Ecopack Limited

Ecopack Limited (PSX: ECOP) established in 1991 was a private limited company. It was converted into a public limited company a year later and listed on the Stock Exchange two years later. The company manufactures and sells Polyethylene Terephthalate (PET) bottles and Preforms (an intermediate PET product). Some of the companies it caters to are Pepsi-Cola, Murree Brewery, Coca-Cola, Gourmet Cola, etc. Its plant is located in Khyber Pakhtunkhwa that has a production capacity of over 300 million bottles and 700 million performs annually.

Shareholding pattern

As of June 30, 2021, the directors, CEO, their spouses, and minor children own over 17 percent of shares in the company. Of this, the majority are owned by CEO Hussain Jamil. The local general public owns close to 75 percent of shares while 7 percent are held under “others”. The remaining less than one percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has seen a fluctuating topline over the years, while profit margins in the last six years have followed a declining trend between FY16 to FY20, before improving again in FY21.

Topline in FY18 registered an all-time high growth rate of over 50 percent. This was primarily attributed to competitive pricing. Within the total revenue pie, the majority of the revenue contributed by preforms that witnessed a 114 percent growth. On the other hand, the cost of production rose to 89 percent of revenue due to currency devaluation in the second half of the year which made imported raw materials like petrochemical-derived raw materials expensive. Thus, the gross margin fell from 16 percent in FY17 to almost 11 percent. However, the fall in net margin was not as substantial, from 4.8 percent in the previous year to 3.7 percent in the current period due to a reduction in the tax figure.

Revenue in FY19 grew by 23 percent. However, the cost of production also grew to consume over 90 percent of revenue, reducing the gross margin to 9.5 percent. This was due to a combination of currency devaluation and a 35 percent rise in petroleum prices that increased truck freight. The resultant double-digit inflation led to a decrease in demand. Net margin was further lower at 1.8 percent as interest rates also increased raising the finance expense to consume 3 percent of revenue.

After rising for four consecutive years, revenue in FY20 fell by 25 percent due to the outbreak of the Covid-19 pandemic during the peak sales season. This had an adverse impact on the cost of production which consumed 95 percent of revenue as inventory levels went up. Thus, the gross margin fell to an all-time low of almost 5 percent which also trickled into the net margin. Due to high-interest rates, finance expenses escalated to make up 5 percent of revenue. Eventually, the company incurred the highest loss seen in more than a decade.

Topline recovered only slightly in FY21 as it grew marginally by 1.5 percent as the third wave of Covid-19 struck during the peak sales season again. While volumes for bottle sales decreased by 5 percent, volumes for performing sales registered a growth of 6 percent. Managing the supply chain and some growth in revenue allowed the cost of production to decrease to over 90 percent. Thus, the gross margin also improved to 9.8 percent. On the other hand, as interest rates reduced, finance expenses also shrunk to make up 3 percent of revenue. Thus, the company earned a net margin of 1.5 percent for the year.

Ecopak in FY22 and beyond

Starting with economic recovery post-pandemic, FY22 saw significant inflationary pressures in the second half. This had a pervasive impact on the company’s costs. The director’s report highlights that three factors that impacted the cost for the company included the depreciating currency massively by record levels, spiking international commodity and crude oil prices, and rising interest rates.

The company’s revenue growth stood at 62 percent year-on-year. The rise was due to 84 percent higher sales of bottles and 45 percent growth witnessed in preforms. Also, higher PET resin prices supported the topline growth in FY22. Gross profit growth was around 35 percent year-on-year but margins slipped. The cost of sales was impacted not only by above mentioned factors but also by higher prices of diesel, inland truck freight, and prices of PET resin and other packing materials. Where gross margins depleted despite the rise in revenues and gross profits, the net margins were impacted by higher finance costs of around 32 percent year-on-year in FY22. Despite the immense cost pressures, the company was able to post earnings growth of over 100 percent year-on-year in FY22.

The company has diversified beyond the beverages industry into other ranges of the food and beverage industry. This includes a balanced product line across the food and beverage portfolio including cooking oil packaging and large containers for water bottles.