Al-Shaheer Corporation Results Review

Company Overview

Al-Shaheer Corporation, more commonly known among its customers by its brand name Meat One, was incorporated on June 30, 2012. The company’s primary operations include trading of different kinds of halal meat both for export and local market through chain of retail stores.

A notable feature of company’s finances is that it relies almost exclusively on Islamic sources (Murabaha, Musharaka etc.) for meeting its long term and short term loan requirements.

Historical Results Review

A review of past 5 years results show that company’s sales has been steadily declining since 2016 resulting in net losses in 2017 and 2018. Past years’ director’s reports indicate that this loss in sales was mainly due to price competition from unorganized meat sector, cheaper meat imports and subsequent cash crunch that resulted from it. Company was able to stabilize the situation by issuing right shares to meet cash shortfalls thereby increasing its paid up capital and by instituting effective cost control methods in its outlets. Later on Company also reduced its costs by focusing on locations where customers were willing to pay the price for quality meat products and shutting down locations that were incurring losses.

As the following chart indicates; drop in sales in 2017 and 2018 lead to negative net profit margins even though gross profit margins remained positive despite falling slightly. However, later on in 2019 and 2020, both margins showed marked improvement with GP margin surpassing 2016’s level and NP margin stabilizing at just under 4.5% indicating effectiveness of cost control methods initiated by the company in face of declining sales. Company’s efforts to refocus its sales model appear to have also been effective since decline in sales in 2020 is very low as compared to previous years. However, 2021 annual results will also need to be reviewed to observe how well the new sales model holds.

EPS also shows a similar pattern as NP margin. It fell on account of declining revenues and became negative in 2017 and 2018 but recovered in 2019 and 2020.

Loan structure of the company is almost exclusively based on Islamic financing. A review of company’s reports indicates that its loan structure ratio has remained more or less the same since 2017 with short term borrowings making up the majority portion. Reports also indicate that company uses long term loans for expansions, which means that short term borrowings, most of which are made up of Murabaha financing, are probably used to meet short term needs. Long term borrowings took a jump in 2017 and 2018 but have been going down ever since. Short term borrowings also follow a somewhat similar pattern.

Current Ratio is following a bowl shaped curve since 2016. It fell in 2017 and 2018 as company’s short term borrowings increased. However, it improved in 2020 primarily due to decline in short term borrowings and current portion of long term financing and increase in trade receivables, stock-in-trade and cash balance. . Its cash from operations however, was negative by nearly 147 million rupees, which can prove to be problematic.

Latest Results Review

Reviewing results for first quarter of 2021 and comparing them with corresponding quarter of 2020 indicates that company’s sales increased by 54% while gross profit increased by 21%. This resulted in overall GP margin decline of 21% on YOY basis. However, net profit increased by 258% resulting in NP margin increase of 133% and EPS increase of 264% despite an increase in share capital by 41% from corresponding quarter of previous year. Overall a promising start for 2021.

Cash from operations however, declined by 116% going into negative. This also resulted in cash balances declining by 60% in 1Q2021 on YOY basis. Stock in trade and trade receivables both increased by 102% and 38% respectively possibly due to increased sales.

Short term borrowings declined by 14% while current ratio improved by 44%.

Overall company situation seems to be stabilizing after hiccups in 2017 and 2018 but it is not out of the woods yet. Its negative cash from operations both in 1Q2021 and for the year 2020 can prove to be problematic if not overcome.