ZIL Limited

ZIL Limited (PSX: ZIL) was established in 1954 in Karachi, with a factory in Hyderabad. It bought Zulfeqar Industries Limited that was established in 1960 as a private limited company under the Companies Act, 1913, and also adopted the name. It was later converted into a public limited company in 1986.

The company manufactures and sells home and personal care products.

Shareholding pattern

As of December 31, 2019, the directors, CEO, their spouses, and minor children held 27.3 percent shares in the company. Of this, nearly 27 percent shares are owned by Mrs. Feriel Ali Mehdi, the Director/Chairman of ZIL Limited. A little over 60 percent shares are with the local general public; 5.8 percent in mutual fund followed by 4.8 percent held under “others”. The remaining about 2 percent is distributed with the rest of the shareholder categories.

Historical operational performance

Apart from CY14, ZIL Limited has seen positive growth in its topline, while profit margins started growing after CY15 and have been relatively stable since then.

During CY16, topline grew by almost 9 percent. Their well-known brand, “Capri” performed well, witnessing double digit growth thereby contributing to the topline increase. During CY16, production was also higher at 6785 units of soap (metric tons). There was a notable decline in the cost of production from close to 82 percent in CY15, to 72 percent of revenue in CY16, that contributed to gross margin improvement. There was a noticeable decline in fuel and power expense in addition to raw material expense that allowed for decrease in the cost of production. However, distribution expense consumed nearly 70 percent of gross margin, causing the company to post a net margin of less than 1 percent; but it was an improvement from previous year’s loss.

Sales growth during CY17 was at 9.3 percent. The industry was considered competitive, with players focusing on advertising and promotion to increase market share. However, ZIL was able to maintain its share and increase sales through better volumes on the back of consumer loyalty and spending on promotions and relaunching its brand “Capri”. The higher spending on promotions was reflected in the higher distribution expense in value terms, although as a percentage of revenue distribution it was lower at almost 19 percent. With a further drop in cost of production and support from other income, the company increased its net margin slightly to over 1 percent, and a profit of Rs 17 million.

ZIL Limited remained on its growth trajectory as its topline witnessed an increase of 18.5 percent in CY18. Although the year saw general elections that brought with a great deal of uncertainty in the business environment, the company was able to maintain its growth on the back of better product prices. Despite the inflation, high interest rates and currency devaluation, ZIL Limited was able to sustain its cost of production at close to 71 percent. This kept gross margin undeterred at around 28 percent. With most other factors staying more or less similar, net margin improved to 1.5 percent for the year.

In CY19, the company crossed the Rs 2 billion mark in sales, growing by almost 28 percent- the highest seen thus far. This was supported by both, volumetric gains and selling price increases. Most of this volumetric gain was associated with its brand “Capri”. On the other hand, cost of production continued to decrease, consuming a little over 70 percent of revenue. This led to gross margin peaking at more than 29 percent. The effect of this was also reflected in the bottomline and net margin, with some support coming from lower distribution expense, as a share in revenue. Thus, the company posted a net profit of Rs 66 million for the year- the highest seen since the company incurred a loss in CY14.

Quarterly results and future outlook

1QCY20 saw the lowest sales among the three quarters of CY20, at Rs 488 million. This was also slightly lower than that seen in the same period last year. This was attributed to the outbreak of the pandemic and a lock down imposed towards the end of the quarter. With cost of production lowest among the three quarters at 71 percent of revenue, the company saw the highest gross margin. However, the same cannot be said for net margin as it was impacted by distribution expense.

Sales was better in 2QCY20, both on a quarter-on-quarter basis and year on year. Although cost of production grew to nearly 76 percent of revenue, bottomline was supported by a decline in administrative costs. With Rs 9 million in net profit, the quarter ended better than the previous quarter but was much lower compared to Rs 25 million seen in 2QCY19.

In 3QCY20, ZIL Limited saw the highest sales revenue of Rs 673 million. During the quarter, the company launched a new brand in the economy segment. However, with a high cost of production combined with a high distribution expense, net margin again fell to less than 1 percent for the quarter. Comparing 9MCY20 with 9MCY19, sales revenue was more or less similar, but profitability was lower for 9MCY20 due to cost of production consuming more than 75 percent of revenue versus 72 percent in 9MCY20.

The company foresees tough times in terms of profitability due to raw material prices and PKR devaluation.