Siddiqsons Tin Plate Limited

Siddiqsons Tin Plate Limited (PSX: STPL) was set up in 1999 in collaboration with SOLLAC of France and MITSUBISHI CORPORATION of Japan. The company manufactures and sells tin plates, cans and other steel products. These products find their utility in packaging of products such as cooking oil, fruits, foods, vegetables, sea foods, beverages, lubricant oil, etc.

Shareholding pattern

As at June 30, 2020, over 46 percent shares are held by the directors, spouses, CEO and children and senior management. Of this, nearly 20 percent shares are owned by Mr. Tariq Rafi, the chairman of the company. Close to 25 percent shares are held by the local general public, followed by 15 percent in associated companies. Within the latter, nearly all the shares are held by Siddiqsons Limited. Foreign companies own 9 percent shares while the remaining 5 percent shares are with the rest of the shareholder categories.

Historical operational performance

Since FY05, the company has largely seen a growing topline, while profit margins have been fluctuating over the years.

After contracting by 9.5 percent in FY16, revenue grew by 19.8 percent in FY17 due to a volumetric gain as well as price. Although, both export sales and local sales witnessed a rise, majority of the growth was seen in export sales that grew several folds from almost Rs 25 million in FY16 to Rs 282 million in FY17. However, local sales still remained the major contributor to revenue. With cost of production remaining more or less similar at close to 88 percent, gross margin was also stable at 12 percent. Net margin, however, increased on the back of a reduction in administrative expenses and finance expense. The latter was controlled through a lower discount rate, stability in exchange rate, and switching to FE financing.

Revenue growth was relatively subdued, at over 4 percent in FY18. Local sales grew by almost 13 percent, while chromite export sales disappeared entirely; tinplate exports grew by 68 percent, but made a smaller share in revenue. Demand for tin plate was slower due to market preference for pouch packs and PET bottles. In addition, the anti-dumping duty on CRC/TMBP cause inconsistencies in raw material supply affecting production; this is reflected in lower production for the year at 18,221 metric tons, compared to 19,051 metric tons in the previous year. Moreover, cost of production also jumped to nearly 94 percent of revenue due to fluctuation in import price of inputs, shrinking gross margin to 6 percent. With finance expense escalating due to the switch to rupee-based financing, the company incurred a loss of Rs 68 million for the year.

Siddiqsons Tin Plate Limited witnessed the highest growth in topline in FY19 by nearly 29 percent, crossing Rs 3 billion in value terms. Both local sales and export sales grew significantly, by 26.3 percent and 53 percent, respectively. The global tinplate packaging market saw a growing demand due to the increasing consumption of canned vegetables and foods, growth of pharmaceuticals and cosmetics industry, etc. Cost of production reduced to 90 percent of revenue, allowing gross margin to improve to almost 10 percent. This also trickled down to the bottomline, while other income also provided support to the net margin that was recorded at 2.5 percent for the year. The higher than usual other income came from profit on bank deposits amounting to Rs 64 million compared to Rs 1.2 million in the previous year.

Revenue growth in FY20 stood at over 4 percent; this growth largely came from export sales that grew by several folds from Rs 147 million in FY19, to Rs 651 million in FY20. Local sales, on the other hand, contracted by 11 percent. This was attributed to the general economic slowdown in the first half of FY20 while the second half was adversely affected by the outbreak of the Covid-19 pandemic that led to a nationwide lockdown. Cost of production reached its highest level in the last five years, at nearly 95 percent of revenue, reducing gross margin to 5 percent. With further expenses incurred, the company incurred a loss for the year, at Rs 23 million, for the second time since FY15.

Quarterly results and future outlook

Revenue in the first quarter of FY21 more than doubled year on year in value terms. Most of this growth was associated with export sales; over the years, the company had seen a general growth in export sales value, reflecting potential in the global market. The growth in revenue, combined with the reduction in finance expense owing to lower interest rates, the company saw a net margin of 2 percent, compared to a loss of Rs 17.6 million in 1QFY20.

The second quarter also saw revenue more than doubling year on year, with both local and export sale witnessing a rise. As business activities resumed after the lockdown, demand also picked up. However, cost of production inclined to 90 percent of revenue, reducing gross margin. Combined with this was the reduction in other income that shrunk to Rs 4 million in 2QFY21. Thus, net margin was considerably lower at 1.9 percent in 2QFY21.

The third quarter saw revenue higher year on year only marginally by 5 percent. Cost of production was also significantly lower in 3QFY21, allowing gross margin to improve to 15.4 percent. This also reflected in the bottomline as well, with net margin recorded at over 5 percent for the quarter compared to the loss incurred of Rs 40 million in 3QFY20. Cumulatively, 9MFY21 saw better profitability on the back of lower production cost and finance expense, in addition to an improved topline.

With export sales gradually growing, the company will continue to expand its export destinations while also catering to the need of the market.