Tariq Glass Industries Limited

Tariq Glass Industries Limited (PSX: TGL) was established in 1978, and two years later it was converted into a public limited company. The company manufactures and sells glass containers, opal glass, tableware and foat glass under the brand names Omroc, Toyo Nasic, and NOVA glassware. The company is present in both, the domestic market as well as the international market, selling to countries like Afghanistan and Sri Lanka.

Shareholding pattern

As at June 30, 2022, over 49 percent shares are owned by the company’s directors, CEO, their spouses and minor children, majority of which are held by Managing Director and CEO, Mr. Omer Baig. The local general public owns over 24 percent shares, while close to 12 percent are held under the associated companies, undertaking and related parties. The remaining about 15 percent shares is with the rest of the shareholder categories.

Historical operational performance

The company has mostly seen a growing topline, with the exception of FY20, when the pandemic broke out in the second half of the year. Profit margins have also been on an upward trajectory, particularly in the last six years.

Revenue in FY18 registered a growth of nearly 23 percent to reach Rs 12 billion in value terms.During the last quarter of the year, production commenced on Opal Glass furnace that made additional contributions to the sales volumes. However, this did not translate into higher gross margin as production cost grew to consume 82.5 percent of revenue, compared to nearly 80 percent in FY17. As a result, gross margin shrunk to 17.5 percent. But as distribution expense and finance expense reduced as a share in revenue, net margin improved to 9 percent for the year, versus 7.7 percent in the previous year.Growth momentum continued in FY19 as topline registered a growth of over 18 percent to cross Rs 14 billion in value terms. Majority of this growth was seen in local sales, while export sales posted a growth of 6.5 percent. With production cost decreasing to 80.4 percent of revenue, gross margin inched closer to 20 percent. However, net margin remained more or less flat at around 9 percent as finance expense increased to consume over 2 percent of revenue. Moreover, tax expense was also higher.Topline contracted for the first time in FY20 by 5.6 percent since FY09. This was primarily attributed to the outbreak of the Covid-19 pandemic that led to strict lockdowns. Therefore, there was a complete halt in sales as well. But because production continued, the company had a large stock of finished goods inventory. This is also reflected in the higher production cost as a share in revenue at almost 84 percent. In addition, the prevalent inflationary pressures, higher prices for fuel, energy, freight, etc. also contributed to higher costs. Thus, gross margin was recorded at a lower 16 percent. Moreover, with finance expense making up over 4 percent of revenue due to higher interest rates and short-term borrowing, net margin also shrunk to 5.6 percent.

In FY21, revenue recovered significantly as it posted a growth of close to 41 percent to reach Rs 19 billion. Production units remained operational throughout the year, while the commencement of Unit 2 of Float Glass in the last quarter of FY21 also contributed to the topline. The higher revenue translated into higher gross margin as production cost went down to the lowest seen thus far atnearly 74 percent of revenue. Thus, gross margin reached a highof21.5 percent. Net margin saw a more pronounced increase as it was recorded at 11 percent, while bottomline stood at the highest thus far, at Rs 2.1 billion, due to the reduction in finance expense. The latter was attributed to a decrease in interest rates.

Recent results and future outlook

Revenue further climbed in FY22 by almost 54 percent to reach over Rs 29 billion in value terms. This was attributed to concerted efforts towards monitoring and development of operating procedures, and effective marketing plans. Moreover, the second Float Glass Plant also witnessed successful commercialization led to economies of scale. This is reflected in production cost falling to an all-time low of almost 74 percent of revenue. Thus, gross margin reached a peak of over 26 percent. This also trickled down to the bottomline that was recorded at an all-time high of Rs 4 billion, and a net margin of 14 percent. The increase in net margin was not as pronounced due to the escalation in tax expense that was recorded at Rs 2 billion, compared to Rs 849 million in the previous year.

With the ongoing situation of inflationary pressures, high interest rates and currency devaluation, the company has seen a decreasing cash reserve situation as it is reliant on LNG, Furnace Oil and Diesel, the prices of which have been on a rise. Moreover, the stiff competition in the industry also limits the company’s liquidity situation. The company has been investing in enhancing capacity and undertaking BMR activities to become fuel and cost-efficient.