Tri-Pack Films Limited

Tri-Pack Films Limited (PSX: TRIPF) was set up as a public limited company in 1993 under the repealed Companies Ordinance, 1984. It was formed through a joint venture between Mitsubishi Corporation of Japan and Packages Limited of Pakistan. The company manufactures and sells Biaxial Oriented Polypropylene (BOPP) film and Cast Polypropylene (CPP) film. These serve as packaging solutions for the food industry as well as for others such as lamination, overwrapping, bag making etc. The company also exports to countries like Bangladesh, Middle East, Kenya, South Africa, etc.

Shareholding pattern

As at December 31, 2020, nearly 63 percent of shares are held by the associated companies, undertakings and related parties. Of this, a major shareholder is M/S. Packages Limited. Close to 22 percent of shares are owned by the local general public, followed by 7.6 percent held under “others”. The directors, CEO, their spouses and minor children own over 2 percent shares that are largely held by Mr. Syed Babar Ali, the chairman of the company. The remaining around 5 percents of shares are with the rest of the shareholder categories.

Historical operational performance

Tri-Pack Films has mostly seen a growing topline over the years, with the exception of CY15 and CY16. Profit margins followed a downward trajectory until CY19 before improving again in CY20.

Topline in CY17 registered a growth of 4 percent, crossing Rs 12 billion, after declining for consecutive years- CY15 and CY16. This was attributed to an enabling environment, better security situation and an expansion in the retail sector that encouraged demand. The latter in turn encouraged investments. But the higher topline did not translate into a higher gross margin as prices of raw material increased. On the other hand, selling prices remained stable. Therefore, production cost stood at 85.6 percent of revenue, compared to 83 percent in the previous year. With negligible changes in other areas, net margin also decreased year on year to 4.7 percent.

In CY18 revenue posted a growth of nearly 8 percent, crossing Rs 13 billion. This could be attributed to increased demand. But profitability continued to slide as the rising raw material prices, despite a stable supply, continued to consume a larger share in revenue, at over 89 percent, causing gross margin to fall to 10.4 percent. Coupled with a rise in finance expense as a share in revenue, due to rising policy rates, net margin fell to 1.2 percent.

Revenue growth in CY19 stood at 11 percent, with the topline reaching Rs 14.7 billion. Production volumes, on the other hand, were lower year on year due to inflationary pressures. The latter was also reflected in the production cost that grew marginally to almost 90 percent. Therefore, gross margin also slid down marginally to close to 10 percent. However, it was the finance expense that escalated to 5.6 percent of revenue, growing from Rs 507 million in CY18 to Rs 820 million in CY19. This was due to a combination of a rise in policy rate as well as a significant exchange loss. With a higher tax expense, the company incurred a loss of Rs 310 million, after a period of four years.

In CY20, the company managed to increase its revenue by 2.8 percent as sales volumes remained similar year on year. The loss of volumes in the first half of the year was offset by the recovery seen in the second half of the year when strict lock downs eased and demand began to pick up. With timely raw material procurement, product portfolio reorganization and better margins earned on exports due to favourable exchange rate movement, gross margin improved to over 16 percent, which was the highest seen since CY12. This also trickled down to the bottomline with net margin recorded at 4 percent for the year.

Quarterly results and future outlook

The first quarter of CY21 saw revenue higher by 35.4 percent year on year, with a growth in volumes as well. This was attributed to a higher demand combined with higher raw material prices that led to an increase in selling price as well. With a notable reduction in cost of production as a share in revenue year on year, from close to 87 percent in 1QCY20 to 81 percent in 1QCY21, profitability improved in 1QCY21 compared to the loss incurred in 1QCY20.

In the second quarter revenue was again higher year on year, by almost 21 percent. This was also attributed to an increase in selling price as raw material prices continued to remain high. Volumes were marginally lower owing to intermittent lock downs and market closures. However, profitability was marginally lower in 2QCY21 at 7 percent compared to nearly 8 percent in 2QCY20 due to higher finance expenses. The latter was lower in 2QCY20 due to lower interest rates.

In 3QCY21, revenue was 24 percent higher year on year with a growth in volumes as well, as the quarter saw fully operational markets. However, owing to a marginally higher production cost and finance expense, profitability was slightly lower in 3QCY21, at 3.68 percent.

Production cost increased significantly in 3QCY21 compared to the previous two quarters of CY2, indicating that raw material prices and currency fluctuation will continue to remain a risk.