Glass: GHANI GLASS LIMITED - Analysis of Financial Statements June 2001 - June 2007
Ghani Glass Limited (GGL) is a public limited company incorporated in Pakistan under the Companies Ordinance, 1984. The company started its commercial production during June 1995. It claims to be one of the constituent members of Ghani Group - an interest free corporate entity.
It has the honour of being the 1st ISO 9002 certified glass plant of Pakistan. Its shares are quoted on Karachi and Lahore stock exchanges. The company is engaged in the business of manufacturing and sale of glass containers and sheet glass of different types. Main products include pharmaceuticals amber/clear glass bottles, food & beverages flint/green glass bottles, and flat glass/sheet glass/float glass. It has majority shares in all of these products as shown by the figure.
Ghani Glass Limited is incorporated in the province of Punjab having its registered and head offices and its marketing office also located in Lahore. However, its manufacturing facilities are diversified at two locations. GG Plant-I & regional marketing office are located in Tehsil Haripur NWFP, GG Plant-II H-15 Landhi Industrial Area Karachi.
In a short span of time a whole range of clear float glass has been produced and GGL subsequently introduced the green float glass in the market. Also GFGL successfully entered in its exports horizon, yielding foreign exchange for the country.
The company has undergone a major BMR expansion. During the FY 06, the company invested Rs 255 million on BMR and acquisition of new assets. Resultantly now all the furnaces of the company are new and working on full capacity. Total production in comparison with last year has increased by 105 percent as the new furnace has worked for full year.
During FY '07 the cost of production increased due to increase in utilities and raw material costs by 19%. Furthermore, the sale prices for amber glass and food glass containers have been unchanged for the last few years. Despite these factors, the company managed to post sales of Rs 3.1 billion showing admirable growth of 17%. The top-line profit increased marginally by 9% but it this increase could not translate into bottom-line profits which declined by 17%.
GGL's rising sales trend despite tough conditions can be attributed to its effective management, cost reduction strategies and increase in production efficiencies. This robust sales growth coupled with high COGS are the prime drivers behind the declining trend of net profit margins and gross margins after 2003. A slight increase in profit margin in FY '06 is due to a growth of 143% in net income Both ROA and ROE showed a decline in FY '07 owing to lower PAT.
All the liquidity ratios of GGL have been declining except in FY '02 and FY '06. The increase in FY '02 can be attributed to negative growth in current liabilities where as a modest increase in FY '06 is again due to smaller proportionate increase in current liabilities. FY'07 was marked by a higher murabaha financing and creditors and accrued payables, translating into a higher current liabilities which offset the increase in current assets resulting in lower CR.
Inventory Turnover (ITO) ratio depicts how quickly the company is able to sell off its inventory. The trend line indicates a declining ITO after 2004 mainly due to a very high proportionate increase in its net sales. The FY'07 ITO however, registered an increase by 10 days owing to a 27% increase in inventory.
Days sales outstanding (DSO) shows how quickly the company is able to collect the dues from its debtors. It should be enough for the company to avoid risks of bad debts. DSO for GGL has been declining over the years under consideration (from 92 to 43 days) due to declining trade debts, showing efficiency on the part of the company in collecting back its dues. The operating cycle of GGL hence followed the same trend as that driven by ITO and DSO in the respective years.
Both TATO and sales/equity ratios of GGL have followed a similar pattern over the 7 year period, nose-diving in '05 due to 165% and 98% increase in assets and equity base respectively compared to 70% increase in net sales. Both again rose in '06 due to robust sales growth of 147%. However, they remained flat in FY'07 due to a same percentage change in sales, TA and Equity, respectively.
As far as debt management is concerned, both D/A and D/E ratios of GGL show its increased reliance on equity financing rather than debt financing as al its D/A ratios are less than 50 % maximum being 45% in FY '05 when the company had resorted to various form of long term financing like Ijara, Morabaha, sponsor loans, etc. This is further evident by the long term debt to equity ratio which emerged in 2004 through Ijara financing and later continued via other modes of Islamic borrowing.
Both D/A and D/E ratios remained flat in FY'07 on the account of almost same % increases in debts, assets and liabilities. Long term debts/equity ratio declined due to lower Ijara financing and security deposits.
As stated earlier, GGL is one of the companies of the Ghani group which is an interest free corporate entity, hence it mostly resorts to Islamic modes of financing. This is also shown by zero TIE till '04 when the company had no finance cost at all. However, this charge emerged as GGL gave the profits on Ijara, Murabaha (both short and long term) and Musharika. The ratio however, increased in FY'07 due to lower EBIT on the account of lower operating profit.
The market value of GGL's share is the highest priced share in its Glass and Ceramics sector. On 6th December 2007, the year-end price of the share was quoted at Rs 82 per share which is more than eight times of the par value. The other glass company - Tariq Glass share's market value is the second highest in its sector but not close to Ghani Glass. During the last few years the year-end market value of Ghani Glass share remained within a wide and high price band of Rs 21 and 82 per share.
The EPS on the other hand has been erratic fluctuating from 7.45 to 9.13. It fell to 5.03 in FY '07 due to relatively lower earnings coupled with increased number of outstanding shares.
The P/E ratio also followed a rising trend throughout driven by the increases in market price of shares, reflecting the investor's confident in GGL and also due to lower EPS (in FY'07). Moreover, P/E ratio of GGL is higher than average industry.
The company remains well entrenched as a socially responsible corporate citizen caring for its workforce and making value addition in the investments of prime stakeholders - its shareholders. It has a robust financial backbone which is evident from its liquidity and solvency ratios as well as high premium carrying break up value of share depending on its shareholding pattern.
The other evidence of its being socially responsible enterprise is its regular and attractive dividend distributions to its prime stakeholders - shareholders. As evident from the 6 year trend, the company did not skip dividend during the six years. DPS peaked at Rs 5.5 per share while the lowest DPS was Re 1.0 per share in FY'07. This confirms that the company is retaining most of its profits for growth plans in future.
FUTURE OUTLOOK: During the FY '07 GGL has done massive investment in BMR and its production registered impressive growth of 70% following the merger of GFGL. Hence in order to avail maximum economies of scale the company has to strive for higher productivity. It is expected that the merger and increase in production and sales volume of diversified products will pay further dividends for GGL in year to come.
Moreover, the company has embarked upon the ambitious up-gradation program so as to meet its aggressive targets by improvement in quality. It is also planning to set up a plastic shell project for meeting the demands of leading beverage companies like Pepsi Cola and Coca Cola. Also a new furnace to produce green glass for NWFP and Punjab markets has been planned to be set up at GGL-I-Hattar.
GGL's International business division is currently working diligently to explore untapped markets and boost its export sales. For this purpose, the company, actively participates in local and international EXPO's, holds dealers and customers conferences and also introduces incentive packages.
In addition to this, GGL is also proposing to setup a high tech glass plant (state-of-the-art technology used world-wide for glass container production) in Middle East in collaboration with foreign investors, for glass markets in Middle East, EU and USA. This decision can move the company to the list of MNCs and turn more opportunities for GGL's growth in the coming years. Hence one can foresee an overall positive outlook for the company.
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Balance Sheet 2003 2004 2005 2006 2007
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Operating fixed assets 193,577,261 378,884,764 595,436,050 1,834,371,906 1,809,540,518
Capital work in progress 1,246,318 92,427,587 1,238,723,110 58,105,013 143,854,523
Long term investment 75,000,000 50,000,000 6,592,000
Long term deposits 2,084,381 4,845,782 16,111,964 9,719,491 12,757,921
Total non-current assets 271,907,960 416,082,799 1,860,118,659 1,879,850,993 2,032,072,962
Stores and spares 22,276,290 121,419,810 242,957,055 357,224,113 528,523,964
Stock in trade 62,228,617 246,906,342 317,872,224 491,997,911 550,752,621
Trade debts 118,242,559 180,191,187 248,438,136 419,644,127 379,694,925
Advances, deposits,
prepayments, other receivables 65,126,411 75,001,517 226,849,550 254,498,352 347,016,479
Cash and bank balances 136,613,585 56,746,102 12,463,470 5,185,000 133,178,905
Total current assets 404,487,462 680,264,958 1,048,580,435 1,561,090,116 1,943,407,294
Total Assets 676,395,422 1,096,347,757 2,908,699,094 3,440,941,109 3,975,480,256
Total non-current
liabilities 0 49,200,000 544,048,941 446,213,723 213,319,195
Total current liabilities 78,801,307 234,542,163 752,243,433 796,130,526 1,225,161,433
Total liabilities 78,801,307 283,742,163 1,296,292,374 1,242,344,249 1,438,480,628
Total Equity 597,594,115 812,605,594 1,612,406,720 2,198,596,860 2,536,999,628
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Income Statement 2003 2004 2005 2006 2007
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Sales - net 536,370,818 817,742,007 1,389,107,019 2,680,055,508 3,124,633,248
Cost of goods sold (323,739,812) (537,461,155) (998,707,893) (1,970,577,878) (2,347,494,327)
Gross profit 212,631,006 280,280,852 2,387,814,912 709,477,630 777,138,921
Profit from operations/EBIT 191,760,126 243,206,668 319,897,864 632,507,598 570,605,753
Finance cost (12,856,504) (62,520,373) (45,938,375)
Profit before taxation 182,211,419 231,046,335 292,920,782 558,404,559 475,617,945
Taxation 1,613,099 31,708,932 (93,119,656) (73,360,779) 73,238,491
Profit after taxation 180,598,320 199,337,403 199,801,126 485,043,780 402,379,454
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PROFITABILITY RATIOS 2003 2004 2005 2006 2007
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Profit Margin 33.67% 24.38% 14.38% 18.10% 12.88%
Gross profit margin 39.64% 34.27% 28.10% 26.47% 24.87%
Return on Assets 26.70% 18.18% 6.87% 14.10% 10.12%
Return on Equity 30.22% 24.53% 12.39% 22.06% 15.86%
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LIQUIDITY RATIOS 2003 2004 2005 2006 2007
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Quick Ratio 4.06 1.33 0.65 0.89 0.71
Current Ratio 5.13 2.90 1.39 1.96 1.59
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ASSET MANAGEMENT RATIOS 2003 2004 2005 2006 2007
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Inventory Turnover(Days) 56.72 162.15 145.34 114.07 124.35
Day Sales Outstanding (Days) 79.36 79.33 64.39 56.37 43.75
Operating cycle (Days) 136.08 241.48 209.73 170.44 168.09
Total Asset Turnover 0.79 0.75 0.48 0.78 0.79
Sales/Equity 0.90 1.01 0.86 1.22 1.23
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DEBT MANAGEMENT RATIOS 2003 2004 2005 2006 2007
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Debt to Asset 0.12 0.26 0.45 0.36 0.36
Debt to Equity Ratio 0.13 0.35 0.80 0.57 0.57
Long Term Debt to Equity(%) 0.00 0.06 0.34 0.20 0.08
Times Interest Earned N/A N/A 23.33 10.12 12.42
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MARKET RATIOS 2003 2004 2005 2006 2007
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Earning per share 8.95 9.09 6.30 6.07 5.03
Price/Earnings Ratio 6.82 8.14 12.06 13.51 15.21
Dividend per share 5.00 3.50 3.00 5.50 1.00
Book value per share 39.97 33.63 53.38 34.37 31.72
No of Shares issued
(in thousands) 14950000 24166564 30208205 63976686 79970857
Market prices(Year End) 61.00 74.00 76.00 82.00 76.50
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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