Packages Limited

Packages Limited (PSX: PKGS) is a public listed company incorporated in Pakistan. The company was established as a joint venture between the Ali Group of Pakistan and Akerlund & Rausing of Sweden in 1957. Initially, PKGS was engaged in converting paper and paperboard into packaging for consumer industry. Over the years, the company has enhanced its facilities to provide variety of packaging solution to a number of consumer brands across industries. It is also a leading manufacturer of tissue paper products. As of now PKGS is operating as a holding company and hence its performance is largely determined by the performance of its group companies – within and outside Pakistan. Being a holding company, dividend income is the major source of income of PKGS.

Pattern of Shareholding

As of December 2021, PKGS has an outstanding share capital of 89.379 million shares which are held by 4088 shareholders. Associated companies, undertakings and related parties hold the highest number of shares, grabbing 43.94 percent of the total pie. This category of shareholder is mainly dominated by IGI Investments (Pvt.) Limited. Local general public accounts for 22.15 percent of PKGS’s shares. This is followed by Modarba and Mutual funds with an ownership of 7.93 percent shares. Foreign general public hold 7.49 percent of PKGS’s outstanding shares. Directors, CEO, their spouse and minor children have a possession of 3.5 percent shares followed by Banks, DFIs and NBFIs with 3.25 percent shares. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-21)

PKGS’s topline has been riding an upward trajectory since 2017. With 2020 being the year with the lowest topline growth of 7 percent year-on-year, it was the year where bottomline started boasting tremendous growth after nose-diving for two years in a row. The company was also able to achieve remarkable growth in its margins in 2020 after a significant drop in 2018 and 2019.

In 2018, the company’s topline magnified by 66 percent year-on-year, however, its bottomline dropped by more than 89 percent. A comprehensive analysis of the financial statements reveals that the bottomline drop in 2018 was because of high-base effect. In 2017, the company earned significant investment income, gain relating to business operations and share of profit of associates and joint ventures, as a result of which its operating profit grew twice as much as its gross profit. Even after incorporating finance cost and taxation, the NP margin stood at a whopping 33.9 percent as against the GP margin of 18.9 percent. 2017 was one unusual year where quite strikingly, OP margin, PBT margin and NP margin surpassed the GP margin.

Coming back to 2018, where the company didn’t make any gain on relating business with a significant drop in investment income and share of profit of associates and joint ventures, bottomline couldn’t hold its ground despite an impressive topline growth. The NP margin stood at a mere 2.2 percent in 2018 vis-à-vis a gigantic 33.9 percent in 2017.

While the justification of high-base effect was over, the bottomline continued to shrink in 2019 despite a 15 percent year-on-year growth in the topline. Delving into the details reveals that in 2019, the GP margin of PKGS improved from 12.7 percent in 2018 to 16.7 percent. This was because of higher sales volume, better pricing and effective cost control mechanism in place. While investment income and share of profit of associates continued to plunge in 2019, like it did in 2018, other income grew by more than 3 times in 2019. This was the result of the writing back of liabilities which were no longer payable. Consequently, OP margin grew from 7.6 percent in 2018 to 9.7 percent in 2019. Due to high discount rate backdrop, finance cost grew by 75 percent and NP margin stood at a mere 0.5 percent versus 2.2 percent in 2019.

Then came the COVID year where PKGS’s topline posted a year-on-year growth of 7 percent which came on the back of improved performance of manufacturing operations during the year. Improved pricing and better volumes along with cost control resulted in GP margin clocking in at 20.4 percent vis-à-vis 16.7 percent in 2019. Operating expenses also remained in check during the year which trickled down into a healthy growth in operating income. Operating income was further strengthened by a massive growth in share of profit from associates and joint ventures. OP margin stood at 13 percent in 2020 versus 9.7 percent in 2019. Finance cost also shrank during 2020 due to low discount rate. All these upbeat factors culminated into a bottomline growth by over 15 times in 2020 with NP margin standing at 7 percent versus 0.5 percent in 2019.

2021 was another pleasant year for PKGS where it continued to set new benchmarks of financial performance. Despite topline growth of 24 percent year-on-year in 2021, the GP margin almost remained intact because of high cost of sales and services. Operating expenses also grew in line with inflation. Operating income, however, posted a stellar performance on the heels of a massive growth in other income, investment income and share of profit from associates. Hence OP margin grew to 15.2 percent in 2021 from 13 percent in the previous year. Then low discount rate backdrop coupled with better credit management resulted in low finance cost during the year, translating into a year-on-year bottomline growth of 58 percent with NP margin of 8.9 percent.

Recent Performance (9MCY22)

During 9MCY22, the topline of PKGS grew by 52 percent year-on-year on the back of improvement in core business operations. However, high inflation, energy tariffs and cost of raw materials didn’t let the company realize any growth in the GP margin which remained almost intact in 9MCY22 when compared to the same period of last year. While operating expenses considerably grew during the period putting pressure on the operating profit, the operating profit was rescued by a splendid growth in other income and investment income. Moreover, one-time net gain on the acquisition of Tri-Pack Films Limited. Hence operating profit could boast a year-on-year growth of 72 percent despite high operating expenses. The stellar performance on the operating front couldn’t trickle down completely due to high finance cost which grew by 156 percent year-on-year. Finance cost grew on account of hike in the discount rate coupled with loans availed during the period for capital expenditure and investment. The bottomline grew by 54 percent year-on-year; however the NP margin almost remained intact.

Future Outlook

Amidst highly challenging and competitive environment, the company is thriving on the heels of the superior performance of its subsidiaries. The subsidiaries of PKGS are serving across various sectors of the economy, providing their holding company the benefit of income diversification. Moreover, its foreign based subsidiaries will continue to be the source hefty exchange gain amidst sharp depreciation in Pak Rupee. The company has recently incorporated a wholly owned subsidiary in the UAE. Going forward, this newly added subsidiary will continue to add to PKGS’s bottomline growth.