Ecopack Limited

Ecopack Limited (PSX: ECOP) was set up in 1991 as a private limited company. A year later it was converted into a public limited company and two years later it was listed on the stock exchange. The company manufactures and sells Polyethylene Terephthalate (PET) bottles and Preforms (an intermediate PET product). Some of its clients include Pepsi Cola, Murree Brewery, Coca Cola, Gourmet Cola, etc. Its manufacturing plant is located in Khyber Pakhtunkhwa and has a production capacity of over 300 million bottles and 700 million preforms annually.

Shareholding pattern

As at June 30, 2021, over 17 percent shares are held by the directors, CEO, their spouses and minor children. Within this, majority are owned by Mr. Hussain Jamil, the CEO of Ecopack Limited. Nearly 75 percent shares are with the local general public, followed by over 7 percent held under the “others” category. The remaining less than 1 percent share is with the rest of the shareholder categories.

Historical operational performance

Over the years, Ecopack Limited has mostly seen a growing topline with the exception of a few years, whereas profit margins in the last six years have declined until FY20, before improving again in FY21.

In FY18, the company witnessed an all-time high growth rate of over 50 percent, with revenue crossing Rs 3 billion in value terms. This was attributed to competitive pricing. Moreover, higher sales indicate that the company saw a higher production thereby also reducing fixed cost per unit. This is also reflected in the higher capacity utilization figures for the year. Majority of the revenue is contributed by the preforms segment that saw a 114 percent growth.

With currency devaluation in the second half of FY18, imported raw materials became expensive such as petro-chemical derived raw materials. Thus, cost of production rose to 89 percent of revenue, from almost 84 percent in the previous year. As a result, gross margin reduced to almost 11 percent. However, the reduction in net margin from 4.8 percent in FY17 to 3.7 percent was not as pronounced due to a substantial reduction in the tax figure.

Revenue in FY19 posted a growth of 23 percent, reaching an all-time high of over Rs 4 billion in value terms. However, this was matched by a more than corresponding increase in costs that consumed 90.5 percent of revenue, therefore gross margin reduced to 9.5 percent. This also trickled to the operating margin due to currency devaluation by 36 percent and increase in petroleum prices by 35 percent that also impacted truck freight. As a result, demand was affected by the resultant double-digit inflation. Net margin, on the other hand was further adversely affected at 1.8 percent due to the rise in interest rates that increased the finance cost. The latter consumed 3 percent of revenue.

In FY20 revenue contracted by 25 percent due to the outbreak of the Covid-19 pandemic particularly in the peak sales season this also resulted in higher-than-expected inventory. As a result, due to inflationary pressures, costs consumed an all-time high of over 95 percent of revenue, reducing gross margin to near 5 percent. This also trickled down to the bottomline, particularly with the continued rise in finance expense due to high interest rates. Finance expense consumed over 5 percent of revenue. Thus, the company incurred a loss for the year at Rs 104 million- the highest seen.

Revenue growth in FY21 was marginal at 1.5 percent during the year, as the third wave of Covid-19 occurred once again during the peak sales season. Volumes for bottles sales decreased by 5 percent, whereas volumes for preform sales increased by 6 percent. With some improvement in topline, and the company’s attempts to manage supply chains, costs reduced to 90 percent of revenue allowing gross margin to improve to 9.8 percent. Moreover, the lower interest rates also allowed finance cost to reduce significantly, consuming 3 percent of revenue, down from last year’s 5 percent; the company was able to post a positive net margin of 1.5 percent.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by nearly 62 percent year on year, as it was posted at Rs 1 billion for the period. This was attributed to an increase in sales of bottle by 54 percent and preforms by 9 percent. Therefore, gross margin increased year on year to 8.1 percent for the period. With reductions in other elements of the financial statement as well, as a share in revenue, the company posted a net margin of 2.4 percent compared to a net loss of Rs 11.4 million in the same period last year. Moreover, it must also be noted that in 1QFY21, businesses had only started resuming after a period of lockdown; therefore, sales were significantly lower.

With business activities returning to normal, markets and schools opening up, and an increase in capacity of beverage companies which are prominent clients for Ecopack Limited, there is an expectation of growth in peak sales season.