Dawood Lawrencepur Limited

Dawood Lawrencepur Limited (PSX: DLL) was incorporated in Pakistan as a public listed company in 2004. The company was established as a result of scheme of arrangement for amalgamation among Dawood Cotton Mills Limited, Dilon Limited, Burewala Textile Mills Limited and Lawrencepur Woolen & Textile Mills Limited. The company is engaged in managing investments in its subsidiaries and associated companies. The company was also engaged in trading and marketing of renewable energy solutions particularly solar to commercial and industrial consumers. The company was also engaged in its legacy textile business. However, the company discontinued its trading and marketing business in 2023.

Pattern of Shareholding

As of December 31, 2022, DLL has a total of 59.300 million shares outstanding which are held by 5530 shareholders. Associated companies, undertakings and related parties have the majority stake of 72.36 percent in the company followed by local general public having 20.3 percent stake in the company. Directors, CEO, their spouse and minor children account for 2.02 percent shares of DLL while foreign companies hold 1.81 percent shares. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-22)

DLL’s topline which included its renewable energy and textile business has been shrinking over the year except for an uptick in 2021. Dividend income constituted the major chunk of DLL’s revenue followed by other income. Both sources of income have by and large mounted over the period under consideration except for a downtick in dividend income in 2020 and a slump in other income in 2021. DLL’s bottomline posted a staggering growth in 2019 followed by a plunge in the following year. In 2021, DLL’s net profit marginally grew, however ended up in the negative zone in 2022. The detailed performance review of the period under consideration is given below.

In 2019, DLL’s trading and marketing business tumbled by 23.32 percent year-on-year. This was on account of transfer of renewable energy business to a wholly owned subsidiary, Reon Energy Limited (REL). The revenue from textile segment also dropped during the year. Cost of revenue grew by 10.22 percent in 2019 on account of provision booked for slow moving and obsolete items. This translated in gross loss of Rs.0.87 million in 2019 versus gross profit of Rs.1.595 million in 2018. Operating expense mounted by 19.61 percent in 2019 on the back of increased legal & professional charges incurred during the year followed by elevated rent, rates & taxes, conveyance charges as well as repair & maintenance expense incurred during the year. DLL also booked provision of Rs.9.779 million in 2019 for the compensation and dividend to NIT. Other income magnified by 120.28 percent in 2019 mainly on account of mark-up charged to related parties. Dividend income also rebounded by 112.39 percent in 2019 which largely comprised of dividend earned from Dawood Hercules Corporation Limited. Robust dividend income and other income resulted in 116.75 percent greater operating profit recorded by DLL in 2019. Finance cost grew by 130.76 percent in 2019 due to higher discount rate and increased short-term borrowings. This drove up DLL’s gearing ratio from 10.7 percent in 2018 to 13.5 percent in 2019. Net profit registered 130.28 percent year-on-year rise to clock in at Rs.1098.90 million in 2019 with EPS of Rs.18.53 versus EPS of Rs.8.08 in 2018.

In 2020, DLL recorded 67.37 percent year-on-year decline in its trading business as the company had already transferred its renewable energy business to its wholly owned subsidiary in 2019 with no projects in progress during 2020. The outbreak of COVID-19 also affected the company’s textile business during the year. Provision booked for slow moving and obsolete items continued to take its toll on the cost of revenue which escalated by 47.2 percent in 2020. This pushed DLL’s gross loss up by 838 percent in 2020 to clock in at Rs.8.17 million. Operating expense grew by 14.5 percent in 2020 mainly on account of increased payroll expense, depreciation, fee & subscription, repair & maintenance as well as rent, rates & taxes incurred during the year. Other expense magnified by 206.85 percent in 2020 due to provision booked on impairment of investment. DLL’s operating and other expenses were counterbalanced by 14.27 percent higher other income recorded in 2020 on account of higher mark-up charged from related parties as well as higher rental income earned during the year. Dividend income slumped by 47 percent in 2020 due to lower dividend earned form Dawood Hercules Corporation Limited, however dividend still maintained its status as the major source of income for DLL. Operating profit narrowed by 46.6 percent in 2020 to clock in at Rs.736.37 million. Finance cost registered paltry uptick on 0.53 percent in 2020 due to increase in short-term borrowings. Gearing ratio stood at 15.1 percent in 2020. DLL recorded 53.27 percent lower net profit in 2020 to the tune of Rs.513.528 million with EPS of Rs.8.66.

In 2021, DLL’s trading revenue grew by 31.91 percent due to improved performance of both textile and renewable energy business during the year. DLL booked reversal of provision for slow moving and obsolete items which resulted in 74.18 percent lower cost of revenue. This reduced the company’s gross loss by 99.66 percent to clock in at Rs.0.028 million in 2021. Operating expense soared by 22.87 percent in 2021 due to elevated payroll expense, utility charges, fee & subscription as well as auditors’ remuneration incurred during the year. Other expense swelled by 12.45 percent in 2021 due to provision booked for impairment of investment. Other income slid by 26.24 percent in 2021 due to lower mark-up charged to related parties and lower rental income earned during the year. Dividend income grew by 5.56 percent in 2021. DLL’s operating profit recorded a minor downtick of 0.43 percent in 2021 to clock in at Rs.733.2 million. Finance cost tamed down by 38.71 percent in 2021 on account of monetary easing and a plunge in short-term borrowings. This brought down DLL’s gearing ratio to 8.9 percent in 2021. Net profit improved by8.97 percent in 2021 to clock in at Rs.559.569 million with EPS of Rs.9.44.

The trend of declining trading revenue which was defied in 2021 resumed in 2022 as DLL trading revenue diminished by 97.57 percent. This was on the back of a drastic drop in revenue from renewable energy business. As the company significantly curtailed its operations, its cost of sales also narrowed down by 86.81 percent in 2022. This resulted in gross loss of Rs.0.28 million, up 907.14 percent year-on-year. The company didn’t incur any selling expense for the second year in row. Administrative expense mounted by 19.5 percent in 2022 due to elevated payroll expense. DLL workforce expanded from 11 employees in 2021 to 14 employees in 2022. Other expense dealt a death blow to DLL’s bottomline was a massive 3145.96 percent hike in other expense in 2022 due to hefty provision booked for impairment of investments and loan to subsidiaries. This was due to the fact that uncertain political and economic conditions greatly affected the business model and cash flows of DLL’s subsidiary, Reon Energy Limited (REL). Other income grew by 69.51 percent in 2022 on account of higher mark-up charged to related parties, higher royalty income and rental income. Dividend from Dawood Hercules Corporation Limited also magnified by 57.89 percent in 2022. Despite improvement in other income and dividend income, higher other expense resulted in 79.16 percent decline in DLL operating profit in 2022 which clocked in at Rs.152.78 million. Finance cost plummeted by 25.47 percent in 2022 despite monetary tightening. This was because the company settled all of its short-term borrowings during the year. This pushed down DLL’s gearing ratio to zero. DLL recorded net loss of Rs.136.97 million in 2022 with loss per share of Rs.2.31.

Recent Performance (9MCY23)

During 9MCY23, DLL didn’t under take its trading business; hence its remaining sources of income were dividend and other income. Dividend income multiplied by 88.12 percent year-on-year in 9MCY23. This included dividend received from Dawood Hercules Corporation Limited. On account of discontinuation of trading business, administrative expense also slid by 0.59 percent in 9MCY23. Conversely, other expense multiplied by 964 percent during the period under consideration. This included loss on re-measurement of REL investment and impairment of interest accrued. Other income grew by 53.38 percent in 9MCY23 which included mark-up charged to related parties. Operating profit grew by 56.75 percent in 9MCY23 to clock in at Rs.1144.44 million. Despite unprecedented level of discount rate, Finance cost drastically dropped by 92.21 percent in 9MCY23 as there were no outstanding borrowings as of September 30, 2023. The imposition of super tax slightly diluted DLL’s bottomline which registered 36.94 percent year in 9MCY23 to clock in at Rs.735.656 million with EPS of Rs.12.41 versus EPS of Rs.9.06 during 9MCY22.

Future Outlook

During 1QCY23, DLL sold its entire stake in REL to Juniper International. The company also discontinued its textile business in the prior years. The company is currently only earning by management of investment in associate. In order to ensure the sustainable earnings, DLL should diversify its investment portfolio rather than just relying on its associated companies.