Softlogic sets sights on supremacy

The letter A in his name possibly stands for ambitious and aggressive, but Ashok Pathirage, Chairman and Managing Director of Softlogic Holdings Ltd., appears solid about his convictions and where he wants his company to be in five years’ time – the biggest listed corporate in terms of market capitalisation.

Given the current stature of Softlogic Holdings, dwarfed by much bigger and more established conglomerates, the goal may look ambitious, hence elusive. However, if its meteoric rise in recent years as well as the high growth potential of some of its core sectors in post-war Sri Lanka are factored in, Softlogic is certain to challenge the biggies in the corporate arena.

Setting sights on supremacy at the top of the league of most valuable corporates comes ahead of Softlogic’s Rs. 4 billion (139 million shares at Rs. 29 each) IPO, the biggest in six years up for subscription from today whilst its official opening is 9 June.

With the number of shares in issue estimated to be 779 million, if Softlogic opens in the secondary at its IPO price, the market capitalisation will be around Rs. 23 billion, which is only 12% of the value of the country’s premier blue chip JKH’s worth of Rs. 189 billion. If Softlogic’s price were to double to Rs. 58 with a market capitalisation of Rs. 45 billion, it will still amount to below 25%.

However, it is not 2011 that Softlogic’s co-founder Ashok – who incidentally had a good career at JKH before venturing out on his own – is concerned about, but five years from now. Whilst the company’s IPO prospectus is to be out this week, most analysts have rated Softlogic as an emerging tiger with an estimated asset base of Rs. 15 billion, top line of Rs. 10 billion and net profit of nearly Rs. 900 million (forecast) for FY 2011.

This profile is in just 20 years and its performance is an eye-opener for some of the older and bigger conglomerates, which are delivering below average results. As per brokers’ forecast for FY 2012, turnover is estimated to be Rs. 23 billion and profit Rs. 1.8 billion when Asiri Hospitals is consolidated into Softlogic accounts.

“We want to be number in five years. I feel Softlogic is in the right sectors which are most exciting and rewarding at present and in the future to become what we want to be,” declared Ashok, in an interview with Daily FT.

“We are bullish about post-war Sri Lanka and as a Sri Lankan company if we don’t harness the opportunities, the private sector has to blame itself,” he added.

Softlogic’s business sectors are certainly on the rebound, especially with post-war benefits and uptake. Its biggest sector is retail, currently dominating consumer electronics, IT and telecom, as well as branded apparel with enormous potential for further additions.

Its new business segment is leisure, ventured into to better tap the post-war boom in tourism. It is also the biggest private sector healthcare provider via Asiri and Central Hospital brands, whilst other sectors include financial services and automobile.

This thirst for seizing or maximising on unfolding opportunities is inborn in Ashok and Softlogic co-founders as well as its expert management team.

“Aggressiveness is in our genes,” quips Ashok. “We are hands-on, focused and flexible when required to constantly seek opportunities for organic growth as well as via acquisitions.” Its entry and subsequent rise to be number one in healthcare was via the second mode.

Softlogic’s aggression as well as raising the standards in consumer electronics business has indeed kept the more longstanding and sector-leading firms such as Singer and Abans on their toes.

The company is pursuing a multi-brand consumer electronics retail strategy and a footprint of 300 stores in the medium term (150 by end 2011) with a target of Rs. 20 billion in turnover. Softlogic remains open to include other products as well. The market for consumer electronics and consumer durables market is estimated at Rs. 100 billion.

Ashok said that the next wave of consumer spending in a greater velocity would come when Sri Lanka’s per capita crosses the US$ 3,000 mark from the current $ 2,000. The Government is targeting doubling the figure to $ 4,000 by 2016. Softlogic also expects a boom in up-market shopping, with an increased flow of Indian tourists.

In the leisure sector, it has announced constructing a five star, 24 storey, 224-room hotel at Colpetty with an investment of US$ 37 million, which will be managed by world-famous Swiss hospitality brand Movenpick. Construction is expected to start before August this year. Separately Softlogic will also refurbish and rebrand Hotel Ceysands, which it acquired for slightly over Rs. 900 million.

Ashok is of the view that, given its small domestic market size, Sri Lanka has to become a hub for tourism, shopping and entertainment.

“Tourism, up-market shopping and entertainment go together, especially with the giant Indian market as a great opportunity,” Ashok added.

He revealed that an agreement had been signed to set up what would be Sri Lanka’s first international class mall in partnership with UK’s renowned Debenhams. “We are currently looking at a few prospective locations to put up the mall, which is likely to span 40,000 square feet,” he said.

“We are keen to raise the bar in all sectors we operate in, thereby give Sri Lankan people as well as visiting tourists a world-class experience and products,” he said.

Ashok is also an entrepreneur who doesn’t mind growing business prudently by harnessing the benefits of debt. Rs. 1 billion private placement early last year was used to retire debt whilst Rs. 3 billion of the planned Rs. 4 billion from the IPO will be for the same exercise.