THAL LIMITED - Analysis of Financial Statements Financial Year 2005- Financial Year 2010
Thal Limited engages in the manufacture and sale of jute goods, engineering goods, paper sacks, and laminate sheets in Pakistan and internationally. The company operates in two segments, engineering, and building material and allied products.
The engineering segment engages in the manufacture of automotive parts, including auto air-conditioners, wiring harnesses, heater blowers, and AC controls. The building material and allied products segment consists of jute, paper sack, and laminate operations. Its products include twill sacks, coffee and sugar sacks, heavy and light cess, hesian cloth, and jute yarn and twine used for packing purposes; multi ply paper sacks used for packaging industrial powder based materials, such as guar gum, bonding adhesives, agro seeds, and calcium; and paper and fabric based phenolic laminates, laminated chalkboards, engraving grade laminates, marker boards, laminated hardboards and chipboards, and low pressure melamine impregnated laminated boards.
The company was formerly known as Thal Jute Mills Limited and changed its name to Thal Limited in February 2004. Being the fiorst industrial project of House of Habib, the company was incorporated in 1966 and is headquartered in Karachi, Pakistan. The company is listed on Karachi and Lahore Stock Exchanges of the country.
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COMPANY SNAPSHOT
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Name of company Thal Limited
Nature of Business Personal Goods
Ticker THALL
Net Sales FY'09 Rs 8,262,982
Net Sales FY'10 Rs 8,262,983
Share price - year end
(June 30, 2010) Rs 94.45
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Financial analysis (HY10)The sales revenue of half year ended December 31, 2010 is Rs 4.951 billion, an increase of 12% from last year's half year when it was Rs 4.437 billion. The profit before tax increased from Rs 750 million in half year 2009 to Rs 832 million in the half year of 2010.
Engineering Segment:
The sales turnover for engineering segment in the HY10 was Rs 3.235 billion as compared to Rs 2.712 billion in HY09. That indicated a growth of 19%. This increase in volume is due to the increase in sales of vehicles by OEMs. The thermal operations have faced challenges and external conditions have not been favourable yet due to prudent cost control measures positive results were seen.
There has been an increase in the sales revenue of Wire Harness Division due to the increase in car sales volumes as compared to HY09. However the profitability was affected due to increase in price of fuel and raw materials (as the global price of copper increased). The Semi Straight Line system has been implemented to reduce the WIP inventory and manufacturing costs. This will also improve the product quality.
Building Material and Allied Product Segment
The sales revenue for this segment is Rs 1.716 billion. In HY09 it was Rs 1.724 billion. The jute goods production has fallen from HY09. It has fallen from 14909 M. Tons to 9750 M. Tons in HY10. This was because of the reduction in one production shift. Also workers were absent in August-September 2010. The floods in 2010 affected Muzaffargarh plant so production activity had to be stopped. Hence the jute product production has fallen. The export of Jute has fallen from Rs 310 million in HY09 to Rs 304 million in HY10. The paper sack operations have maintained a positive pace due to efficient use of resources. However the paper sack operations will be affected in the short run as the cement industry is affected by law and order situations and the floods of 2010.
The increasing cost of energy as well as law and order situation in the country has affected the Laminates operations in HY'10. However costs were saved by optimizing the inventory levels.
The current ratio of Thal Limited in HY10 declined to 2.46 from 3.03 in 1H09, due to an increase in the current liabilities. The inventory turnover has also fallen in HY10 as compared to HY09 from 1.42 to 1.28. The Day Sales Inventory has as a result increased from 252.8 days in HY09 to 281.25 days in HY10. There has been a sharp decline in total asset turnover in HY10 as compared to HY09, falling from 1.19 in HY09 to 0.57 in HY10. This decline is because sales have fallen by 10.57% in HY10 and total assets have increased by 34.9% as compared to HY09. The sales/equity ratio has also fallen in HY10 as compared to HY09 from 0.9 in HY09 to 0.8 in HY10. This again is due to the 10.57% decline in sales.
Thal Limited has been able to maintain the gross profit margin for HY10 and HY09 at 21%, along with net profit margin of 12%. ROA (return on asset) has slightly fallen in HY10 in comparison to HY09 from 8.1% to 7.2% in Hy10. This is because total assets have increased by 34.9% in HY10 and net income has only increased by 19.73%. The Return on Equity has very slightly declined from 10.6% in HY09 to 10% in HY10.
Debt management
The debt to Asset ratio has increased in from 23.6% in HY09 to 28.7% in HY10. The debt to equity too has increased in HY10 reaching 40.3%as compared to 30.96% in HY09. The TIE ratio has fallen greatly from 21.8 in HY09 to 14.2 in HY10. The reason for this is the 74.32% increase in finance cost in HY10. The long-term finance-secured has increased by 171.6% in HY10 as compared to HY09. This has caused the increase in finance cost.
Market value The EPS has increased from 8.42 in HY09 to 10.08 in HY10. This is due to the 19.73% increase in net income. The market price on December 31, 2009 was Rs 84.87 and that on December 31, 2010 was Rs 130.25 showing an increase in the market value. The P/E ratio has increased in HY10 to 12.9 as compared to 10.1 in HY09.
Financial performance (FY05-10) Subsequent to the merger of Pakistan Papersack Corporation Ltd, and Khyber Papers (Private) Ltd, and Balochistan Laminates Division into Thal Limited, the Company has emerged much stronger by the end of Fiscal year 2008. "One Thal" budded successfully.
The conglomerate which increased its sales revenue to Rs 7.514 billion from Rs 6.826 billion in FY08 whilst contributing Rs l.82 billion to the national exchequer and Rs 58 million towards Workers Profit Participation Fund and Rs l9 million to Workers Welfare Fund. The trend of growing sales continued in FY09 though the year was full of uncertainties with economic growth hovering around 2% against the economic growth of 4.1% the previous year. Massive contractions were witnessed due to acute energy outages, security environment and political disruptions, the company achieved a sales growth of 10%. Sales increased from Rs 7,514 million in FY08 to Rs 8,263 million in FY09. The export sales saw a decrease over the year whereas local sales increased by 10.5%. The country is still facing tough economic conditions yet Thal Limited managed to increase its sales by 36%. reaching 11.2 billion as opposed to 8.2 billion in FY09.
During FY10, the jute division's exports had substantially increased to $5.25 million (Rs 449 million) as compared to $4.7 million (Rs 365 million) in the same period last year, ie an increase of Rs 84 million. The increase in exports was attributable to quality and customer confidence reposed in the company.
Profitability has decreased over the years due to slow economic growth, financial crunch in international market and devaluation of rupee. However, the company had regained its profitability, with Gross profit margin increasing to 22% in 2010 as opposed to 17% in 2009. In 2010 the company had shown the highest gross profit margin as compared to the last five years. The bottom line profitability had also improved by 4% reaching 1.366 billion as opposed to 0.6 billion in FY09. This increase could be attributed to a drastic increase in operating profit, which rose by 80% in FY 0.
In FY08, the investment in Makro-Habib raised the total assets of the company by a large volume. Total Assets increased by 4% from Rs 5,635 million to Rs 5,870 million in FY09. However, that year's increase in profitability positively affected the return on equity and total assets with ROA increasing to 19%. The equity base of the company had increased largely due to an increase in the reserves of the company, which had shown a rising trend over the years. Total equity increased by 17% from Rs 3743 million to Rs 4388 million in FY09. That year the increase in equity could be solely attributed to increased retained earnings as the company had not issued any new shares that year. The return on equity increased tremendously, reporting 27% as opposed to 16% in the previous year.
The liquidity of the company was on a rise till 2007 after which it declined. It has slightly improved during the FY09 when the current ratio has been way above 1.00 over the years, exceeding 4 in the year 2007. Both the current assets and current liabilities have increased over the years, however, the increase in current assets, has been proportionately greater than the increase in the current liabilities. Consequently, the overall liquidity of the company had risen. In FY08, there was a major rise in current liabilities, particularly the short-term borrowings done by the company from Habib Metropolitan Bank, a related party, and others, raising the amount from Rs 176 million to Rs 659 million. However, these short-term borrowings declined by 51% in FY09 to Rs 324 million. This improved the current ratio from 2.10 in FY08 to 2.77 in FY09. During the year, current assets increased by 4% from Rs 3097 million in FY08 to Rs 3221 million in FY09 whereas current liabilities decreased by 21% from 1473 million in FY08 to Rs 1161 in FY09 due to decrease in short-term borrowings.
During the period under review, the liquidity position has slightly deteriorated and this decrease could be attributed to increase in current liabilities, which rose by 71% as opposed to current assets, which increased by 36% only. Major element of current assets, which increased over the period was stock in trade whereas in current assets, trade payables showed a drastic increase ultimately negatively impacting the liquidity of the company.
The asset management performance of the company has been showing an irregular trend over the years. The day sales outstanding, which initially were high, have been constant since FY06 showing that the company has improved its policy for creditors.
The inventory turnover was raised in FY08 and FY09, particularly due to the time consumed in exporting goods, hence rising the overall operating cycle. In 2010 however, the days outstanding sales had decreased to 20 days reflecting the improved debt collection of the company. This has also resulted in an improvement in the operating cycle of the company, which had reduced to 102 days as opposed to 124 days in 2009.
The total asset turnover and sales/equity has been decreasing in FY08, as the assets and equity rose exponentially due to the buying of Makro. TATO showed an improvement in FY09 due to 10% increase in turnover as compared to 4% increase in total assets. Sales to equity further declined for FY09 due to 17% increase in equity. However both these ratios have remained stable over the period.
The company has maintained a praiseworthy debt-management profile till FY07. The total debt to asset ratio had been declining as had the long-term debt to equity ratio. This is because even though the total debt of the company had been rising, the increase in debt was not proportionately greater than the increase in assets and equity. In FY08, the company incurred both long-term and short-term finances, mostly from Habib Metropolitan Bank, a related party, specifically for the purpose of buying the shares of Makro, which led to the sharp increases in both current and long-term liabilities, hence raising the debt to asset and long-term debt to equity ratios. But as these were one-time expenses, all the ratios showed a decline in FY09.
Debt to asset increased from 0.25 in FY09 to 0.32 in FY10. Debt to equity also increased from 0.34 to 0.48. This increase in both ratios can be attributed to dramatic increase in long-term financing, which increased by 200% in FY10.
The Times Interest earned (TIE) ratio of the company faced a decline in FY05. This is because the financial expenses for the year under review escalated to Rs 15.869 million from Rs 8.550 million in FY04, mainly due to an increase in the rate of mark-up by the financial institutions and funds tied up in increased inventory and receivables. The loss on account of foreign exchange amounting to Rs 2.261 million has also been classified under financial expenses under the new IAS requirements. However, even in FY05 the TIE was pretty high at 38.28. The TIE improved to a swooping 68.57 in FY06, mainly because of a decline in the company's financial costs to Rs 13.920 million while the operating profit of the company increased to around Rs 954.5 million. However, it again declined in FY07 due to higher finance costs.
In FY08, the interest rates on the short and long-term loans undertaken caused the TIE ratio to decrease to 22.87, still a fairly impressive figure for a company that also faces high costs of manufacturing. The decline continued for FY09 and the TIE ratio had fallen to a level of 6.62 due to drastic increase in finance costs by 263% from Rs 52.641 million to Rs 191.185 million. Although the debt had increased drastically in 2010, the financing charges had reduced to almost half. Thereby improving the company's TIE ratio to 23 times as opposed to 6 times in 2009.
Since the company had shown overall improvement in profitability, debt and asset management ratios, all this had a positive impact on the earnings per share and also on the price of stocks. EPS had shown a drastic increase on 74% and shareholders could enjoy an EPS of 26 Rs in 2010 as opposed to 15 Rs in 2009. The P/E ratio had decreased because the increase in price did not match the improvement in earnings per share. Over the last six years, the company has managed to pay dividends to its shareholders. Though after conglomerate, the dividends were low as FY07 - FY09 was a difficult period for the company.
Future outlook
Fiscal year FY10 begun on an optimistic note after the government announced withdrawal of 5% FED on cars above 800 cc. Currently, there are 7.5 cars per 1000 persons in Pakistan as compared to the whole average of 120. There exists a huge potential and this number can be increased depending on strengthening of middle class through anti-inflationary policies by the government.
The country's economy is currently facing a crisis-like situation and it will surely hit the company s performance for the next year. Thal needs to keep its head up in this time of crises, which may recede if expeditious actions are taken to resolve the crises.
With devaluation of rupee being the major contributors to increasing cost of imported raw materials, the profitability of laminates operations are expected to be ultimately impacted. In view of difficult local market conditions, the company is looking beyond borders for opportunities in neighbouring export markets of Middle East, North Africa and South Asia, which would remain areas of concentration in the coming period.
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THAL LIMITED
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KEY FINANCIAL HIGHLIGHTS
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2005 2006 2007 2008 2009 2010
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Liquidity
Current Ratio 3.30 354 4.71 2.10 2.77 2.21
Asset Management
Days Inventory Outstanding 91 102 81 100 102 8.2
Days Sales Outstanding 39 37 27 28 22 20
Operating Cycle 130 139 108 127 124 102
Total Asset Turnover 2.13 1.84 L84 1.33 1.41 1.35
Sales/Equity 2.94 2.43 2.25 2.01 1.88 1.99
Profitability
Gross Profit Margin 20.32% 19.36% 19.17% 17.01% 1.28% 21.79%
Net Profit Margin 11.71% 11.23% 10.84% 9.72% 7.92% 12.14%
Return on Assets 24.92% 27.26% 41.41% 13.64% 11.37% 19.20%
Return on Equity 34.46% 36.57% 27.09% 2135% 16.09% 27.19%
Debt Management
Debt/Asset 28% 24% 18% 34% 25% 32%
Debt/Equity 38% 32% 22% 31% 34% 48%
Long-term Debt/Equity 1% 1% 1% 11% 7% 13%
Times Interest Earned 38.28 6837 37.83 22.87 6.62 23.87
Market Value
Earnings per share 1133 1536 17.36 17.13 15.34 26.71
Price (as on June 30) 105.5 169.05 279 198 77.45 94.94
P/E ratio 9.1 10.9 16.1 11.6 5.0 3.6
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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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