is well-placed since it has the largest export market access from Pakistan, and frequently exports to markets like the Gulf Cooperation Council (GCC) countries, Malaysia and parts of Europe and Central Asia.
Though Pakistan has faced stiff competition from meat exporters based in Australia and Brazil, Australia’s recent drop in livestock due to bushfires could provide a window of opportunity for players in Pakistan like TMOC.
Original published: Profit.Pakistantoday