Rupali Polyester Limited

Rupali Polyester Limited (PSX: RUPL) was established as a public listed company in 1980 under the Companies Act, 1913. Operating in the petrochemical industry, the company manufactures and sells polyester products such as Polyester Filament Yarn (PFY) and Polyester Staple Fiber (PSF). It primarily caters to the producers of cloth and fabric variants, particularly the knitting, weaving, bed sheets, sportswear and water jet users’ segments.

Shareholding pattern

As at June 30, 2021, 81 percent shares are held under the category of “Trusts” that includes Trustees Feerasta Senior Trust and Trustees ALNU Trust. Another over 10 percent shares is with the individuals followed by directors, CEO, their spouses and minor children owning over 3 percent shares in the company. The remaining about 5 percent shares is with the rest of the shareholder categories.

Historical operational performance

Since FY09, Rupali Polyester has witnessed a fluctuating topline, while profit margins, specifically in the last six years have followed an upward trajectory.

In FY18, revenue grew by over 20 percent to cross Rs 6 billion in value terms. Due to the imposition of regulatory duty, demand for locally manufactured PFY picked up. As a result, the company installed a new POY. On the other hand, cost of production declined to consume 94 percent of revenue, however it was still considerably high. Thus, the company was able to post a profit of Rs 64 million compared to four consecutive years of incurring losses.

Topline grew by a whopping almost 50 percent in FY19 which is the highest revenue growth. Revenue grew to an all-time high of Rs 9 billion in value terms due to industry protection measures. Both, prices and volumes improved for the year. However, this was mostly concentrated in the first half of the year as traders and textile manufacturers went on a strike to oppose the abolition of zero-rating in the second half. With a marginal change in cost of production, gross margin was recorded at 5.4 percent for the year, while net margin stood at 0.6 percent.

In FY20, the company witnessed the biggest decline in revenue by close to 35 percent. Majority of the loss in revenue was seen in the second half of the year with the outbreak of the Covid-19 pandemic in the country. This led to strict lockdowns with majority of the production processes also halting abruptly. However, profitability was not impacted as severely as cost of production consumed a smaller share in revenue at over 93 percent. Operating margin, on the other hand, received significant support from other income sourced from “gain on remeasurement of fair value of investment property”. In contrast, net margin was lower year on year due to high interest rates that increased finance expense as a share in revenue.

Topline in FY21 registered a growth rate of nearly 28 percent to reach Rs 7.5 billion in value terms. While growth in the first half of the year was relatively slow as business activities continued to adapt to working around Covid-19 pandemic, the second half saw some demand recovery. At 88.8 percent, production cost as a share in revenue stood at its lowest, therefore gross margin also peaked at 11 percent. This also trickled to the net margin that was recorded at 6 percent as operating expenses and finance expensereduced as a share in revenue. The latter was due to reduction of interest rates. Thus, the company posted an all-time high bottomline of Rs 453 million.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by 46.8 percent year on year. This was attributed to increased demand from downstream consumers as economic activity picked up in the textile sector. The higher revenue also reflected in higher profitability as net margin for the period was recorded at over 7 percent compared to 2.4 percent in 1QFY21. Moreover, finance expense also reduced considerably that contributed to a higher bottomline.

Revenue in the second quarter was higher by over 61 percent year on year as demand continued to grow. Despite inflationary pressures in the economy alongside increase in global commodity prices, the company managed to reduce its cost of production as a share in revenue and post a net margin of 19 percent in 2QFY22 compared to 5.3 percent in the same period last year.

In the third quarter topline was again higher year on year, by 23.6 percent. Revenue growth was relatively subdued compared to the first two quarters due to slow economic activity, inflation and currency depreciation. In addition, there was a reduction in anti-dumping duties on PFY that resulted in market competition. The impact of inflationary pressures and rise in global commodity prices was evident in cost of production that grew to 87.7 percent of revenue versus 82 percent in 3QFY21. However, the reduction in finance and tax expense curtailed the fall in net margin that was recorded at 8.1 percent compared to 9.5 percent in 3QFY21. The company expects government assistance in the form of industry protection measures as it is an important element of the export value chain.