Siddiqsons Tinplate Limited

Siddiqsons Tinplate Limited (PSX: STPL) was established in 1999 in collaboration with SOLLAC of France and MITSUBISHI CORPORATION of Japan. Siddiqsons tinplate is one of the associated companies of the Siddiqsons Group which has other associated entities under its umbrella as well.

Manufacturing and sale of tinplates, cans and steel products is the core business function of Siddiqsons Tinplate. It provides cans and containers, which are used in the packaging of products such as cooking oil, fruits, foods, vegetables, sea foods, beverages, lubricant oil, etc.

Shareholding pattern

The directors, CEO, spouses and children and senior management hold majority of the shares in the company at a little over 51 percent followed by the local general public which owns 31 percent of the shares in the company. About 15 percent is the in the ownership of the associated companies of which Siddiqsons Limited holds most of the shares in the said category. The remaining almost 3 percent is distributed between ‘others’, employees and foreign companies and public and modarabas and mutual funds, each holding an insignificant percent.

Historical operational performance

Siddiqsons revenue and profit margins have been rather erratic through the years. While topline has remained more or less similar between FY05 and FY19, net profits have visibly reduced over a period of a decade and a half.

Looking at the last five years specifically, the company’s topline has grown each year with the exception of FY16 while net profit was negative in the years where cost of production consumed more than 90 percent of revenue.

During FY15, Siddiqsons’ topline grew by nearly 12 percent year on year, much higher than the negative growth recorded in FY14. An increase in the sales of tinplate was seen. However, this was also accompanied with a corresponding rise in costs, consuming 94 percent of the revenue but it was lesser compared to that of FY14 allowing for an improvement in gross margins. A major component of cost of production was an increase in the price of raw material. Another factor which geared the company towards lower losses was a decline in other operating expenses of which a prominent factor was a reduction in net exchange loss.

In FY16 the company entered a period positive profit figures, with net profit recorded at Rs59 million compared to a loss of Rs20 million in FY15, despite a decline in year on year topline by 9 percent. A significant decline in cost of production was observed, which allowed gross margins to double. There was a noticeable decline in cost of raw materials of tinplate particularly. In addition, as per the company’s annual report, there was also a reduction in the prices of petroleum, which also contributed to a reduction in the cost of doing business.

The topline of Siddiqsons recorded a growth rate of almost 20 percent year on year in FY17 in value terms whereas a 5 percent year-on-year growth was recorded in volumes. However, it was also accompanied by a corresponding increase in costs resulting gross margins to remain flat. Operating and net margins managed to improve as a result of stringent control on administrative costs. A major factor for the incline in costs of production was the purchase of raw material for Chromite, which was an insignificant part in the previous year.

During FY18, the increase in topline was offset by the increase in costs. The increase in costs was a result of the anti dumping duty imposed on imports from China. Therefore, the company had to redirect its source to non-Chinese, which added 5 percent more to their costs in terms of custom duty. Secondly, the devaluation of the rupee forced Siddiqsons to switch their means of financing from FE25 to PKR financing, which resulted in the escalation of finance costs, squeezing profits to a loss of Rs68 million.

In FY19, while most factors remained constant, a major escalation was observed in finance costs recorded at its highest ever since FY05 at Rs177 million. An increase in interest rate by 6 percent along with rupee devaluation caused the cost of business to rise in addition to increasing working capital requirement evident from the fact that cost of production consumed 90 percent of the net revenue for the year. The finance cost was largely made up of interest rate on short term borrowings; the latter made up 30 percent of the company’s total equity and liabilities.

Quarterly results and future outlook

The topline in 1QFY20 grew by 7 percent year on year which was mostly governed by an increase in sales price whereas volumes had declined due to problems with the Custom Collectorate, Gaddani according to the company’s report for the period. However, the company hopes that its operations will return to normal as soon as the matter is resolved. The higher cost of borrowing, higher electricity costs and currency devaluation continue to pose a risk to the company operations and financial performance.

Siddiqsons is installing a Cold Rolling Coil that would have a production capacity of 200,000 tons per annum. It is their attempt to integrate backwards, which would make them self reliant for their raw material and thus be more efficient to cater to local and export markets both.