ZIL Limited

ZIL Limited (PSX: ZIL) was incorporated in Pakistan as a private limited company in 1960 and then was converted into a public limited company in 1986. The company is engaged in the manufacturing and sale of home and personal care products. Some of the flagship brands of ZIL include Capri, Opal and HYPro.

Pattern of Shareholding

As of December 30, 2022, ZIL has a total of 6.12 million shares outstanding which are held by 1212 shareholders. Directors, CEO, their spouse and minor children have the majority stake of 71.7 percent in the company. Local general public hold 12.62 percent shares of ZIL followed by mutual funds accounting for 5.8 percent shares of the company. The remaining shares are held by other categories of shareholders which includes foreign public, insurance companies, Modarba etc, each having a shareholding of less than 1 percent.

Financial Performance (2018-22)

The topline of ZIL has been augmenting since 2018; however, in 2020 ZIL posted a marginal growth of mere 0.8 percent year-on-year. The bottomline doesn’t follow the same trajectory as the topline. The net profit dropped off in 2020 and then entered the red zone in 2021 despite sales growth in both the years. The company had last posted a net loss in 2015. The bottomline was in the profit zone thereafter only to post net loss again in 2021. The margins of the company peaked in 2019 then remained subdued in 2020 and 2021. The margins showed signs of recovery in 2022 but couldn’t match the level seen in 2019.

2019 appears to be the most fortunate year for ZIL as not only did its topline boasted a tremendous growth of 28 percent year-on-year, the bottomline proved to be even more stunning boasting a robust 135 percent year-on-year growth to clock in at Rs. 65.7 million which was the highest ever net profit in the history of the company. The topline growth was the result of higher volumes coupled with price increase. The major growth propeller was the accelerated volumetric growth of ZIL’s flagship brand Capri. During the year, the company also enhanced the brand equity of Capri by re-launching hand-wash in modern trade and a new variant of Capri i.e. Capri Velvet Orchid soap. High volumetric sales led to an increase in the cost of sales which was further pushed by inflation. The gross profit still managed to post a 34 percent year-on-year growth with GP margin of 29.6 percent in 2019 versus 28.3 percent in the previous year. Operating expenses grew immensely during the year which suppressed the OP margin to 6.25 percent despite a year-on-year growth of 96 percent in operating profit. Financial charges also amplified mainly on the back of financial charges on assets acquired under lease arrangements and financial charges on liability against right of use assets. The debt-to-equity ratio of ZIL stood at 99 percent in 2019 as against 95 percent in 2018. The bottomline more than doubled during the year with NP margin of 2.7 percent in 2019 as against 1.5 percent in 2018.

Followed by an affluent 2019, 2020 proved to be a dull year on the back of unprecedented outspread of COVID-19 and its effect on the customer base. The volumes showed some resilience in the 2HCY20 as the company introduced new variants of personal wash category and undertook price adjustments. The topline managed to post a skimpy 0.8 percent year-on-year growth. Supply chain impediments and increase in the prices of raw materials pressured the margins. Gross profit slid by 16 percent year-on-year in 2020 with GP margin clocking in at 24.5 percent. Operating expenses were kept quite in check due to hindered mobility of sales staff coupled with new advertising strategy implemented by the company which streamlined its distribution expense to 15 percent of its sales in 2020 as against 16 percent in the previous year. Other income behaved well during the year and posted a year-on-year growth of 99 percent particularly on the back of scrap sales and amortization of government grant. Finance cost ticked down on the back of discount rate cuts during the year. The debt-to-equity ratio of the company ballooned to 109 percent during the year as the company secured long-term refinancing for the payment of salaries and wages during the year. Despite stringent cost control mechanisms implemented during the year, the bottomline slide by 80 percent year-on-year to clock in at Rs.13.26 million in 2020. The NP margin nosedived to 0.54 percent in 2020.

2021 proved to be even worse. Although topline continued its growth legacy and posted a 12 percent year-on-year uptick, it couldn’t trickle down resulting in the company posting a net loss worth Rs.291.6 million during the year. The sales growth was the result of revision in product pricing coupled with the launch of a new hygiene and protection soap bar during the year. Due to COVID-19, the customer-base of ZIL was switching to hygiene soap brands as ZIL brands were mostly in the beauty category. So, the decision to launch hygiene soap was the right decision at the right time. The company also re-launched its hand-wash brand during the year. These decisions enabled ZIL to attain a reasonable growth in its topline, however, the towering prices of palm oil products which are the main raw materials for soap manufacturing coupled with high fuel, power and energy cost and packing material charges took its toll on the gross profit which shrank by 52 percent year-on-year in 2021 with GP margin hovering in the range of 10 percent. Other income continued to grow on the back of amortization of government grant. The company posted operating loss of Rs. 232 million during the year. During the year, the debt-to-equity ratio of ZIL further magnified to 136 percent as the company secured both short-term and long-term financing during the year which elevated its finance cost by 54 percent despite the downward revision in discount rate. The result was a net loss after five years of positive bottomline.

In 2022, the company appeared to have risen above from the hard times. The topline posted a stunning 48 percent year-on-year growth. The topline growth was the result of both volumetric sales and increased pricing during the year. This coupled with decline in global commodity prices particularly palm oil products enabled the company to attain a GP margin of 18.40 percent in 2022. Gross profit posted a significant growth of 161 percent during the year. Distribution expense which was as high as 18 percent of sales in 2018 came down to 9 percent of sales in 2022. The company was able to recover from operating losses and made an operating profit worth Rs.150.70 in 2022. OP margin stood at 3.7 percent in 2022. Finance cost grew massively by over 200 percent on the back of multiple upward revisions in discount rate during the year coupled with extended credit facility availed during the year. The debt-to-equity ratio showed no respite and clocked in at 169 percent in 2022. The company made a net profit of Rs.23.38 million in 2022 with NP margin of 0.6 percent.

Future Outlook

Amidst talks of New Future Consumer International General Trading LLC, a UAE based company, acquiring 61.36 percent shares of ZIL, the share price of ZIL rallied and showed the highest movement of Rs.16.14 per share after the announcement. This shows that the market has positive sentiments over the acquisition announcement.

While the acquirer hasn’t announced whether ZIL will maintain its status as a public listed company, however, as the margins of the company have started gaining momentum and the bottomline has recovered from net loss, the UAE based acquirer may instill more growth into the company by streamlining its capital structure which is highly debt oriented with exponential growth in finance cost. The arrangement may also open the doors of opportunities for the company in the export market especially in the GCC market where the acquirer has its core expertise. This would be good omen for the company amidst Pak Rupee depreciation.