Buxly Paints Limited (PSX: BUX) was set up as a private limited company in 1954 under the Companies Act, 1913 (now, Companies Act, 2017). Several years later, in 1985, it was converted into a public limited company.
The company essentially manufactures and sells paints, pigments, protective surface coating, varnishes, and other related products. It sells both, in the domestic market as well as the international market, particularly the Far East and the Middle East. Some of its clients are Pakistan Petroleum, Fauji Fertilisers, auto part vendors, and motorcycle manufacturers.
Shareholding pattern
As at June 30, 2020, close to 57 percent of shares are held by the associated companies. This category includes Berger Paints Limited and Slotrapid Limited; the latter holds a larger number of shares. A little over 29 percent of shares are held by the local general public, followed by over 8 percent in mutual funds. The directors, CEO, their spouses, and minor children own less than 1 percent share in the company. The remaining about 6 percent shares are with the rest of the shareholder categories.
Historical operational performance
Buxly Paints has mostly seen a rising topline over the years, with the exception of FY10, FY11, and fairly recently in FY19. Profit margins fluctuated between the period of FY12 and FY17, after which they declined till FY19, before improving in FY20.
During FY17, the company witnessed one of the highest growths in revenue at over 28 percent. This was also matched by a reduction in the cost of production that fell to nearly 76 percent of revenue- the lowest the company had seen excluding FY09 when it was recorded at almost 70 percent. The fall in costs allowed gross margin to be recorded at its highest of 24 percent- again, a level last seen in FY09. But the improvement in operating and net margin was not as pronounced year on year due to a decrease in other income and increase in finance expense. Therefore, the net margin was posted at an all-time high of 3.15 percent for the year, up from 2.45 percent seen in the previous year.
Although lower than that seen in the previous year, revenue growth in FY18 continued to remain in double digits, at 16.7 percent. But there was a more than the corresponding rise in production cost, recorded at nearly 85 percent of revenue- a significant jump from last year’s almost 76 percent. The rise in costs was attributed to a rise in prices of raw materials, expenditures, and currency devaluation. The higher cost could not entirely be passed on to consumers, which meant the company took a hit on its profitability as indicated by the drop in gross margin, to 15.3 percent, compared to 24 percent in FY17. Despite the support coming from other income, the operating margin fell to less than 1 percent; the rise in interest rates led to an escalation of finance expenses that could not be covered. Therefore, the company incurred a loss before tax of Rs 1.5 million, which grew to Rs 5.4 million after taxation.
Buxly paints witnessed the highest contraction in revenue in FY19, at over 18 percent. This was also matched by a rise in production cost, at nearly 88 percent of revenue. This was the highest the company had seen. The rise in production cost was attributed to a general inflationary pressure and currency devaluation. The economy also witnessed considerable uncertainty after the general elections held in 2018. As a result, the gross margin fell to an all-time low of 12 percent. The consistent rise in other income was not sufficient to offset the rise in expenses, leading to an operating loss of Rs 6.6 million, which escalated to Rs 15.7 million as net loss, given the rise in finance expense, both in value terms and as a share in the revenue.
Revenue growth stood at 7.2 percent in FY20, despite the development of Covid-19 in the latter half of the year that led businesses and productions to come to an abrupt halt. The higher revenue was also reflected in an improved gross margin that was recorded at 19.3 percent, with production cost making up close to 81 percent of revenue. While administrative and distribution expenses continued to consume a similar share in revenue year on year, the higher revenue allowed greater room for absorption of expenses. Thus, the company managed to post a profit of Rs 52,000, with a net margin of less than 1 percent, which was considerably better than the loss incurred last year of Rs 15.7 million.
Quarterly results and future outlook
The first quarter of FY21 saw a 10 percent decline in revenue year on year. This was due to the effect of the Covid-19 pandemic when the business activities had only started to resume. A significant control on costs and the reduction in borrowing rates by the State Bank of Pakistan allowed profitability to improve year on year at a net margin of 2.3 percent.
The second quarter saw revenue lower by 1 percent year on year, as economic activities gained momentum. But the higher production expense adversely affected gross margin that also trickled to the bottomline; the company incurred a loss of Rs 1.1 million for the quarter. Revenue recovered considerably in the third quarter where it nearly doubled year on year. This allowed profit margins to improve year on year, despite the higher production expense in 3QFY21 compared to 3QFY20.
Cumulatively, the company has achieved better margins in 9MFY21 year on year on the back of improved revenue and reduced administrative, distribution, and finance expenses. Going forward, it sees revenue recovering and growing to reach its target for the year.
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