Forbes Article on Millat Tractors

[Abu Zolfiqar]

I recently traveled to Pakistan to report on a few stories, including a profile of Millat Tractors, below. On the surface, Millat seems like a pretty dull story: With all of the news coming out of Pakistan, I flew for 26 hours to report on a publicly-traded tractor company. Really?

But dig a bit further, and you’ll see that the history of Millat reflects the history of Pakistan— from the company’s early days as a distributor for a British company that was eager to tap the Pakistani market; to 1972, when the leftist Ali Bhutto government nationalized Millat and many other companies; to 1992, when employees banded together and took it private. Millat’s current success can be attributed, in part, to the floods that devastated the country last fall, and the agricultural rebound that followed, as silt from the river enriched the neighboring land.

Like many entrepreneurs whom I interviewed in Pakistan, Millat’s chief executive Laeeq Ansari wants Millat to be a global company. He’s frustrated by the challenges of doing business in Pakistan, even though 45 percent of Pakistanis work in agriculture. And he feels a tremendous sense of pride that in a country where 24 percent of people live under the poverty line, many of Millat’s employees—from senior management to secretaries—are affluent as a result of their salaries and stock dividends. Millat, in my mind, is a perfect example of how business reporting can provide a window into a country’s history, economy, politics and culture.

A small detail that didn’t make it in the story, and one I wish that you could see: Millat tractors, and vehicles all over Pakistan, are often transformed into rolling works of art. Drivers hire artists to paint them with flowers and other designs, as well as excerpts from prayers and songs. Technicolor tractors are just one reason why Pakistan is a visual feast.

Misbah Iqbal, an equity analyst in Karachi, gave me some invaluable perspective on Millat. Her quotes didn’t make it in the final story, but she was a huge help over the course of my reporting. She was so good, in fact, that I once interviewed her from 1 to 2 AM EST, from my bathroom, so that I wouldn’t wake up my sleeping fiancé.

Almost a year after floods devastated Pakistan, swamping 5.8 million acres of farmland and displacing millions of people, Ashaq Malik, who grows cotton, sugarcane and wheat on 865 acres in Punjab province, has reason to feel optimistic. After nearly a third of his land was inundated, today he is seeing a strong harvest. “As soon as the water level fell down, we started reconstructing the houses and working on the fields,” says Malik. “Today there is no problem with the crops.”

Companies that service the agriculture sector are also thriving in the rebound, none more than Millat Tractors of Lahore, which also manufactures other farm gear. Last year Millat earned 2.3 billion rupees ($29 million) on sales of $263 million, a 40% increase from the previous year. In the first quarter of 2011 profits grew 52% from the same period a year earlier.

Over the last two years Millat’s market capitalization has increased threefold: Many farmers are more prosperous thanks to a combination of slightly bigger harvests and lofty crop prices. (Pakistani cotton, for example, hit a record high of $4 a kilo in March, before starting to decline.)

Millat’s tractors, particularly its most popular model, the MF 240, are well suited for the soft soil of Punjab and the small family farms of Pakistan, where today 45% of the country’s labor force works in agriculture. Millat controls 56% of the domestic market, where rivals include Al-Ghazi Tractors, a subsidiary of Dubai’s Al-Futtaim Group. “We are operating in Pakistan in a globally competitive environment,” says Chief Executive Laeeq Ansari. “Anyone can import a tractor from anywhere with no duty. And we are not threatened. We aren’t even threatened by India and China. Our product is globally competitive.”

But Millat’s story is not that of the typical growing enterprise. It is a product of Pakistan’s history and culture but outside the family business groups that dominate the private sector. It was taken private from years of state ownership in a 1992 employee-led buyout.

Ansari, 58, has been there all along. The son of an army colonel, he grew up in Lahore and was trained as a mechanical engineer, joining Millat as a production manager in 1984. By then what had begun as a distributor of tractors for Massey Ferguson had been nationalized in a wave of such acts after defeat in the Indo-Pakistan war of 1971 led to the leftist Ali Bhutto government. The company was then renamed Millat, which means “national” in Urdu.

Shortly before Ansari joined, Millat began expanding to achieve import substitution, as components from the U.K. were rising in cost. An engine assembly came first, followed by a division to manufacture intricate parts within the company. “We want to localize to save money and ensure price stability,” says Ansari.

But come 1991, with liberalization also taking hold in India, a new Pakistani regime decided to privatize the banking, automobile and other industries. It gave employees the right to take over a company. Nearly all Millat workers chipped in their savings, formed a group and took over with 51% ownership. (Staff in other industries did similarly, but they later sold their shares and did not maintain majority ownership.)

To buy his 150,000 shares, Ansari–then a 39-year-old general manager–sold a plot of land, liquidated his retirement funds and borrowed money from his father. “It was a lot of money to me back then,” he says. “Today it’s like a lottery coming your way. The value has increased many, many fold since then.”

Today the public, including Millat’s 1,600 employees, owns 42% of the company; management and kin 28%; and banks and other institutions the rest. Employees are prosperous because of stock dividends and their salaries. Most of Millat’s employees pay income tax–a sign of affluence in Pakistan–and have their own cars.

As a private company Millat continued to expand. In 1993 it acquired 51% of Bolan Castings, a government-run company that was privatizing. The following year saw establishment of Millat Equipment, which today produces gears and shafts for tractors. In 1999 Millat bought another company to develop lead acid batteries. “We were the consumer of these products, so the market was already there,” says its technical director, Shahid Shahbaz Toor.

By 1999 management formed the Millat Group as a holding entity for Millat Tractors and its associated companies, from which it buys about half its parts. Vertical integration, says Ansari, assures price stability and cushions against relying on only one supplier in a business culture riddled with corruption.

Despite loyal customers like farmer Malik, enterprise is still a struggle in the world’s sixth-most-populous country. “The biggest challenge is the law and order situation,” says Ansari. “Somehow we are learning to live and do business in this kind of environment. People outside of Pakistan are not coming here to do business. Foreign investment stimulates the economy. Unfortunately, we do not benefit from that.” Pakistan also suffers from an overburdened electric grid, which causes frequent blackouts.

Although it has kept a strong cash position, Millat management has been cautious with acquisitions. “Our mind-set is not entrepreneurial in the true sense,” says Ansari. “We’re shy about making investments and afraid of taking risks. Millat’s management is not traditional millionaires. Ladies sold their jewelry to buy their shares. We will only take risks that we think will 100% pay back.”

The company is intent on expanding its market beyond Pakistan–if and when it can. But the licensing agreements under which it began as a Massey Ferguson producer are hemming it in. The Western firm–now owned by AGCO of Georgia in the U.S.–and its dealers abroad do not want to be selling against the Pakistani upstart with the right size and geared tractors for the developing world. Today Millat pays AGCO a $2.8 million annual trademark fee for cobranding tractors with the Massey Ferguson name and for providing occasional technical assistance.

Ansari believes that Millat’s growth lies in places like Africa and India. He is negotiating for permission to sell abroad, even as he combats the smuggling of his wares into a few markets already.

“We would not like to be confined to Pakistan,” says Ansari. “We must be given permission to export. That’s the most important part of our future strategy. It’s time that we should be a global player.”

Yes, Virginia. There Really Is Some Good News In Pakistan. - Forbes

 

[Faiez]

nice.........

 

[VCheng]

What a great success story!