Ghani Glass Limited

Ghani Glass Limited (PSX: GHGL) is part of the larger Ghani group of companies that operates in various sectors including construction, mining, automobiles, in addition to glass.

Ghani Glass was established in 1992 as a limited liability company under the Companies Ordinance, 1984 (now, Companies Act, 2017). It is engaged in the business of manufacturing and selling glass containers and float glass. The company is present in both the domestic market as well as the international market.

Shareholding pattern

The company’s directors, CEO, their spouses and minor children are the key shareholders with 60 percent shares held under this category; within this, Mr. Aftab Ahmad Khan, one of the deputy CEOs, is a major shareholder holding 13 percent of the total shares. Some 25 percent shares are with the local general public, followed by almost 10 percent held in “other companies” while the remaining, about 5 percent, are distributed with the rest of the categories.

Historical operational performance

Except for FY14 and more recently in FY20, the company has mostly seen a growing topline, while profit margins peaked in FY17 and have been on a gradual decline since.

During FY16, Ghani Glass saw a nearly 5 percent growth in its topline. This was mostly associated with the country’s overall positive growth and business environment, except for the agriculture and textile sector of the country. During the year, the company also set up a new Amber Pharma Glass Furnace at its Landhi plant. With single digit inflation and controlled oil prices, cost of production also lowered, raising gross margins, while net margin, at close to 17 percent, was supported by a lower finance cost. The latter was because the company had paid of its short- and long-term financial obligations.

In FY17, topline grew by 12 percent while cost of production reached its lowest, at 67 percent of revenue. This was due to undertaking BMR activities and attempting to curtail costs. It also helped that the country’s economy was stable, hence a stable business environment. Therefore, the company recorded its highest gross margin at 33 percent; other factors remained more or less similar, hence the effect of improved revenue trickled down to the net margin; however, the latter grew marginally to a little over 17 percent due to a relatively higher tax expense.

The country’s economy reached several highs during FY18 as GDP growth stood at 5.8 percent, agriculture at 3.8 percent; Large Scale Manufacturing (LSM) also reached highest growth recorded in the past decade. The company’s topline witnessed a little over 7 percent incline. During the year, another project at Lahore plant commenced commercial production that increased the company’s production capacity by 450 tons per day. However, cost of production as a percentage of revenue increased to 72 percent, bringing gross margin down to 28 percent while operating and net margin was supported by a significant other income and lower tax expense. The higher other income was a result of profit on savings account. Thus, net margin improved to 20 percent.

Ghani Glass saw the highest growth rate in almost a decade, at nearly 22 percent during FY19. However, this increase came with a more than corresponding rise in costs; close to 75 percent of revenue. This was due to rising raw material expense, fuel and electricity expense and salaries expense. Therefore, gross margin decreased to 25 percent, down from 28 percent in FY18. With other factors remaining similar, this effect was reflected in bottomline as well, with net margin recorded at 18 percent.

There was a marginal decline in revenue, close to 1 percent during FY20. However, given the high inflation rate during the year, cost of production jumped to nearly 85 percent of revenue. This brought down gross margin to 15 percent. Most of the incline in expenses was seen in fuel expenses, in addition to raw material consumption. Moreover, considering the tough environment post Covid-19 outbreak, the company also made a higher than usual provision for doubtful debt that further squeezed profit margins. Although share of profit from associate increased in absolute terms, it could not raise net margin that was recorded at almost 9 percent for the year.

Recent results and future outlook

During 1QFY21, revenue grew by close to 5 percent year on year. This same period last year was noted by high inflation and interest rates, whereas the first quarter of FY21 saw recovery after the outbreak of a pandemic. However, this was accompanied by a more than corresponding rise in cost of production that lowered gross margins year on year to 19 percent. Net margin improved due to a positive tax figure, as compared to a negative Rs 61 million in 1QFY20.

The company hopes for some economic recovery on the back of manufacturing and construction activities supported by government’s fiscal stimulus package, in addition to higher remittances that could fuel consumption.