Roshan Packages Limited

Roshan Packages Limited (PSX: RPL) was established as a private limited company in 2002 under the Companies Act, 2017. In 2016, it was converted into a public limited company and soon after was listed on the Pakistan Stock Exchange. The company manufactures and sells corrugation and flexible packaging materials.

Shareholding pattern

As at June 30, 2021, over 68 percent shares are owned by the directors, CEO, their spouses and minor children. Within this category, Mr. Tayyab Aijaz, the CEO of the company, is a major shareholder. The local general public owns 20 percent shares followed by over 5 percent held in modarabas and mutual funds. The remaining over 6 percent shares is with the rest of the shareholder categories.

Historical operational performance

The company has experienced a growing topline since FY16, with the exception of FY18 and FY20. Profit margins declined between FY16 and FY18 before rising until FY21.

In FY18, topline contracted by 1.6 percent, while sales volumes were lower by 1.2 percent. Revenue fell by a greater proportion due to reduction in selling prices. But production cost escalated to nearly 94 percent that reduced gross margin drastically to 6.15 percent, compared to 13.5 percent in FY17. The escalation in costs was a result of economic and political uncertainty, currency depreciation, rising interest rates and energy prices. Although other income contributed significantly, it could not make up for lost revenue and unprecedented high costs. Thus, net margin stood at a negative 2.26 percent, while net loss was recorded at Rs 91 million.

Revenue recovered in FY19 as it registered an all-time high growth of close to 34 percent, crossing Rs 5 billion in value terms. Sales volumes were higher by 19 percent. However, production cost as a share in revenue was only marginally lower at 93 percent, therefore, gross margin also grew marginally at close to 7 percent. While operating margin was also only slightly better, net margin at a negative 0.5 percent was supported by a reversal in allowance on trade debtors of Rs 83 million, compared to an impairment seen last year. Thus, net loss reduced to Rs 27 million.

Topline contracted again in FY20, by 3 percent whereas sales volumes were lower by 8.2 percent. Yet, due to a curtailment in costs that consumed 89.5 percent of revenue, gross margin increased to 10.45 percent for the year. This was due to a combination of less increase in input cost of material, and cost cutting initiatives. Other expenses reduced significantly that contributed to the bottomline, in addition to continued support from other income as well. Thus, net margin improved to 4.74 percent with a net profit at Rs 248 million.

In FY21, topline again registered considerable growth, at close to 34 percent to reach almost Rs 7 billion in value terms. Sales volumes were higher by almost 8 percent. With slight reduction in production cost as a share in revenue, gross margin improved to 12.6 percent that was the highest seen since FY18. However, net margin remained more or less flat at almost 5 percent due to reduction in other income and a higher tax expense that did not allow profitability to escalate on the back of considerably lower finance expense. The latter was reduced due to lower policy rate by the central bank. It consumed over 4 percent of revenue in the previous year, that was down to 1.6 percent of revenue in FY21.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by 15.8 percent year on year. However, profitability could not take off as production cost grew to consume over 90 percent of revenue compared to 87.4 percent in 1QFY21. This was attributed to currency devaluation that led to a rise in input costs particularly resin that is priced in USD. Thus, net margin fell to 1.25 percent versus 5 percent in the corresponding period last year.

In the second quarter too, revenue was higher by almost 19 percent year on year. This was attributed to a consistent improvement in market share. Similar trend as the previous quarter followed as production cost was higher at over 89 percent of revenue, versus 87.6 percent in 2QFY21 due to currency devaluation that increased the prices for raw materials, coupled with the escalation in fuel rates. However, net margin for 2QFY22 was better due to a positive tax figure but if one were to look at profit before tax margin, it was lower at 2.8 percent compared to 5.3 percent in the same period last year.

Topline in the third quarter was higher by 29.5 percent year on year due to a growing market share. With little change in production cost as a share in revenue, gross margin remained flat. But net margin was slightly lower at 4.4 percent compared to 5.4 percent in 3QFY21 due to a higher finance expense as a share in revenue. This can be attributed to rising interest rates.

The company has invested in Roshan Sun Tao Paper Mills (Private) Limited to initiate and take forward its recyclable packaging options and reduce environmental waste, as more often than not, the landfills consist of packaging industry’s materials. On the other hand, the inflationary pressure is expected to impact profitability, but the company intends to manage and improve its raw material inventory to reduce vulnerability to large fluctuations in exchange rate.