Synthetic Products Enterprises Limited

Synthetic Products Enterprises Limited (PSX: SPEL) was established as a partnership in 1978, and incorporated as private limited company in 1982. In 2015 it initiated an IPO for the purpose of expansion.

The company essentially operates in the packaging industry; however, its product portfolio caters to a wide range of industries. The company produces plastic containers, spoons, cups, glasses, plastic crates in addition to automotive parts and of road vehicle parts.

Some of its widely known customers include Nestle, Unilever, Pepsi, Martin Dow, Toyota, Suzuki, Honda among many others.

Shareholding pattern

Through the years sponsors, directors and their children have held a large part of the company- at 74 percent as of FY18. Another major shareholder are the modarabas and mutual funds at nearly 10 percent. Between FY17 and FY18, approximately 3 percent of the shares of the company shifted hands from modarabas and mutual funds to insurance companies. The remaining shares were distributed between the rest of the categories.

Historical operational performance

Synthetic Products Enterprises Limited has experienced consistent growth in its topline, although at varying rates of growth, with the highest increase seen in FY15. Its financial performance peaked in FY17, after which profitability slipped despite the high revenue figure. Its financial performance is also reflected in its earnings per share figures.

During FY15, SPEL saw a year on year growth in topline of a little over 26 percent accompanied by an improvement in gross margins. This was achieved as a result of higher sales in volumetric terms. Moreover, investments in plant and machinery allowed the company to improve their operational efficiency in addition to catering to a higher demand. In FY15 the company also listed itself on the stock exchange of the country and received a positive response to the IPO from the investors.

On a year on year basis, SPEL saw a significant change in its other income and other charges. The former was a result of profit earned on bank deposits and short terms investments whereas the other charges was primarily governed by impairment loss and an increase in Workers’ Profit Participation Fund.

In FY16, as per the company’s annual report for the period under consideration, the commodity prices fell. However, despite this, it was able to record a year on year growth in topline of about 7 percent. Investments in up gradation seem to be a constant factor. The improvement in the operations as a result of investment in better automation contributed to timely deliveries and quality enhancement. Efficiency can also be evidenced by the fact that the company was able to reduce its costs as a percentage of revenue from 77 percent to less than 75 percent resulting in healthier margins.

In FY17, SPEL’s financial performance was at its peak with the highest recorder net profit at Rs 417 million. Higher gross margins were a result of higher sales volumes and efficient operational procedures lowered costs of sales as a percentage of topline from almost 75 percent inFY16 to consuming 73 percent of revenue on FY17. During the year, there was a major decline in other income due to fixed deposits being cashed and a marginal incline in other charges as a share in revenue. However, despite these adverse factors, the company was able to mark its highest ever net profit.

Although topline grew by nearly 11 percent year on year, it was set off by a more than corresponding increase in cost of sales consuming 78 percent of the revenue as opposed to 73 percent in the preceding year. This was due to an increase in raw material prices and currency devaluation according to the company’s annual report. A breakdown of cost of sales reveals that a major increase was seen in cost of raw materials and electricity and fuel charges.

Quarterly results and future outlook

The 9 percent improvement in topline for the first quarter ended of FY20 can be attributed to higher export sales. The currency devaluation may have allowed for price competitiveness which resulted in higher exports. There was also a considerable incline in income generated from other sources; however, its breakdown is not disclosed. The change in policy rates and attempts to document the economy raised finance costs and taxes, resulting in net profits to be only slightly below the levels of the same period of FY19.

Despite the challenging times the company managed to remain more or less stable in terms of profitability. Since the company caters to FMCGs, its performance is impacted by consumers’ willingness and ability to spend. Thus, with a gradual stability in the economy and a restoration of confidence in the consumers, there will be more spending hence more demand for the company’s products which may improve performance of the company in the future. According to the company’s recent report, the company is optimistic about its performance.