Tri-Pack Films Limited

Tri-Pack Films Limited (PSX: TRIPF) was established as a Public limited company in 1993. The company is a joint venture between Mitsubishi Corporation of Japan and Packages Limited of Pakistan. The company is engaged in the manufacturing and sale of Biaxially Orientated Polypropylene (BOPP) films and Cast Polypropylene (CPP) films in Pakistan. The company has its headquarters in Karachi with its regional offices in Lahore and Hattar.

Pattern of Shareholding

As of December 31, 2021, TRIPF has an outstanding share capital of 38.8 million shares which are held by 1674 shareholders. Associated companies, undertakings and related parties hold 79.6 percent of TRIP’s shares. Within this category of shareholders, Mitsubishi Corporation leads with 7.5 million shares followed by Packages Limited and IGI Investments Private Limited. Local general public is the next biggest category of shareholders accounting for 11.63 percent of TRIP’s shares. Directors, CEO, their spouse and minor children own 2.26 percent of the company’s shares followed by Insurance companies holding 1.77 percent shares. The remaining shares are held by other categories of shareholders such as Banks, DFIs and NBFIs, Modarbas and Mutual Funds, Foreign Public etc. While the detailed financial statement of 2022 are not yet available, the company announcement on PSX reveals that during 2022, Packages Limited acquired 79 percent shares of TRIPF, resulting in TRIPF becoming its subsidiary.

Financial Performance (2018-2022)

The topline of TRIPF has been expanding each year to reach over Rs. 24 billion in 2022 from Rs. 13 billion in 2018. In terms of yearly topline growth, 2020 appears to be a slow year with a mere 3 percent year-on-year growth. However, it was the year, when the bottomline of the company rebounded from net loss to a fat bottomline of 614.09 million with its margins touching new heights.

During 2020, COVID-19 affected all the sectors of the economy – locally as well as globally. Yet, TRIPF was able to achieve a sales volume of 44,575 metric tons locally which is almost the same as what it sold in 2019. Export sales marginally plunged due to restrictions on the movement of goods and people in many export destinations, yet depreciation of Pak Rupee resulted in greater margin on export sales. GP margin stood at 16 percent in 2020 versus 10 percent in the previous year owing to operational effectiveness, better export margins and reorganizing of product portfolio. During 2020, Admin and distribution cost expanded in line with high fuel cost and certain one-off expenses such as provision for bad debts and legal expenditures. Other income also increased due to one-time gain on re-measurement of GIDC in accordance with the reporting standards. Other charges grew exorbitantly from Rs.1 million to Rs.135 million owing to statutory charges. The company was able to reduce its finance cost by only 1 percent year-on-year despite reduction in the discount rate because of huge exchange loss during the year. Besides low discount rate, the company has reduced its debt-to-equity ratio from 60:40 in 2019 to 54:46 in 2020, but the company is still highly geared. All, in all, the NP margin of TRIPF stood at 4 percent in 2020 versus a net loss margin of 2 percent in 2019.

2021 touted an impressive topline growth of 26 percent year-on-year with its bottomline rising by 70 percent year-on-year. This translated into the highest ever net profit seen by the company so far. In 2021, while the economy was showing signs of recovery post COVID-19, the company faced supply chain disruptions on account of shipping line issues and container shortages which affected the timely supply of raw materials. Local sales volume plunged to 42,810 metric tons while export sales showed a recovery of 17 percent year-on-year. The growth in topline and GP margin was the result of higher prices and better margins on export sales. Other expenses and other income dropped due to one-time bookings in the last year. Finance cost increased despite discount rate cuts owing to exchange loss which grew by 12 percent year-on-year coupled with loss on re-measurement of provision for GIDC. Besides, the company increased its debt-to-equity ratio to 65:35 on account of greater working capital needs and capital investment in new BOPP line project. TRIPF was able to bag an NP margin of 5.47 percent in 2021 – the highest level since 2017.

In 2022, the company was able to maintain the legacy of topline growth, in fact, in 2022, the topline growth of 26 percent year-on-year, was the highest growth ever achieved by TRIPF. However, it couldn’t trickle down into a healthy bottomline growth which lost its grounds by 17 percent year-on-year with tapered margins. High sales growth was the result of higher export sales coupled with high prices. Due to the ongoing energy crisis in China, the company tapped new markets for specialized films which were not available before. This increased the export sales of the company during 2022. During the year, SSGC switched the company’s gas supply to RLNG which is 3 times as much expensive as normal gas. This increased the cost of production of TRIPF, however, GP margin only dropped by 100 bps owing to fat topline. While the detailed financial statements are not yet available, we can safely assume that high admin and sales expenses came on the back of high outward freight charges owing to improved export sales with inflationary pressure also playing its due role. Finance cost grew by 42 percent year-on-year on the back on multiple hikes in the discount rate coupled with company’s highly leveraged capital structure. This coupled with the imposition of super tax squeezed the bottomline with NP margin dropping to 3.6 percent.

Future Outlook

Going forward, the sales of the company are expected to grow on the back of newly identified export destinations and Pak Rupee depreciation which will result in greater margin on export sales. However, high cost of production on the back of increase in raw material prices coupled with expensive RNLG will continue to take its toll on the margins. Then high finance cost is also not expected to give any breather to the bottomline due to discount rate hike as well as geared capital structure as the company is investing in new BOPP line project which is expected to be operational in 1QCY24. Due to increase in exchange rate fluctuations as well as prices of cement and steel, the project cost is exceeding its original estimates of Rs.9 billion. This will not only increase the debt-to-equity ratio of the company but will also suppress the bottomline of TRIPF amidst high discount rate backdrop.