Tri-Pack Films Limited (TRIPF), the market leader for packaging films, posted a splendid top line growth in the first quarter this year. But the company’s dwindling bottom line suggests that the company hasn’t been able to sustain that gain.
The topline growth suggests that TRIPF has been able to reap benefit from its latest expansions by producing more and selling more of its BOPP and CPP films. But the so called ‘supply overhang’ in the packaging film industry has seemingly kept the selling prices under check.
TRIPF, which has now been operating in Pakistan for two decades, faces growing competition from many smaller local firms which are also said to be undertaking simultaneous expansions. Moreover, there is smuggling of BOPP films into the country and rising competition from BOPET film producers.
Market sources say that owing to rigid price competition amidst local players, TRIPF lost its price-setting status post-capacity enhancement. It was forced to follow suit as its competitors reduced their packaging film prices by as much as Rs20/kg last month, depressing its margins further.
However, it was the cost slippages that really marred the company’s quarterly performance. Cost of sales grew out-of-step with the topline growth, rising by 35 percent year-on-year. Consequently, these costs consumed nearly 90 percent of net sales in 1QCY14. Moreover, escalating distribution costs are eating away the bottomline. These costs are predominantly driven by rising transportation costs on account of increasing fuel prices.
Last year, TRIPF took up long-term loans to finance the CPP Line 2 expansion with a cost of Rs1.3 billion. The subsequent interest charges and principal repayments are now taking their toll as finance costs doubled year-on-year to reach Rs127 million in 1QCY14. In the end, bottomline declined by a whopping 71 percent year-on-year, and TRIPF closed the quarter with a token net margin of 1 percent.
Pakistan’s sizable population, along with growing consumerism, offers an ideal support for FMCGs to grow. However, constant rise in input cost, concerns around energy supplies, market overcapacity and declining growth in downstream demand are anticipated to keep the TRIPF volumes and margins under pressure going forward. In the face of market oversupply and lower prices, the management must improve the firm’s operational efficiency in order to breathe some life into its margins in near future.
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TRI-PACK FILMS LIMITED
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Rs (mn) 1QCY13 1QCY14 chg
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Net sales 2,524 3,263 29%
Cost of sales 2,176 2,933 35%
Gross profit 348 330 -5%
Distribution cost 58 84 45%
Operating Profit 238 188 -21%
Finance cost 62 127 105%
NPAT 113 33 -71%
EPS (Rs) 3.76 1.09
Gross profit margin 13.8% 10.1%
Operating profit margin 9.4% 5.8%
Net profit margin 4.5% 1.0%
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Source: KSE notice
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