Two days ago, vehicle inspection specialist Opus announced this that it has won a public tender and has signed a 20-year public service vehicle inspection concession with the Government of the Punjab (GoPb) Transport Department in the Punjab province of Pakistan. The agreement provides the GoPb with two additional five-year options to extend for a total term of 30 years.
Today, Opus’ CEO Magnus Greko is interviewed by Swedish news agency Nyhetsbyrån Direkt and states that the contract in Pakistan should be seen as a door opener to the Asian market. He is quoted saying that the possibilities for additional contracts are good, both in Pakistan and Asia in general, despite tough competition.
In terms of margins, Opus will be compensated for the higher risk of the contract in a politically more unstable region. Says CEO Greko: “We have worked with this tendering for four tears in tough competition with big international players. I think the deciding factor was that we could offer the absolute latest technology, which also enables us to offer competitive prices.”
The 20 year contract for the province of Punjab includes half a million vehicles and almost 1 million inspections per year. The agreement includes the possibility to extend by another ten years. The combined sales over the 20-year period are expected to be around USD 150m, or SEK 1.2bn. Says CEO Greko: “We have a monopoly for vehicle inspection during the contract duration and the fees are indexed to inflation. Margins are somewhat better than for the rest of our contracts, reflecting the higher risk. At least as important as the contract itself, however, is the fact that Opus is entering the Asian market. So far, the company has been active in Europe, North-and South America. This project will be somewhat of a reference project. We will learn a lot and we succeed this will help us to penetrate the rest of the region.” He also sees large additional opportunities in Pakistan. The current contract includes only commercial vehicles such as trucks, buses, taxis and even three-wheelers called Tuk-tuks. The next step for Pakistan will be to introduce mandatory inspections for private vehicles, which would be a market ten times the size. Says CEO Greko: “Since we are already present and up-and running, we should have good prerequisites to get such a contract.”
Touching on the issue of security in Pakistan, CEO Greko says that he is not overly worried. Most of the problems occur in the Western parts of the country. In general, the situation is said to have improved in recent years. One problem is corruption, not the least within the field of jurisdiction which is ultimately responsbile for controlling that vehicles are actually inspected. Says CEO Greko: “Corruption is a challenge. New rules have introduced which imply that owners cannot renew thier registration without inspection. ”
Opus’ business in Pakistan will commence with three bigger inspection station in the city of Lahore during 2015. After that, a dozen regional station and several mobile stations will be opened. In the middle of 2016, business is expected to be fully up and running.
In the interview with Direkt, CEO Greko is also touching upon the issue of US state Missouri: “The contract which Opus has previously held in Missouri is in a new tendering phase and competition is tough. However, it is not much tougher than normally in our business. It is a decentralised programme, which always means harder competition. We will fight hard to keep the contract. In the centralised programmes, where the winning party also takes care of the building of the stations, competition is usually less. ”
A Swedish niche newspaper published in its rumour section recently that six operators are involved in the tendering process and that the risk is high that Opus will lose. If Opus was to win, that newspaper expected margins to be significantly lower than before, and quotes an anonymous source. Commenting on this gossip, CEO Greko says: “Missouri is a contract with good profitability, that is correct. It is natural that margins come down somewhat in connection with a new competitive tendering. They usually increase during the duration of the contract, being linked to the vehicle fleet growth. Furthermore, Missouri is one of the smaller contracts for Opus. Nevertheless, it is important to fight in order to keep it. Also, keep in mind that we have the contract today, so we know exactly what the cost structure looks like and where it is possible to lower costs.”
Being one of the big FX winners on the Swedish stock exchange due to its 60% sales exposure to North America, Opus will report its Q4 2014 on February 19th.