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Ismail Industries Limited (PSX: ISIL) was set up in 1988 as a private limited company. The following year in 1989, it was converted into a public limited company. The company manufactures and trades sugar confectionery items, biscuits, potato chips, cast polypropylene (CPP) and biaxially-oriented polyethylene terephthalate (BOPET) film under the brands “Candyland”, “Bisconni”, “Snackcity” and “Astro films”.

Shareholding pattern

As at June 30, 2021, close to 99 percent shares are held by the CEO, directors, their spouses and minor children. Within this category, the major shareholders are Mr. Miftah Ismail Ahmed, Ms. Almas Maqsood, the chairman Mr. Muhammad M. Ismail and Mr. Ahmed Muhammad. The remaining shares are distributed with the rest of the shareholder categories.

Historical operational performance

The company has consistently seen a growing topline throughout the decade, while profit margins have largely remained stable, particularly in the last six years.

In FY18, revenue posted a growth of nearly 22 percent to reach close to Rs 24 billion. This was attributed to consistently expanding the product portfolio. Candyland, that is the market leader in the confectionery manufacturing industry, introduced “Novella Center Filled” that was well-received by the market. The cookies segment saw sales of Rs 1 billion twice during the year. With cost of production reducing to 77.6 percent of revenue, compared to 81 percent in the previous year, gross margin improved to 22.4 percent, versus almost 19 percent in FY17. But with a drastic increase in distribution expense from consuming 8.5 percent of revenue in FY17 to over 12 percent in FY18, net margin reduced marginally to 5.91 percent (FY17: 5.95 percent). Majority of the increase in distribution expense was associated with salaries expense, advertisements, vehicle running and maintenance.

Topline growth in FY19 reached almost 26 percent with revenue crossing Rs 30 billion in value terms. This was again attributed to their market leadership in various categories. The company also had thirteen new brand launches across various categories and products. With a slight incline in cost of production to almost 79 percent, gross margin was relatively stable at 21 percent. However, net margin saw a bigger decline year on year to 3.2 percent due to the near absence of share of profit from associate that reduced to Rs 45 million, compared to Rs 393 million in the previous year.

Revenue growth in FY20 stood at 10.4 percent as the company continued to venture into new product categories. Within the Candyland segment, the company introduced new variants such as spreads, cooking chocolate, no-added sugar products, etc. Within the Bisconni segment, the company launched several marketing campaigns in addition to making capital expenditure on its production facilities to meet market demand. But cost of production continued to rise gradually, consuming over 79 percent of revenue. As a result, gross margin was recorded at 20.7 percent for the year. However, net margin fell to 2.8 percent as finance and distribution expense escalated due to increases in interest rates and inflation. Although, the company earned Rs 492 million from share of profit from associate, it could not offset the rise in expenses.

In FY21, topline grew by 12.3 percent to reach an all-time high of Rs 37.3 billion in value terms. This was attributed to an improvement in volumes, making adjustments in selling price and making changes in product mixes. On the other hand, cost of production increased to almost 81 percent that further trimmed gross margin to 19.3 percent. However, net margin improved to 4.8 percent on the back of a reduction in finance expense that almost halved in value terms to Rs 694 million. In addition, share of profit from associate also grew to Rs 601 million that supported the bottomline. The latter was recorded at an all-time high of almost Rs 1.8 billion.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by 29.4 percent year on year. While production cost continued to deter gross margins, net margin for the period was better at 4.4 percent versus 3.1 percent in 1QFY21, due to other income that was recorded at Rs 368 million compared to Rs 43 million in the same period last year. The second quarter also saw higher revenue year on year by 45 percent. This was attributed to witnessing growth in all the segments of the business. Despite this, net margin was lower in 2QFY22 at 4.6 percent versus 6.3 percent in 2QFY22 due to significant rise in distribution and finance expense, combined with a reduction in both, other income and share of profit from associate that otherwise contribute considerably towards the bottomline.

Revenue in the third quarter was higher by over 51 percent year on year. This was again attributed to a growth in volumes while also exploring local and international markets. But similar to the previous quarter of 2QFY22, net margin was lower in the current period at 4.5 percent versus 5.95 percent in 3QFY21, as finance expense more than doubled in addition to a rise in cost of production to over 82 percent. While the company has consistently grown its topline on the back of price adjustments, product mixes, and volumetric growth, its profitability has been declining gradually due to rising cost of inputs. This element has been noted across majority of the sectors of the economy. To rectify this, the business environment requires political and economic stability.

Comments

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SAMIR SARDANA Jul 27, 2022 08:25pm
Fir a company like this,the Pakistan Accounting St& ards Board & ICAP,should set disclosure norms for shareholders & analysts For example,Ismail is into trading & manufacturing - & so,the world needs to know the sales & operating margins from these 2 ACTIVITY SEGMENTS.W/o this,turnover changes are meaningless,as traded sales can boost turnover,at will (& capacity usage %, is meaningless).In addition,it is also vital to know the capital employed in each of the activity segments (& thus the ROCE) Then we have FMCG & Commodity Business Segments. Cast polypropylene (CPP) & biaxially-oriented polyethylene terephthalate (BOPET) film,WHILE CARRYING A BR& NAME,WILL HAVE A BULK OF ITS COSTS LINKED TO COMMODITY RATES & OIL,& THAT WILL EXPLAIN THE MARGINS IN THAT BUSINESS SEGEMENT.dindooohindoo Then we have the PURE FMCG segement,as sugar confectionery items, biscuits, potato chips.Here again the PROFITABILITY FOR EACH PRODUCT SEGEMENT IS REQUIRED - AS ELSE, NO ANALYSIS POSSIBLE
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samir sardana Jul 27, 2022 08:36pm
In the FMCG segement the BOM is the 1st benchmark .The Bill of Material captures the variable cost of production - & will show the cost & production efficiencies.The ability to pass on the cost-push, is linked to pricing power,competition & the brand premium.dindooohindoo .Key Metric in S&M & Distribution costs is - number of new dealers,stockists or stocking points or new markets & geographies tapped into - year by year.,This is what will drive future sales & margins - & will also cause SPIKES IN DISTRIBUTION COSTS, DEALER REBATES,& INCENTIVES - & SO THAT COST SPIKE HAS TO BE EXCLUDED FOR COST & SALES ANALYSIS DMS - Dealer Management system & its efficiency & the patterns of ROCE & ROE of the dealers Lastly,we have the number of new product & brand launches,innovations in advert - especially digital adverts,R&D,, Brand & Product Acquisitions/Patents & Licenses - which will cause SPIKES IN THE S&M costs,& DRIVE FUTURE SALES - to be excluded,for cost analysis
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