Al Shaheer Corporation Limited

Al Shaheer Corporation Limited (PSX: ASC) was established in 2012 under the repealed Companies Ordinance, 1984. The company trades in various kinds of meat such as that goat, cow, chicken, and fish. The company sells to the global market as well as is present in the local market. Some of its export destinations include Dubai, Saudi Arabia, Oman, Kuwait, Bahrain, and Qatar. Locally, it is primarily present in Karachi, Lahore and Islamabad.

As at June 30, 2022, close to 27 percent of shares are held by the directors, CEO, their spouses, and minor children. Within this category, the majority of the shares are held by Mr. Kamran Khalili, the CEO of the company. About 43 percent of shares are with the local general public, followed by 7.3 percent in modarabas and mutual funds. Over 11 percent of shares are under the “others” category and 7 percent in insurance companies.

ASC- Historical performance

The company’s top line has been fluctuating over the years, with profit margins increasing gradually till FY20, before declining in FY21.

The company witnessed the biggest contraction in revenue in FY18 thus far, by 16 percent. Despite the currency devaluation that benefitted a lot of the companies that were export-oriented, Al Shaheer saw its exports decline by 25 percent. This was attributed to cheaper alternatives provided at the same export destinations by countries like India, Brazil, and Australia. The company itself also faced supply-related issues that affected production and therefore sales. As a percentage of revenue, the cost of production increased only marginally to over 77 percent from 76 percent in the previous year. Therefore, the gross margin was also marginally lower at 22.7 percent. This also trickled down to the bottom line which was recorded at a loss of Rs 43 million. Net margin at a negative 0.8 percent did not decrease immensely due to some support coming from other income. The latter was sourced from a net exchange gain.

Revenue in FY19 saw an even bigger contraction of 22 percent. Export sales fell by 7 percent. The country’s export industry generally faced falling volumes due to prevalent macroeconomic factors. Moreover, the company’s institutional sales faced competition from the unorganized sector, in addition to the company’s cash flow problems which was the rationale most likely for the 30 percent decrease in the cost of livestock purchases. Moreover, the company also reduced its workforce as is evident from the “number of employees”. Thus, the cost of production was reduced to 70 percent for the year, making room for some profitability after two consecutive years of losses. Net margin was also higher at 4.5 percent for the year.

In FY20 revenue fell for the fourth consecutive year, by 6.6 percent, reducing to an all-time low of Rs 3.9 billion in value terms. The first half of FY20 saw lower sales due to Edi-ul-Azha. Sales in the third quarter were encouraged due to the generation of cash through a rights issue, whereas the last quarter witnessed 33 percent of the annual sales. This was due to the demand for clean and safe products due to the outbreak of Covid-19. So while the gross margin improved to 32.8 percent, the net margin remained flat at close to 4 percent due to the escalation in finance expense.

After contracting for four consecutive years, revenue in FY21 witnessed one of the largest growths, at over 37 percent, with a topline crossing Rs 5 billion. Export sales posted a growth of 37 percent, with the company opting for sea routes due to logistics arrangements arising due to the pandemic. Opting for sea routes also proved to be less costly, as is evident from a 12.4 percent reduction in cargo cost year on year. However, due to the higher prices of livestock, the cost of production increased to consume over 75 percent of revenue, up from last year’s 67 percent. Therefore, the gross margin was reduced to 24.5 percent. But the decrease in the net margin at 2 percent was less pronounced due to a reduction in administrative and finance expenses as a share of the revenue.

ASC in FY22 and beyond

The company’s topline in FY22 grew by 13 percent year-on-year. However, gross margins remained under pressure due to the challenges on account of economic and global inflation. Despite the growth in revenues, export sales declined by 8 percent year-on-year, primarily due to macroeconomic factors affecting both, business volume and margins. Also, volumes of sales remained lower in FY22. Retail segments i.e. Meat One and Khaas Meat suffered majorly due significantly due to the increased inflation cost of utilities and livestock, resulting in a decrease in footfall.

However, despite a decline in volumetric sales and gross margins, the company was able to report growth in the bottom line due to increased exchange rates along with internal cost efficiency measures.

In addition, the company started commercial production from the Poultry and Processed Foods plant at Lahore, and launched its brand “CHEFONE”. As per the annual report, the company initially focused on the retail market for its brand and showcased its brand at leading stores across Pakistan; and also targeted institutional sales from the frozen foods unit. Also, the institutional sales business performed well in FY22 - delivering a 387 percent year-on-year. The company also was able to increase its market share during the year. The company also has plans to expand it's For Poultry & Processed Foods Business into HORECA and Institutional sales in addition to the retail market.