Siddiqsons Tin Plate Limited

Siddiqsons Tin Plate Limited (PSX: STPL) was incorporated in Pakistan as a public limited company in 1996. The company is engaged in the manufacturing and sales of tin plates, cans and other steel products for the packaging of cooking oil, fruits, vegetables, sea food, lubricants etc.

Pattern of Shareholding

As of June 30, 2022, STPL has 229.278 million shares outstanding which are held by 5698 shareholders. Local general public have the highest stake of 37.19 percent in the company with Directors, CEO, their spouse and minor children running a close second with 36.91 percent shares. Associated companies which include Siddiqsons Limited and Siddiqsons Denim Mills limited hold 15.19 percent shares of STPL. Foreign general public accounts for 6.76 percent shares of the company. The remaining shares are held by other categories of shareholders.

Performance Trail (2018-22)

Except for a drop in 2022, the topline of STPL has been rising in all the years under consideration. Conversely, the bottomline posts a plunge in 2020 and 2022 while it entered the loss zone in 2018 and 2020. The margins show a mixed pattern whereby they hit the rock bottom in 2020 and then recovered in 2021. In 2022, the margins again went downhill but not as much as that of 2020.

In 2019, STPL’s topline posted a healthy 29 percent year-on-year growth, however, the growth came on the back of upward revisions in price while the quantity sold plunged by 2.5 percent during the year. The cost of sales grew by 24 percent year-on-year due to increase in the price of raw materials as the government imposed protection measures to support the local flat steel industry which not only affected the supply chain of the company but also increased the cost. Yet gross profit improved by 102 percent in 2019 with GP margin inching up from 6 percent in 2018 to 10 percent in 2019. Distribution cost inched down by 4 percent year-on-year in 2019 due to lesser volumetric off-take which called for lesser transportation charges as well as export expenses. Admin expense and other expense posted a moderate growth which signifies the market induced increase in salaries and wages as well as higher legal and professional and statutory expenses. Other income posted a tremendous year-on-year growth of over 330 percent in 2019 which came on the back of a massive rise in profit of bank deposits due to upward revision in discount rate during the year. Moreover, exchange gain on export sales also provided growth impetus to other income. Operating profit boasted a stunning year-on-year growth of 232 percent in 2019 with OP margin clocking in at 9 percent up from 3 percent in 2018. Finance cost gave a major blow to the bottomline as it enlarged by 33 percent during 2019 due to increase in discount rate. The company was able to push its bottomline out of loss zone in 2019 and posted a net profit of Rs.86.69 million as against a net loss of Rs. 67.73 million in 2018. NP margin stood at 3 percent in 2019 versus a net loss margin of 3 percent in the previous year. EPS for 2019 was recorded at Rs.0.39.

2020 was harsh for STPL as it was for the majority of other industries locally and globally due to outbreak of COVID-19 which not only disrupted the business activity due to supply chain impediments but also resulted in unprecedented low level of demand. While STPL declared itself as an essential business and got exemption from non-operation during the lockdown period, its topline could only muster a 4 percent year-on-year growth in 2020 which came on the back of an exponential growth in export sales, however, overall, STPL’s sales volume was 5 percent lower than the last year due to tamed demand owing to economic slowdown. The cost of sales posted an increase of 10 percent year-on-year due to a rise in the price of Tin Mill Black Plate during the year. As the demand was already very low, the company couldn’t pass on the price increase to its customers and posted a 46 percent year-on-year slump in gross profit. GP margin clocked in at 5 percent in 2020. While admin sales posted a moderate year-on-year growth of 7 percent, distribution cost jumped up by 117 percent due to high freight charges as export sales greatly improved during the year. Other expense posted a drop of 59 percent year-on-year due to lower WPPF. Other income also posted a plunge of 14 percent due to lesser profit on bank deposits. Operating profit crashed by 62 percent year-on-year in 2019 with an OP margin of 3 percent. While the discount rate was high for the first three quarters of FY20 and the company also availed SBP refinance facility for the payment of salaries and wages which built up its long-term loan portfolio, finance cost shrank by 49 percent year-on-year in 2020 due to healthy exchange gain earned during the year owing to Pak Rupee devaluation. The relief provided by the finance cost drop couldn’t help the bottomline much as it posted a net loss of Rs.23.14 million in 2020 with a loss per share of Rs.0.10.

After a rough year, STPL heaved a sigh of relief as 2021 proved to be an exceptional year for the company. Its topline boasted the highest ever year-on-year growth of 64 percent in 2021 which came on the back of 37 percent and 78 percent rise in local and export off-take during the year. In 2021, the export sales reached 25 percent of the overall revenue of STPL up from 18 percent in 2020. While the cost of sales inched up by 49 percent year-on-year in 2021 due to high price of Tin Mill Black Plate, the company was able to pass on the impact of price increase and Pak Rupee devaluation to its customers which resulted in a 344 percent year-on-year growth in gross profit. GP margin also reached its highest mark of 14 percent in 2021. Admin expense almost doubled during the year due to legal and regulatory fee paid on the increase of authorized capital. Distribution cost also grew by 84 percent year-on-year due to high freight charges which are directly proportional to high export sales. Other expense multiplied by a massive 1680 percent during 2021 as the company incurred exchange loss on the import of its raw materials due to depreciation of Pak Rupee coupled with high provisioning for WPPF on the back of high profits made during 2021. Other income also shrank by around 79 percent during 2021 due to lower profit on bank deposit on account of low discount rate. Despite massive rise in operating and other expenses and a contraction in other income, operating profit grew by 352 percent during 2021 with an OP margin of 9 percent. Finance cost grew by 39 percent during the year despite discount rate cuts due to exchange loss. STPL made a record net profit of Rs.322.16 million in 2021 with an NP margin of 7 percent. EPS also touched Rs.1.41 in 2021.

The bliss enjoyed by the STPL in 2021 didn’t last longer as 2022 proved to be full of challenges. Record high discount rate, Pak Rupee devaluation, import restrictions and global commodity super cycle not only lowered the demand but also put a pressure on the margins. The topline plummeted by 19 percent year-on-year as volumes sold dropped by 47 percent during 2021. While, the company increased its prices by 54 percent year-on-year, it still couldn’t save its topline from shrinking. As the company operated on a curtailed capacity, the cost of sales also dropped by 19 percent year-on-year in 2022. Gross profit shrank by 23 percent year-on-year with a downtick in GP margin which clocked in at 13 percent in 2022. Distribution expense almost halved in 2022 due to lesser export expenses. Admin expenses also plunged due to lesser legal and regulatory fee. The company booked massive provision against doubtful advances which could’ve increased other expenses but lower provisioning for WPPF and lesser exchange loss counterbalanced it resulting in a 33 percent year-on-year drop in other expense in 2022. Other income boasted a 113 percent growth in 2022 as massive decline in the value of local currency provided tremendous exchange gain. Moreover, high discount rate also drove up the profit on bank deposits. Despite lower expenses, operating profit slipped by 19 percent year-on-year in 2022 while OP margin remained intact at 9 percent. 35 percent year-on-year growth in finance cost and imposition of super tax resulted in a bottomline slide of 38 percent year-on-year to clock in at Rs.201.27 million in 2022 with an NP margin of 4 percent. EPS for 2022 stood at Rs.0.88.

Recent Performance (1HFY23)

During 1HFY23, STPL’s topline could post a marginal year-on-year growth of 4 percent which came on the back of price variance while off-take dropped by 9 percent year-on-year. Soaring international steel prices compelled the customers to switch to alternate sources of packaging, resulting in a lackluster demand. Upward price revision resulted in an 8 percent growth in gross profit and a small uptick in GP margin from 17 percent in 1HFY22 to 18 percent during the current period. Operating expenses also posted a slump during the year owing to lesser off-take and tamed business activity, however, other expenses magnified by 55 percent during 1HFY23. Other income also posted a tremendous growth of 620 percent. While the detailed financial statements will reveal the underlying reason, we can safely assume that high other income might be the result of exchange gain due to record low value of Pak Rupee against US Dollar and also because of high profit of deposits due to high discount rate. Operating profit grew by 18 percent year-on-year in 1HFY23 and OP margin also improved to 15 percent from 13 percent in 1HFY22. Finance cost produced the most devastating impact on the bottomline as it magnified by a whopping 181 percent. This resulted in a bottomline slide of 67 percent year-on-year in 1HFY23 with an NP margin of 3 percent versus 9 percent during the same period last year. EPS also slipped from Rs.0.85 in 1HFY22 to Rs.0.28 in 1HFY22.

Future Outlook

The future doesn’t seem promising for STPL as high prices of steel coupled with Pak Rupee devaluation have amplified the prices of raw material. On top of it, high energy prices also push up the cost. Lower agricultural produce owing to floods and a general economic slowdown have already reduced the demand of STPL’s products. The company is not able to pass on the entire cost to its customers who are already moving to other modes of packaging. Finance cost is another Achilles heel for the company as soaring discount rate is driving the finance cost up and shrinking the bottomline of the company.

The company not only needs to look into its capital structure to contain its finance cost but also look for alternate sources of raw material as restriction on the opening of LCs is not only creating supply chain impediments but imported raw material are also not economical for the company amidst Pak Rupee depreciation. Expanding its export footprint is also another solution for the company to boost its performance.