The Panchakanya Group has recently entered its 51st year of operation. The modest start initiated by Prem Bahadur Shrestha, the founder of the group, has evolved into Panchakanya Group, a prominent industrial conglomerate in the nation. The group, which has its focus on the production and business of construction materials and equipment, has three generations of family members working together to achieve the objective of business excellence. In a conversation with the HRM, Pradeep Kumar Shrestha, Managing Director of Panchakanya Group, recalls the initial years of his father’s business, the group’s vision, and the current doing business scenario in Nepal, among other topics. Excerpts:
Q. Panchakanya Group, originating from Phikkal in Ilam as a modest business, is currently celebrating its 51st anniversary. How would you describe the journey of five decades of your group?
A. As the Panchakanya Group celebrates its 51st year of operation, it has solidified its status as a household name in Nepal. Personally, my own identity is closely intertwined with the group.
When we delve into the history of the Panchakanya Group, its journey started in Phikkal, Ilam, and subsequently traversed through Shanischare, a small town in Jhapa, before making its way to Bhairahawa and Kathmandu. My father, Prem Bahadur Shrestha, the visionary behind the group, embarked on his entrepreneurial voyage with a humble grocery store in Phikkal.
He held a steadfast belief that to carve out your own niche, you must not confine yourself to one location. This belief led him from Phikkal to the relatively small town of Shanischare in Jhapa at that time. It was in Jhapa that our group’s entrepreneurial journey truly began to thrive, with my father venturing into the timber business. During this period, we even exported timber to the nearby markets in India and Bangladesh.
The establishment of a rice mill in Charpane, Jhapa marked another pivotal moment for us. My father secured a loan of Rs one million from the then Nepal Industrial Development Corporation (NIDC) to realize this project. During the Panchayat regime, obtaining licenses to operate industries in Nepal was very challenging. However, my father took a calculated risk by venturing into the manufacturing sector. He established a pipe manufacturing plant in Bhairahawa in collaboration with the Amatya Group, which was quite influential at the time.
The decision to establish this particular industry in Bhairahawa proved to be a turning point for our group. Today, Bhairahawa has evolved into the primary industrial hub for our group, with six of our industries operating there.
Q. Panchakanya Group’s journey sets it apart from other business conglomerates in Nepal. Could you share how the idea of venturing into the manufacturing sector, particularly in the production of construction materials, first emerged?
A. From the very outset, our group has held the belief that the industrialization of our nation is imperative, and to achieve this, the establishment of manufacturing industries is indispensable. The sectors our group selected for industrial pursuits were carefully chosen to address the fundamental needs of the country. We placed a strong emphasis on infrastructure-oriented industries such as steel, pipes and fittings, stainless water tanks, nails and screws, and bitumen.
In fact, a significant 80 percent of our industries are closely linked to the construction sector. Panchakanya Group always aspired to be a trailblazer in the sectors it ventures into with the motto “Always First, Always Ahead.” The reputation and goodwill our group has garnered over the years are primarily attributed to the unparalleled quality of our products.
Q. Within the portfolio of Panchakanya Group industries, Panchakanya Steel stands out as the top revenue earner and the most esteemed brand. Can you elaborate on how Panchakanya Steel achieved its renowned status within the construction sector?
A. Originally launched as Panchakanya Iron, this industry underwent a name change to Panchakanya Steel following expansion, eventually becoming our flagship company. Its outstanding reputation has been built upon an unwavering commitment to quality. Our steadfast focus on using top-notch raw materials and maintaining stringent production standards has been instrumental in establishing this credibility.
I firmly believe that quality consistently yields long-term benefits. While Panchakanya’s steel bars may be priced higher than others in the market today, we have consistently remained the preferred choice of customers. The primary reason for our product’s premium pricing lies in our unwavering dedication to utilizing high-quality raw materials. Although there are many lower-quality products in the market, we have refused to compromise on quality.
The steel industry in Nepal has become highly competitive. However, the instability of government policies has disrupted the steel market. Changes in policies introduced by the previous government two years ago not only caused turmoil in the steel sector but also divided steel entrepreneurs into two factions. While the government eliminated customs duties on sponge iron to encourage domestic billet production, it simultaneously increased customs duties on billet imports. This had a detrimental impact on steel industries like ours, which rely on imported billets as raw materials.
Despite our repeated appeals to subsequent governments, the policy decision made during the tenure of then Finance Minister Janardan Sharma has yet to be rectified. Unfortunately, our pleas have gone unanswered.
Q. The Nepali economy is in the grip of a deep recession. Entrepreneurs are struggling with high borrowing rates and falling market demand. How has this recession affected your group’s business?
A. Over the past three and a half years, the global economy has been grappling with challenges created by the Covid-19 pandemic and the Russia-Ukraine conflict and we’ve also faced unforeseen consequences. While our neighboring countries are making gradual strides toward recovery, our economy is in a downturn. The private sector holds the key to steering the country’s economy out of this predicament. However, due to the absence of political stability and consistent policies, the Nepali business community is surrounded by multiple challenges at present.
The private sector’s ability to invest is significantly hindered as the business confidence has eroded. In the last fiscal year, the government’s revenue dwindled due to its inability to effectively utilize capital expenditure. The decrease in revenue can be primarily attributed to the absence of significant growth in the activities of the private sector.
The burden of a high borrowing rate is enormous for businesses at the moment. It’s challenging for anyone to sustain business when interest rates, which stood at 7-8 percent when they started their enterprises, have now surged to over 13-14 percent. On one hand, the government struggles to pay contractors even after completing government contracts for development works. On the other hand, banks exert pressure on loan repayments. The surge in auction notices appearing in daily newspapers vividly illustrates the current state of the private sector and the economy.
If these pressing economic issues are not addressed earnestly and the concerns of the business community are not addressed, the private sector will continue to face significant hurdles in the coming days.
Furthermore, young Nepalis are departing the country en masse every day in search of employment opportunities and living opportunities abroad. If the government and policymakers do not take the necessary steps to put an end to this exodus, we will lose young talents which will add more challenges to the country and the economy in the foreseeable future.
Q. The private sector says that the strain in the relationship between the Ministry of Finance and the central bank has inflicted significant damage on the country’s economy. How do you see the impact of this discord between these two entities that have the responsibility to shape the country’s economy?
A. It is true that the Nepali economy has suffered major setbacks due to the evident lack of coordination between the two entities. Previously, during Janardan Sharma’s tenure as the finance minister, there was notable friction between the finance ministry and the central bank.
Our concern is that the fluctuations in the relationship between the heads of these two pivotal agencies should not overshadow the nation’s economic development and the priorities of the private sector.
Despite the government’s call for interest rate reductions, the leadership of the Nepal Rastra Bank has shown little enthusiasm to ease the difficulties seen in the area of financing. We hoped for some adjustments in the new monetary policy. However, the demands were not adequately addressed.
Q. Lately, Panchakanya Group has also ventured into the hydropower sector. The government has recently decided to table a new electricity bill to parliament, and there have been favorable developments in electricity exports. What steps do you think should be taken to further boost private sector investment in the energy sector?
A. Hydropower stands out as a pivotal sector propelling Nepal’s future growth and development. Panchakanya Group has made an investment in Panchakanya Mai Project within this sector. However, the outcomes have not met our initial expectations, and one contributing factor is the Power Purchase Agreement (PPA) with the Nepal Electricity Authority (NEA). Unfortunately, once a PPA rate is agreed with the NEA, it cannot be revised. Nevertheless, due to the rapid rise in borrowing rates for project construction, it has become increasingly challenging to generate profits and distribute dividends to our shareholders based on the initially agreed PPA rates.
Furthermore, the NEA takes a substantial period of 45 days to disburse payments for electricity procured from private power producers. Additionally, private power projects are often compelled to operate at reduced capacity by the NEA, further impacting profitability.
Many may not fully grasp the significant investments and risks associated with hydropower projects. Events like the recent floods in eastern Nepal have had detrimental effects on multiple projects. However, these projects cannot use the flood as a reason to avoid repaying their bank loans.
Nonetheless, it’s encouraging that India and Bangladesh have emerged as potential markets for the export of Nepali electricity. However, this endeavor necessitates crucial infrastructure development, which itself faces a multitude of challenges. Obtaining forest clearance from the Ministry of Forestry is a time-consuming process, and there are complications related to compensation.
Despite these hurdles, hydropower undeniably remains a transformative sector for Nepal, deserving of special attention from the Nepalese government. The recent government decision to introduce a new electricity bill in parliament, if approved, will pave the way for private sector participation in the power trading business. We, too, are exploring opportunities to enter the power trading business. Currently, the NEA holds a monopoly over power generation, transmission, and distribution. Welcoming private sector involvement in power trading will introduce competition and enhance service quality.
Q. The third-generation members of the Panchakanya Group have also been actively joining the business for the last couple of years. What difference they are making as they take over the reins?
A. The new generation of members joining the family business is a customary progression. In our case, the third-generation members have actively engaged in our family’s business affairs. Notably, the education and perspective of this new generation differ significantly from our own. While we often rely on intuition, the new generation approaches their responsibilities with careful analysis and thorough preparation. Their approach is marked by a strong emphasis on calculation.
We have provided clear and defined roles for our younger generation. Presently, they are overseeing key areas within the group, namely, the plastic division, steel division, and various trading operations. Our role now primarily involves mentoring and being available for guidance when required.
Q. What is the strategic direction that the Panchakanya Group intends to pursue in the days ahead?
A. We have a two-fold strategy for the future– strengthening our presence in sectors that we are in currently, and venturing into new areas. Simultaneously, we’re in the process of making Panchakanya Group companies public, sharing the trust that the public has placed in us with a wider audience.
Additionally, we are exploring opportunities in the agricultural sector. Given our origins in agriculture, we are considering a return to our roots. Our plan involves cultivating high-value, export-oriented agricultural products in particular.
