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AirLink Communication IPO: -

Sarmaaya Desk
Sarmaaya Content Team
Company Information:

Air Link Communication Limited, founded in 2011, is a leading distributor of mobile phones having a strong presence in Pakistan with service centers across the country. Air Link is an “importer cum distributor” of Huawei, Samsung mobile phones & accessories in Pakistan having around 20-25% market share of total mobile business according to Customs Import Data. The Company is the official partner of Samsung Mobiles and Tablets in the territory of Pakistan & Afghanistan. It was also awarded “Platinum National Distributor” and “Sustainable Channel Growth Partner” by Huawei.

AirLink
Strong Distribution Network:

Air Link has a strong distribution network consisting of 16 regional hubs linked to 1,000+ wholesalers and 4,000+ retailers. It has a strong foothold across the country with coverage in 300+ cities and towns of Pakistan. The Company also has regional offices, service centers, warehouses and display centers in major cities of the country. In addition, the Company has commenced assembly of mobile phones which will lead to significant cost advantages to the company and also lead to higher revenue generation due to backward integration.

Retail Network:

As of December 31, 2020, the Company operated fourteen retail outlets, out of which five were located in Karachi, five in Lahore, two in Bahawalpur and one in Hyderabad and Multan. The Company has a countrywide distribution network, consisting of 16 regional hubs linked to 1,000+ wholesalers and 4,000+ retailers, to facilitate nationwide sales of mobile phones and accessories.

Names of sponsors:

Air Link Communication Limited is a family owned business. Sponsors of the Company are:
1. Muzzaffar Hayat Piracha
2. Yasir Hayat Piracha
3. Naila Paracha
4. Roshanay Paracha
5. Sania Paracha
6. Mishaal Paracha
7. Saleha Basit

Pre-issue* Pre-issue*
Sponsors Shares Shareholding(%) Shares Shareholding(%)
Muzzaffar Hayat Piracha 121,799,757 40.60% 91,799,757 25.50%
Yasir Hayat Piracha 89,100,0o0 29.70% 89,100,000 24.75%
Naila Piracha 18,900,00 6.30% 18,900,000 5.25%%
Roshanay Piracha 18,900,000 6.30% 18,900,000 5.25%
Sania Piracha 18,900,000 6.30% 18,900,000 5.25%
Mishaal Piracha 18,900,000 6.30% 18,900,000 5.25%
Saleha Basit 13,500,00 4.50% 13,500,000 3.75%
Total Number of Shares 300,000,000 100% 360,000,000 75%
Valuation section:

The ordinary shares of Air Link are being issued/offered at Floor Price of PKR 65.00/- per share (a premium of PKR 55.00/- per share). The Consultant to the Issue has reviewed the business model and financial performance of the Company and in their opinion Floor price of Rs. 65 per share is justified based on following:

Year Revenues legal Status
FY 2015 5,897 AOP
FY 2016 10,013 AOP
FY 2017 13,275 AOP
FY 2018 24,151 AOP+AirLink Communication (pvt) Ltd
FY 2019 29,786 AirLink Communication Ltd
FY 2020 43,008 AirLink Communication Ltd
1HFY2021 28,124 AirLink Communication Ltd

1. Strong growth in sales: Sales have increased tremendously from PKR 5,897 million in FY15 to PKR 43,008 million in FY20 growing at a 5- year CAGR of 49%. The Company continues to operate in a growth stage and intends to vertically integrate, thereby expanding to sustain its growth momentum. The above table depicts the healthy revenue growth of Air Link over the years and it is expected that replacement demand for existing smartphones will sustain revenue growth in the coming years as smartphone penetration increases

2. Channel Partnership with Leading Mobile Phone Manufacturers and Regional Distributor:
Air Link has entered into distribution agreements with leading mobile phone manufacturers:

  • Huawei (Direct Distribution Agreement with Principal);
  • Samsung (Direct Distribution Agreement with Principal);
  • Tecno (Direct Distribution Agreement with Principal);
  • TCL (Direct Distribution Agreement with Principal);
  • Itel (Direct Distribution Agreement with Principal);
  • Xiaomi (Direct Distribution Agreement with Principal);
  • Apple (Indirect Distribution Agreement as the Apple products are sourced from Mercantile Pacific Asia Pte. Ltd- “MP”- which is the authorised Apple Distributor in Pakistan).
  • Mobile Products

    3. Rated by Credit Rating Agency:
    Air Link Communication Limited is rated by PACRA. Air Link received a long term rating of A- and short term rating of A1 dated December 24, 2020.

    4.Tax Payer Award:
    Air Link was declared among the top five tax payers (in AOP Category) for the Tax Year 2018 in a ceremony held at the Prime Minister’s Office on February 21, 2019.

    5. Valued at a discount from local high growth companies: Air Link’s Floor Price of PKR 65.00/- per share, based on FY20 earnings, translates to a price to earnings (P/E) multiple of 12.7x (at a discount of 36% to local high growth companies.

    Peer group Analysis:

    There are no direct competitors of Air Link listed on PSX. However, for peer group analysis, we have analyzed local companies based on high earnings growth and international peers.

    Company Stock Exchange Ticker 5 year sales CAGR 1 5 Year Profit after Tax CAGR1
    National Foods Ltd pakistan Stock Exchange NATF 20% 11%
    AGP Limited 2 pakistan Stock Exchange AGP 13% 10%
    GlaxoSmithKline Pakistan Limited pakistan Stock Exchange GLAXO 8% 5%
    Colgate Palmolive Pakistan pakistan Stock Exchange COLG 14% 7%
    Service Industries Limited pakistan Stock Exchange SRVI 12% 7%
    Systems Limited pakistan Stock Exchange SYS 32% 40%
    AirLink 3 55% 29%
    Principal purpose:

    Air Link intends to expand its business by injecting more working capital. For this purpose, the Company intends to issue 60,000,000 new ordinary shares at a floor price of PKR 65.00/- per share to raise PKR 3,900 Mn. The new issue of PKR 3,900 Mn shall be used entirely to fund the Company’s working capital requirement.

    Funding Requirement of the Company for working capital needs is as follows:

    Discription Funds Required (PKR Mn) % Allocation
    Working Capital for Purchase of Inventory 4,890 100%
    Working Capital 4,890 100%

    Sources of funding are as follows:

    Source of funds (PKR Mn) Percentage
    IPO Proceeds 3,900 80%
    Short Term Financing facilities* 990 20%
    Total 4,890 100%
    Utilization of Proceeds:

    The Issue is expected to generate PKR 5,850 million at floor price of PKR 65.00/- per share out of which PKR 3,900 million (new issue) shall be utilized to finance working capital requirements. The Issuer’s total working capital requirement is PKR 4,890 Million, out of which PKR 3,900 Million (80% of the total WC requirement) shall be financed by proceeds from the new issue and the remaining PKR 990 Million (20% of the total WC requirement) shall be financed from Short Term Financing Facilities.

    Proceeds from the IPO, PKR 3,900 million will be utilized for investment into the working capital of the Company, whereby the funds will be used to purchase inventory of mobile devices from Company’s vendors and will be sold through the distribution channel of the Company

    Future prospects:

    The Sponsors have a vision to make Air Link Pakistan’s largest vertically integrated distribution Company through organic growth. Air Link is currently expanding its distribution network in more cities of Pakistan by adding warehouses, offices and sales teams in order to reach out to more dealers & retailers and further increase its outreach. In addition, the Company intends to expand further into the retail space to achieve economies of scale and business synergies.




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