Blog Archive

Tuesday, August 08, 2006

Merali Empire gets unfavourable review from Nation's Smart Company

I think the Merali firms need to be categorised into "Old Economy Firms" & "New Economy Firms". The OECs are necessary & important coz we need tyres & tea but the growth will come from the NEFs.

Most banks (Equatorial & part ownership of Commercial Bank of Africa) straddle both "old" & "new" since technology is core to their operations.

I am not a fan of Merali's listed entities (both are OEFs) i.e. they do not make much money for its minority shareholders:
  • Sameer Africa (which IPO's some 10 years ago at 35.50) which has been a mega-disappointment to all who bought into the IPO or even thereafter. The price on 8 Aug 2006 was 15.50 so all you have to show for 10 years is 50% loss in value & some miniscule dividends.
  • Sasini has seen droughts, poor prices, government interference & strong KShs since 2004 thus its profits have been subdued! These traded at 120/- at one time! Currently at 29/-.
On the other hand , the unlisted NEF firms are geared for growth including Celtel, KDN, Swift Global & Dimension Data. These are the new economy companies that should do well as Kenyans become internet savvy & Kenyan businesses look at the internet as a place to do business.

Rumours have been swirling for the past 2 years that Eveready will go public but there has been nothing concrete. Unfortunately, Eveready has suffered intense competition from imports that have hurt both sales & profits.

You can't entirely blame the Management or ownership for the decline coz the gov't doesn't help. The gov't should & could:
  • Lower cost of inputs (electricity supply is unreliable & expensive)
  • Lower taxes (lower taxes e.g VAT decreases the competitiveness of largely untaxed imports)
  • Improving the infrastructure (better roads, telecommunications)
  • Improving governance (corruption at all levels of government)
Nevertheless, other local firms have done much better but these have been primarily FMCG firms e.g. EABL & BAT.

To Eveready's credit, they have survived the lean years & might improve their performance with E.A.Community & Sudan. Many industrial firms did not make it through the lean 1990s.

I have to give credit to Naushad Merali that his firms continue to operate in Kenya providing Kenyans (though his firms hire a dispropotionate number of Indian expats) with jobs. He could have shut down both the Eveready & Firestone factories to become a mere importer BUT to his credit, he kept them open. I hope that the larger EAC market will benefit both firms since Kenya needs the exports & jobs!


bankelele said...

Mystery is EA Cables, an "OE" firm he was forced to sell - and which then went from the doghouse of the NSE to the stratosphere

coldtusker said...

There could be multiple reasons (20/20) but:

- While he was in charge, minorities did not do well. He had all the right connections BUT KPLC was run down & could not expand coz there was no cash.

- The "merali" factor could have played a role??? See Sasini & Sameer/Firestone

- The new guys (TransCentury) do have a keen eye for the growing markets e.g. IT thus fibre-optics.

- New open approach by Mugo Kibati (US trained) that leads to better PR thus higher prices at the NSE