Shezan International Limited, established in 1964, is a public limited company. It has a wide variety of products under its belt which it sells in both, the local as well as the international market. Some of its product offerings include beverages, squashes and syrups, jams and marmalades, pickles, ketchup and sauces, and food essentials which consist of canned fruits and vegetables among other things.
Shareholding pattern
The key shareholder of Shezan International Limited is the local general public owning 39.2 percent followed by directors, CEO, their spouse and minor children holding approximately 32 percent of the shares in the company. Modarabas and mutual funds are next in the category owning almost 22 percent of which Trustee National Investment (UNIT) Trust is the prime shareholder. Lastly, Tundra Pakistan Fund is another key shareholder in the company.
Historical performance
Shezan International Limited's top-line is mostly comprised of domestic sales although it does sell in the global market as well; the company's revenues have consistently been on a rise, but the growth rate saw a decline in FY19, whereby the sales rose by 2.68 percent year-on-year as opposed to 4.81 percent year-on-year in FY18. Along with the sales, the cost of sales have also increased by 14 percent in FY19, causing gross profit margin to reduce considerably, especially in FY19, where they saw a decline from an almost 28 percent in FY18 to approximately 20 percent in FY19. One can assume that in the face of rising interest rates and tax rate in addition to the rupee depreciation, the cost of doing business has evidently increased and profitability has been adversely affected across the sector. This also explains the sudden jump in finance costs by 74 percent, year-on-year.
Post FY17, the administrative expenses have increased while the distribution expense saw a downward trend; together, they have seen a decline and the company as per the annual reports claims that they have attempted to reduce costs. The net profit margin, on the other hand was unable to command an increase despite the continuous rise in sales in absolute numbers; in FY19, net profit only increased by 1.5 percent when compared to a significant, more than 5 percent increase in FY18. In fact, the net profit was the lowest recorded in the last five years. This has been due to increase in the cost of utilities, raw materials, packaging etc along with the rupee depreciation and the company's inability to pass the onus to the end consumers due to competition, although they did increase the prices slightly.
Contrary to FY19, the increase in sales in FY18 is in correspondence with the increase in net profit. What is inexplicable is how the highest recorded sales in FY19 in the last five years is not commanding a similar net profit; instead FY19 has the lowest net profit despite company's claim of enhancing cost efficiency.
The fall in financial performance is also reflected in the earnings per share figures which dropped significantly from 49.44 in FY18 to a mere 12.87 in FY19. The declining current ratio too is reflective of the non-conducive business environment, although it is still somewhat in the healthy ratio range.
Latest financial performance
The recent quarter shows similar business performance with the increase in cost exceeding the increase in revenue, not allowing the bottom-line to exhibit similar increment. The rise in interest rates has increased the cost of borrowing by almost five times than was the case previously. In addition, the company also attempted to rebrand one of its products the 'All Pure' juice range. However, despite the change in branding, the company was unable to bring about the expected increase in volume of sales.
In addition to the economic instability which poses a risk to the company's profitability, Shezan International also faces the risk of a water charge being imposed upon using surface and ground water of Rs1 per liter, which will further add to their cost of doing business.
Stock performance
Shezan's stock performance has remained above the market most of the times, especially from the period April through October 2019. While other companies, during the same period performed poorly, Shezan International Limited's stock performance has remained above par.
Future outlook
The current business environment has not been very kind; a lot of the companies were unable to stand to the challenges posed by the economic instability, causing them to incur losses and face liquidity crunch. The large scale manufacturing (LSM) sector observed a growth rate of 2.93 percent in 2019 shrinking from 6.33 percent recorded in the previous year. Furthermore, food and beverages sector declined in 2019 by a larger extent of 4.7 percent as compared to a decline of 0.76 percent in 2018. In addition, the cost of borrowing, rising tax rates and cost of raw materials were not very helpful. With such an environment and stiff competition in the local industry, it is commendable that Shezan managed to remain afloat with positive cash flows through the years.
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