Tariq Glass Industries Limited

Tariq Glass industries Limited (PSX: TGL) was set up in 1978. Two years later, in 1980, it was converted into a public limited company. The company manufactures and sells glass container, opal glass, tableware and float glass. Some of the brand names under which the company sells its products are Omroc, Toyo Nasic, and NOVA glassware. In addition to selling in the local market that makes up majority of the sales, Tariq Glass Industries also sells in the global market. Some of the export destinations include Afghanistan and Sri Lanka.

Shareholding pattern

As at June 30, 2021, close to 49 percent shares were owned by the directors, CEO, their spouses and minor children. Within this category, majority shares are owned by the CEO, Mr. Omer Baig. The local general public holds over 24 percent shares, followed by close to 12 percent held by the associated companies, undertaking and related parties; 8 percent are held in modarabas and mutual funds. The remaining roughly 7 percent shares are with the rest of the shareholder categories.

Historical operational performance

Revenue for Tariq Glass Industries has consistently been growing over a period of the last one decade, except for in FY20. Profit margins, on the other hand, have been fluctuating; after falling in FY20, profit margins improved in FY21.

The country witnessed the highest GDP growth in thirteen years in FY18, as it stood at 5.79 percent. The company also experienced the highest topline growth at 22.8 percent seen in the last four years. As a result, in value terms, revenue crossed Rs 12 billion terms. Sales volumes of the company also improved as production began from the Opal Glass furnace towards the last quarter of the year. But the higher revenue could not be translated into higher gross margin as production cost consumed a larger share in revenue at 82.5 percent, compared to 79.6 percent in FY17. Gross margin was recorded at a lower 17.5 percent. However, net margin improved to 9 percent on the back of lower finance expense.

Revenue in FY19 continued to grow at double-digits, at 18.4 percent despite the political uncertainty as the year began with general elections, and the new government having to face external imbalances, resulting in currency devaluation. For the company, majority of the growth in sales was concentrated in local sales, while export sales increased only marginally. Production cost, on the other hand, reduced to 80 percent, allowing a gross margin to rise to 19.6 percent. While this increase was reflected in the operating margin, net margin remained close to 9 percent due to a rise in finance expense due to rising interest rates, and a higher taxation expense.

After rising continuously at varying rates over the years, revenue in FY20 declined by 5.6 percent year on year. This was largely due to the Covid-19 pandemic that resulted in a complete break in sales due to lockdowns. However, production continued, that led to amassed finished goods inventory. Given the inflation in the economy, prices for energy, power, fuel, freight, etc. caused cost of production to rise to nearly 84 percent. This led gross margin to fall to 16 percent- the lowest seen since FY15. Net margin also declined to 5.6 percent, as interest rates rose along with short term borrowings.

Despite the pandemic, the economy posted a GDP growth of 3.94 percent, that was not only better than that seen in the last two years, but it also exceeded the targeted growth rate of 2.1 percent. The company’s topline also recovered remarkably, as it posted a growth of nearly 41 percent, taking revenue to over Rs 19 billion in value terms. In the last quarter of FY21, the company began its Unit 2 of the Float Glass which began commercial production in May 2021, while the remaining production units were functional throughout the year. With the improvement in revenue, production cost as a share in revenue fell to an all-time low of over 78 percent. Resultantly, gross margin peaked at over 21 percent. Despite the rises in expenses in value terms, net margin also peaked at 11 percent, whereas bottomline was recorded at the highest, of Rs 11 billion.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by nearly 63 percent year on year, at Rs 6.7 billion. This was attributed to better volumes, as the Unit 2 of Float Glass Plant saw a full year on production. Production cost, as a share in revenue was also significantly lower at almost 72 percent, compared to nearly 80 percent in 1QFY21. This led gross margin to improve year on year to 28 percent which also trickled down to net margin which was recorded at 17.3 percent, versus almost 10 percent in 1QFY21.

The company has several projects in its pipeline that will help in increasing capacity and revenues, as well as allowing for cost controls as the new production lines will be efficient. Moreover, the company is also installing 1 MW solar power plant to reduce energy expenses. However, the company plans to close two of its plants by the end of the second quarter for major repair. Moreover, the company also faces the risk of an increasing production cost as currency continues to devalue, while the rising interest rates will have an adverse impact on finance expense.