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Question 1: What are the costs and benefits of Al Shaheer Corporation going

public? Briefly describe the IPO process?

Al Shaheer Corporation Limited (ASC) was the prime name in the formal meat sector of
Pakistan. Al Shaheer Corporation would be Pakistan’s first IPO from the meat sector, offering
25,000,000 ordinary shares (27.31 per cent of the post-IPO paid-up capital) of face value PKR 10
each to the public. It would also be the first IPO in the food sector during the last four years, after
Engro Foods IPO in 2011. Al Shaheer Corporation decided to go public by offering 75 per cent
shares of the total issue via the book-building mechanism and the remaining 25 per cent shares to
the general public.

Costs of Al Shaheer Corporation going public

 lack of working capital may restrict the operations of the company
 liquidity to pay its creditors
 Make room for more credit purchases.

benefits of Al Shaheer Corporation going public

 Raise funds so that higher level of investments sustain growth
 Greater efficiencies to the business yielding superior returns for stakeholders

IPO process
The process of IPO was the first sale of stock by a private company to the general public in the
primary markets, enabling it to have the stock listed and traded on the stock exchanges. Before
initiating the IPO process, a private firm typically had to do a significant amount of preparatory
work: generate a credible business plan to utilize capital; prepare audited financial statements;
restructure organization and hire professional managers; induct independent directors on its
board; provide performance projections and cash flows; and engage with investment bankers,
accountants and legal advisors. A bake-off meeting could be helpful with several investment
banks prior to selecting a lead underwriter who could spearhead the IPO process and put together
a syndicate. The selection criteria included the IPO track record and reputation of the
underwriter, proposed compensation, research analysts’ coverage and support, distribution
capabilities and ability to provide aftermarket stabilization support. The lead underwriter had a

number of responsibilities including financial and procedural advice, valuing the IPO shares,
buying and marketing the shares to the public, generating ongoing research on the company and
price stabilization in the aftermarket.

Question 2: What is the growth potential of the meat sector of Pakistan within
the global halal food market? How is Al Shaheer Corporation positioned to
benefit from this opportunity?

The top three countries in the Halal Food Indicator (HFI) ranking were Malaysia, Pakistan, and
the UAE. Furthermore, based on 2014 estimates, the top countries with Muslim food
consumption were Indonesia (US$157.6 billion), Turkey (US$109.7 billion), Pakistan (US$100.5
billion) and Egypt (US$75.5 billion) (Thomson Reuters, 2015). The key factor contributing to
the growth of the global halal food market was the increase in global Muslim population.
According to the Pew Research Centre, in 2010, there were 1.6 billion Muslims in the world, 23
per cent of the world’s total population. Also, with Islam being the second fastest growing
religion in the world, the Muslim population was expected to grow twice as fast as the non-
Muslim population, reaching 2.2 billion in 2030. More than 8 million families in the rural areas
of Pakistan were involved in raising livestock, and this sector contributed 11.8 per cent to the
national GDP of the country (Ministry of Finance, Government of Pakistan, n.d.). Livestock had
grown at an average rate of 4 per cent per annum since 2007. The major part of the livestock
population was located in the rural and semi-urban areas of Punjab and mainly consisted of
cows, buffalos, sheep and goats. Sindh was the second largest province, in terms of livestock
population, followed by Khyber Pakhtunkhwa (Aslam, 2013).The bulk of meat exports of
Pakistan comprised red meat, especially beef. The major export markets for Pakistani beef and
mutton were the UAE, Saudi Arabia, Iran, Kuwait, Qatar and Oman. The meat exports of
Pakistan grew by 9.5 per cent in 2013–2014 and at a CAGR of 29.1 per cent from US$14 million
in 2002–2003 to US$230 million in 2013–2014. Over the years, the global meat consumption
also increased. The primary business segment of Al Shaheer, representing 77 per cent of the top
line in 2014, was the export division. The company sourced local cattle and slaughtered them at
the state-of-the-art abattoir and transported the meat carcass in custom-designed refrigerated
trucks from the factory to the airport to be delivered to its international clients.

Question 3: What are some of the key risks faced by Al Shaheer Corporation
that could impact its financial position and performance in the future?
 The government had announced a tax holiday for four years to new halal meat producers,
 The competition in the export segment was growing with fourteen players operating in
the market
 Ali had found that Al Shaheer was operating significantly below its full capacity
 The real challenge will be coming up with realistic base-case assumptions to project cash
flows and value the enterprise.

Question 4: Does Al Shaheer meet the Shariah criteria of Al Meezan Investment

Management Limited to qualify for investment?
What I believe they will succeed to qualify for investment because The research team which was
led by Ali Asghar, senior manager research, and an equity analyst, Hassan Khan, who
specialized in food sector research. Both Asad and Ali had recently attended the pre-IPO road
show and had interesting discussions with Al Shaheer senior managers and the research analysts
of the lead underwriters, the AKD Securities Limited (AKDS) and the Next Capital Limited
(NCL). Their efforts towards IPO seems outstanding so they will be able to convince the
investors and visible all the benefits from IPO.

Question 5:) What is your estimate of the target stock price of Al Shaheer using the
Discounted Cash Flow approach and information provided in the case? What about Al
Shaheer’s stock value based on market multiples?

Hassan extracted the financial data from the preliminary prospectus and gathered other relevant
information from various sources to assess the investment opportunity. As a first step, the
research team had to confirm that Al Shaheer met the Shariah criteria of Al Meezan. His research
team also gathered multiples data on selected food sector companies for relative valuation. The
real challenge was coming up with realistic base-case assumptions to project cash flows and
value the enterprise. The analyst report on the IPO was fairly comprehensive, highlighting the
key value drivers, risks faced by the company, and indicative prices based on the two commonly

used approaches to price IPO shares, namely market multiples and DCF. Based on their analysis,
the research team came up with some key assumptions to be used in determining the target stock
price of Al Shaheer. They used a risk-free rate of 8.2 per cent9 and the market risk premium of 6
per cent at the time. In the debt market, Al Shaheer faced borrowing cost of about 16 per cent
with target debt to total value ratio of 36 per cent. A beta of 1 was used for Al Shaheer by the
research team in estimating the cost of equity capital. However, 2020 onwards, an effective tax
rate in the range of 10–20 per cent could be assumed after adjusting for subsidies and tax rebate
on exports. The capital expenditure and working capital requirements were to be met according
to the proposed year-on-year projected needs of the company from the IPO proceeds.

Question 6: Would you recommend Asad to participate in the IPO? Defend your position?

Yes I would recommend Asad to participate in the IPO because the meet sector was growing
rapidly and Al Shaheer Corporation Limited (ASC) was the prime name in the formal meat
sector of if they will be able to participate then they can provided attractive risk-
adjusted returns, satisfy the investors,raise funds for future investments and raise the firm value
or equity.