Treet Corporation Limited (PSX: TREET) was established as a public limited company in 1977. The company is essentially in the business of manufacturing and selling razors and razor blades. Within this category, there are two divisions of conventional blades and disposable razors. While Treet Corporation Limited stands as the holding company, some of the subsidiary companies include Global Arts Limited, Renacon Pharma Limited, Treet Battery Limited, etc.
Shareholding pattern
The company is largely held by its directors, CEO, their spouses, and minor children at 43 percent. Of this, Mr. Syed Shahid Ali, one of the directors of the company, holds a majority of the shares at 33 percent. Individuals hold roughly 35 percent of shares of the company, followed by 7 percent and 5 percent held in NIT & ICP and associated companies, respectively. The remaining about 10 percent of the shares is held by the rest of the shareholder categories.
Historical operational performance
While topline has been mostly rising except for in FY15, and more recently in FY20, profit margins have been on a consistent gradual decline; increasing in FY19 and dipping again in FY20.
During FY16, topline registered a nearly 20 percent growth. Although both, export and local sales saw an increase, it was gross local sales of blades/disposable business that grew by nearly 21 percent that was essentially responsible for the growth in topline. With a lower cost of production at 68 percent (FY15: 72 percent) of revenue, gross margin improved to almost 32 percent. However, it was squeezed by a doubling of administrative cost in value terms as well as a share in revenue. This was due to higher salaries expense and depreciation on account of expansion plans of the company. This, along with lower income, that was present last year due to gain on disposal of available for sale long term investments, lowered net margin that reduced to 0.7 percent, down from 2.7 percent in FY15.
There was a 13 percent rise in topline in FY17. Export sales remained mostly stable for the year, while local sales rose by close to 17 percent. For the blades/disposable razors division, growth was on the back of volumes. Cost of production rose slightly to 69.5 percent of revenue bringing gross margin lower at 30.5 percent. While administrative and distribution expense cancelled out one another’s effect, it was the other income arising out of dividend that was mainly responsible for the rise in net margin that grew to 1.2 percent from last year’s less than 1 percent.
In FY18, topline growth stood close to 14 percent; both export as well as local sales registered an increase. during the year, the company also expanded its pharmaceutical line of business through Renacon Pharma Limited. However, cost of production at 76.7 percent squeezed gross margins; the latter was down to a little over 23 percent. This was due to increase in salaries expense. Operating margin was to some extent supported by other income coming from financial assets, particularly “charges to subsidiary company”. but finance expense making 9.5 percent of revenue caused the company to eventually post a loss for the year at Rs 83 million.
Topline continued to grow during FY19 at nearly 11 percent. Although, both export and local sales increased, export sales that had stayed relatively stable in the last few years, saw a 23 percent increase. cost of production fell notably, to 67 percent- the lowest seen. This led the gross margin to peak at 32.8 percent. With a further push coming from other income, again through “charges to subsidiary company”, operating margin also improved, and the effect was also reflected in the bottomline, despite finance expense making up 14 percent of revenue.
Owing to the outbreak of Covid-19, the company witnessed a 10.7 percent reduction in its topline; both export sales and local sales saw a decline. Cost of production as a percentage of revenue, however, remained flat that kept gross margin stable too. Operating margin, on the other hand, was adversely impacted due to Rs 1 billion of other expenses that arose out of impairment allowance on investment. With another Rs 1 billion in finance expenses, the company incurred a loss of Rs 190 million.
Quarterly results and future outlook
During 1QFY21, topline increased by 8.7 percent year on year. The blades/disposable business was mainly responsible for the growth in topline, whereas profitability was maintained by a combination of a rise in other income and a reduction in finance expense. The reduction in finance expense could be attributed to the lower policy rate as a relief measure by the government to the businesses.
Given the high leverage of the company, the company plans to divest some of its assets to generate liquidity in addition to undertaking BMR and capacity enhancement activities to improve productivity and efficiency.
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