GH2 Industries (Pvt.) Limited ('GH2' or 'the Company') was incorporated as a private limited company on 28-Sept-20, under the Companies Act, 2017. 

GH2 is a recent venture of Mr. Rana Nasim Ahmed, along with the investing shareholders, which are Descon Holdings (Pvt.) Ltd. and Aurelius (Pvt.) Ltd. The Company is set up as part of an integration vision in the agriculture value chain.

GH2 is setting up an agri-based manufacturing facility to produce broken rice derivatives which are essential ingredients for the Pharma and FMCG industries. The plant will be integrated by setting up a rice processing unit with a capacity of 15 MT per hour/360MT per day to partially fulfill the feedstock (i.e. broken rice) requirement for the production of derivatives. The Company's registered office is situated in DHA Phase 6, Lahore, while the plant is setting up in Gharo, District Thatta, Sindh. The expected CoD of the project is Jun-26.  

GH2 is majorly owned by Mr. Rana Nasim Ahmed (~50%). While the two investing shareholders - Descon Holdings (Pvt.) Ltd. and Aurelius (Pvt.) Ltd. - hold an equal stake of ~25% each in the Company.  

The Company's ownership structure is expected to remain stable as the Sponsors are among the well-established investors holding interests across various sectors in Pakistan.

The Sponsors hold considerable footing across agriculture, power - especially across the renewable energy, and industrial operations and maintenance services within the local and international markets. A strong affiliation with international associations of the Sponsors suits well for the Company.

Requisite oversight and financial support from the Sponsors would ensure the Company's financial strength. Moreover, the Company aims to create an estimated annual impact on the export front of ~USD 18mln for the country along with an import substitution of ~USD 4mln.

Overall control of the Company vests with a four-member Board (BoD), comprising one Executive and three Non-Executive Directors. Out of these, two Directors are appointed by Mr. Rana Nasim, a Non-Executive Director; while the other two Directors are appointed by the investing shareholders. From these, Descon Holdings has appointed Mr. Faisal Dawood, and Aurelius has appointed Mrs. Riffat Zamani as Non- Executives Directors on the BoD. Adding independence to the BoD structure would bode well in decision-making process, going forward. 

The BoD, with a diversified background and relative expertise of its members, is the key source of oversight and guidance for the management. As per the agreement, the BoD's Chairman will be appointed for a tenor of one year, alternatively nominated by Mr. Rana Nasim and the investing shareholders. The Directors have rich experience across various industries, such as, Mr. Rana Nasim, a seasoned professional with a corporate experience of more than three decades. Mr. Faisal Dawood holds more than two decades of professional experience in the engineering, power, and chemical businesses. Mrs. Riffat Zamani holds considerable interests in sugar and real estate sector of Pakistan.

The BoD meets when required during the year to discuss pertinent matters. The minutes of these meetings are formally documented; however, there is room for improvement concerning the details and clarity of the minutes. The BoD is assisted by Audit and Human Resource Committees. Each Committee has an equal representation of Mr. Rana Nasim and the investing shareholders, while the Chairman of each Committee is nominated alternatively by Mr. Rana Nasim and the investing shareholders.

GH2 has appointed M/s BDO Ebrahim & Co. as the external auditor, that has expressed an unqualified opinion on the financial reports for FY24. The firm is QCR and in category 'A' of SBPs panel of auditors.

The management plans to operate the Company through i) Operations ii) Administration and Human Resource, iii) Finance, iv) Sales and Marketing, and vi) IT after becoming commercially operational. All department Heads will report to the CEO, who will then report to the BoD, where pertinent decisions will be discussed and drafted. Mr. Rana Nasim remains the man at the last mile. The organizational structure is planned to hold clear and segregated lines and responsibilities.

The CEO, nominated by Mr. Rana Nasim and approved by the BoD, Mr. Rana Uzair Nasim has been associated with the Company since incorporation. He is also the CEO of Gharo Solar and Harapa Solar. The CFO, Mr. Shahid Mehmood has been associated with the Company since incorporation. He has worked on key positions in different banks before joiing GH2. The management team comprises seasoned professionals, each bringing expertise in their respective fields.

The Sponsors' experience, along with a professional management team is expected to help the Company in streamlining its operations after becoming commercially operational. However, anticipating the need for enhanced management efficacy, forming management-level committees would benefit the policy implementation process, going forward.

The Company is in process of deploying an ERP system to generate defined MIS for operational efficiency.

The Company has set up effective mechanisms for the identification, assessment, and reporting of all types of risks arising out of the business operations. These risks include strategic, operational, financial or compliance risks which may compromise the achievement of overall business objectives of the Company.

The rice sector is pivotal to Pakistan's economy, contributing ~3.5% to agricultural value addition and ~0.7% to GDP. In FY24, Pakistan’s rice exports reached an unprecedented milestone, generating $3.93bln in foreign exchange (up from $2.1bln in FY23) and exporting around 6mln MT. India’s temporary export ban largely facilitated this significant rise. Non-basmati rice dominated export volumes, contributing about ~88% of total shipments by quantity, driven by affordability and alignment with international cuisine preferences. Nonetheless, the increasing number of rice consignment interceptions in the EU, triggered by the flagging of a shipment of Pakistan’s organic Basmati rice for GMO contamination, poses a business risk.

Considering rice-based derivatives and value addition segment, Pakistan’s share in the exports has considerably increased over the years to ~ 65,000 Tons per annum. Previously, M/s Shafi Gluco was the only prominent exporter of rice syrup from Pakistan; however, other players, including ACT Polyols, Glucorp, Master Sweetener, etc., have also captured a share in the exports by utilizing the export momentum of rice syrup and Pakistani footprint in the global markets. Although the multiple rice-based manufacturers have expanded export of rice syrup in recent years, there has been less emphasis on value addition and production of sophisticated products to diversify exports. GH2 has prudently designed its product portfolio and is entering into health oriented/functional ingredients, which have attractive market fundamentals and strong local and international demand. GH2 is an upcoming player in the local and export sale of rice and rice derivatives, competing with established local manufacturers such as Master Sweeteners and Matco Foods, while also enjoying a first-mover advantage in other products.

The Company projects to generate revenue from the sale of rice, rice bran, sorbitol, dextrose, rice protein and sodium silicate. The Company projects to become commercially operational by Jun-26 and projects a revenue of ~PKR 9.4bln flowing in equally from local and export sales. Going forward, with an increase in commercial viability, the revenue is projected to grow at a CAGR of ~13.5%.

The Company projects prudent cost management, where operations and maintenance along with finance cost holds the major share, to ensure healthy business margins. On net level, profits are expected to grow at CAGR of ~33%. The Company plans to get comparative advantages on the basis of vertically integrated business model where in-house power & steam provide significant cost savings and backward integration into rice milling provides feedstock sourcing and pricing advantages, which are expected to translate into healthy margins.

The Company's investment strategy stands across rice and its derivatives within the evolving market dynamics. The investment is expected to offer competitive returns considering a mature market, especially as the technology becomes more cost-effective. The Company has planned to keep on identifying new markets and technological advancements which may have significant revenue growth and generate sizeable cash flows.

GH2 working capital requirements would be a function of its inventory, trade receivables and trade payables which are financed through short term borrowings and FCFO. For working capital management, the Company will use the following strategy: debtors will be well managed, credit term shall be within 30 days and payment discipline will be maintained to pay suppliers on time. The acquisition of raw materials (rice) will be divided into 4-5 months cycles from from the paddy suppliers and surrounding rice mills. This will help the Company to handle working capital more efficiently and effectively. The Company must ensure a substantial borrowing cushion on its balance sheet at all times, going forward.

The Company projects a coverage ratio of 1.63x as of FY27 (second year of operations). The Company’s overall interest cover projects to improve supported by lower interest rates, however remains impertaive to initial gestation challenges. 

The Company projects to holds an equity base of ~PKR 4.8bln as of FY25. The projected growth in the asset base will be financed primarily through long term borrowings with an equity injection on quarterly basis till FY26. The debt to equity ratio will stand ~58.5% as of FY25; however, stabilizing as the projects develops over time.