PKGS: improving margins

After a few tough years, Packages Ltd (KSE: PKGS) is back to profitability, putting in another round of better performance at the end of 1H CY14.
But, it didn’t start auspiciously. The company’s top line declined to Rs7.9 billion at the six-month mark. Both domestic sales and export sales during 1H CY14 were, to some extent, stunted, actually slithering on quarter-on-quarter basis.
However, gross margins improved owing to improved efficiency in terms of raw material consumption. The firm’s cost of sales declined by 4 percent year on year-–that really helped the ensuing profit margins.
But, the real kick came from a significant rise in investment income. According to industry analysts, a hefty share of investment income is backed by the firm’s investment in Tetra Pak shares.
Due to significant appreciation of rupee against the dollar in the first quarter and exchange rate stability since, the improved non-core income provided favourable support. Although the rupee appreciation improved PKGS margins, the growth potential of its core operations remain dreary due to lack of pricing power owing to strong competition in the market.
However, the company management is optimistic of a brighter future. Going forward, the firm will have to manage their working capital more efficiently in order to avoid the burden of high financial charges in the future.

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Packages Ltd - key financials

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Rs (mn)                            1HCY14   1HCY13     Chg

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Net Sales                           7,892    8,084     -2%

Cost of sales                       6,644    6,933     -4%

Gross profit                        1,248    1,151      8%

Distribution & marketing expenses     248      309    -20%

Administrative expenses               353      312     13%

Investment income                   1,953    1,232     59%

Profit for the period               1,925      904    113%

EPS - Rs                            22.82     7.77       -

Gross margin                        15.8%    14.2%       -

Operating margin                     8.2%     6.5%       -

Net margin                          24.4%    13.1%       -

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