Pakistan’s commodity marketplace Zarea announces PKR 1 billion IPO

Zarea Limited (ZL) will raise PKR 1 billion ($3.59 million) through the initial public offering (IPO) at the Pakistan Stock Exchange (PSX).

The company plans to offer 62.5 million shares, representing 23.81% of its post-IPO paid-up capital, at a minimum price of PKR 16 per share through a 100% book-building process. Book building starts on February 10, while public subscription is scheduled for February 17-18.

Zarea Limited (ZL) operates an E-commerce marketplace for commodities such as cement, steel, other building materials, and agri biomass, connecting B2B buyers and suppliers while generating revenue through platform fees.

In FY24, ZL reported a profit after tax of PKR 292.8 million ($1.04 million) and posted a net profit of PKR 107.8 million in the first quarter of FY25. The company's revenue in FY24 was PKR 441.7 million, with PKR 191.8 million recorded in the first quarter of the current fiscal year.

To further expand and diversify its product portfolio, ZL plans to introduce coal, chemicals, grains & pulses, sugar, fertilizers, cotton & yarn, and agricultural perishables.

This expansion aims to capitalize on Pakistan's growing digital economy and the increasing demand for efficient, technology-driven commodity trading solutions. The platform's scalable model and diversified product portfolio position ZL for long-term revenue growth and profitability.

Proceeds from the IPO, totaling PKR 1.0 billion (calculated at the floor price), will be utilized for working capital requirements, capital expenditure for logistics and operations, technological infrastructure upgrades, marketing efforts, new office development, staff vehicles, and improving human resources functions.

According to the prospectus, ZL's strategy focuses on significant growth by expanding its user base and increasing transaction volumes on its platform. Targeted marketing efforts will attract a larger network of B2B buyers and sellers, while diversifying product offerings into additional commodity sectors.

Enhancing the platform's functionality and expanding the range of commodities traded will help ZL capture a larger market share in Pakistan's evolving digital economy, ensuring sustained revenue growth and long-term value creation for investors.

The company's business model revolves around two main functions including the platform (marketplace) model as its core revenue stream and the investment in commodities model as a secondary activity to support seasonal demand in agricultural commodities.

Revenue is generated through platform usage fees, ranging from 1% to 10% of the transaction value, collected upon delivery by the supplier, logistics provider, or Zarea itself. These fees are recognized as revenue in Zarea's profit and loss statement.

The annual mobile cellular subscribers in Pakistan rose from 162.28 million to 192.53 million in FY24, reflecting a CAGR of 3.47% over the past five years.

This growth is primarily driven by the widespread adoption of mobile technology, with a mobile tele-density rate of approximately 79.44% as of September 2024 and around 193 million mobile cellular subscribers, a significant portion of whom use smartphones.

As mobile phone usage expands, there is potential to explore and develop current and future commodities markets in Pakistan.

The IPO market in Pakistan saw a significant revival in CY24, supported by an improved economic landscape and the stock market's strong performance.

The positive momentum encouraged companies to tap into public equity markets, with a total of five IPO transactions and two follow-on offerings concluded in 2024, compared to only one transaction in the previous year.