Buxly Paints Limited

Buxly Paints Limited’s (PSX: BUXL) history dates back to pre-partition era when its first manufacturing plant was set up in Hyderabad-Deccan. After migration, in 1948 the first paint factory in Pakistan was established by the name of Buxly Paints Works. Subsequently, it was registered as a private limited company in 1954 under the Companies Act 1913. Three decades later in 1985 it was converted into a public limited company.

Buxly Paints Limited’s sales are not limited to the domestic market; the company exports to the Far East and Middle East, while its local clientele includes Fauji Fertilizers, Pakistan Petroleum, Pakistan Oilfields Limited. It also caters to auto part vendors and motorcycle manufacturers. Pakistan army, navy and the air force are also some of its partners.

Its product portfolio includes various varieties within the categories of decorative and drying paints; protective coating, heat resisting paints and thinner and paint remover among others.

Shareholding pattern

Associated companies, apart from Berger Paints, which hold a large majority of the shares of Buxly Paints at nearly 57 percent, are unknown. The local general public is next in line owning 29 percent of shares while 11 percent are held in modarabas and mutual funds. The directors, CEO and their children hold a mere 0.03 percent of the company’s shares and this has been the case since at least the last five years with the exception of FY18 when it rose slightly to 0.07 percent.

Historical operational performance

At a glance, topline peaked in FY18 while profit margins rose to its highest a year prior to that, in FY17. FY17 was also the year when costs consumed the lowest share of net revenue in a decade. Since FY12, the company has consistently grown its topline, until FY19, when it declined by a considerable 18 percent.

During FY15, the company’s topline grew by 13 percent year on year while costs consumed 81 percent of the net revenue of which a significant part were the purchases of raw materials and packing materials. In FY15, BUXL also increased its spending on distribution and selling expenses, which increased both in absolute terms as well as a share of net revenue. Finance cost also has been recorded at its lowest at Rs0.2 million of which the sole component are the bank charges.

According to the company’s report for the year, FY16 saw an improvement in the country’s law and order situation. Declining oil prices and low inflation allowed the company’s business to thrive. Net revenue grew by 23 percent while costs were curtailed, making up 78 percent of the net revenue as compared to previous year’s 81 percent. In addition, income generated from other sources such as mark up on term deposit receipts and royalty income also contributed to the company’s profitability. A noticeable change was also seen in ‘other charges’, largely driven by net stock loss.

The growth momentum continued in FY17 whereby net revenue grew by a little more than 28 percent, while costs continued to reduce as a percentage of revenue. The company continued to spend on distribution and administration of which major drivers were salaries. A noteworthy change in finance cost was observed in absolute terms, although its share in revenue is insignificant. This was a result of markup on short term running finance. Profit margins improved across the board with net profit recorded at Rs 8.5 million, the highest thus far.

FY18 also saw a year on year growth in topline, although by a lower rate than seen previously- almost 17 percent. However, cost of manufacturing experienced a major hike as a result of an increase in cost of raw materials. A 30 percent increase in purchase cost was noted which took the share of costs to 84 percent in net revenue as compared to previous year’s 76 percent. The mark up on short term running finance contributed to almost 3 times increase in finance cost eventually leading the company to record a loss of Rs5.3 million.

The financial figures for the company worsened during FY19 with topline reducing by 18 percent year on year while costs continued to increase; the latter consuming almost 88 percent of the net revenue. The devaluation of the currency and rise in prices of raw materials caused cost of manufacturing to swell, while the higher interest rates created an adverse impact on finance costs. Other income, although continuously increasing, also could not cover losses. Consequently, losses rose to Rs15.7 million for the year.

Quarterly results and future outlook

The higher cost of production had compelled the company to pass on some part of the cost to the customer in terms of higher selling price while also trying to curtail costs. The first quarter of FY20 saw an improvement in topline by 28 percent, while costs also reduced as a percentage of net revenue. Gross margins improved by 75 percent year on year, eventually resulting in BUXL to record a profit for the period of Rs0.5 million as compared to a loss of near Rs4 million in the first quarter of FY19.

The company’s effort of rationalizing costs is commendable considering FY19 saw losses of Rs15.7 million, and in the first quarter of FY20 the company managed to earn a profit. While Buxly Paints Limited acknowledges the testing times the economy is experiencing, it hopes to continue its efforts to realign, reduce costs and gear the company towards profitability.