Balochistan Glass Limited

Balochistan Glass Limited (PSX: BGL) was incorporated in Pakistan as a public limited company in 1980. The company was acquired by Gharibwal Group in 1999. The principal activity of the company is the manufacturing and sale of glass containers, glass table wares and plastic shell. BGL’s has three manufacturing facilities, one of which is located in Hub Balochistan while the other two are located in Sheikhupura, Lahore.

Pattern of Shareholding

As of June 30, 2022, BGL has a total of 261.6 million shares outstanding which are held by 4567 shareholders. Directors, CEO, their spouse and minor children have the major stake of 78.62 percent in the company. This is followed by general public holding 13.16 percent shares. Foreign companies account for 5.868 percent shares of BGL while joint stock companies own 2.22 percent shares. The remaining shares are held by other categories of shareholders, each having a stake of less than 1 percent.

Performance Trail (2018-22)

Among all the years under consideration, BGL has only recorded a positive bottomline in 2021. The rest of the years even fail to post a gross profit, let alone net profit. However, in 2021, the topline slid by 16 percent year-on-year, while in rest of the years, the topline appears to be growing with the highest topline growth of 136 percent recorded in 2019. Let’s find out what impedes the topline growth from producing a trickledown effect on the bottomline.

In 2019, the hefty topline growth was the result of the start of pharmaceutical operations at the Hub plant. Both local and export sales of BGL more than doubled during the year. However, an 80 percent year-on-year rise in cost particularly power, fuel and water as well as salaries and wages didn’t allow the company to have the benefit of its sales growth. Ultimately, the company recorded a gross loss, though 50 percent lesser than what it made in the last year. The gross loss margin stood at 9 percent in 2019 as against 43 percent in 2018. As if the cost of sales wasn’t an enough of a shock for the company that admin and selling expense also expanded by a whopping 114 percent, particularly on the back of freight, handling and forwarding on local sale. The much needed support was provided by other income which grew by a massive 533 percent in 2019 on the back of markup and liabilities from financial institutions written back. While the company still made an operating loss, however, the magnitude was 74 percent lesser than that of 2018. Finance cost magnified by 54 percent year-on-year on the back of increased discount rate as well as more short-term borrowings secured during the year. The result was a net loss worth Rs.135.62 million, signifying a dip of 52 percent from the net loss posted by BGL in 2018. Loss per share stood at Rs.0.52 in 2019 as against Rs.1.64 in 2018. Net loss margin was recorded at 12 percent in 2019 as against 60 percent in the previous year.

2020 appears to be telling the same tale whereby the company couldn’t make any profit despite a sizeable 33 percent year-on-year growth in topline. The topline growth is mainly attributable to tableware glass division which performed exceptionally well during the year. High cost of sales kept haunting the company, however, the gross loss recorded in 2020 was 57 percent lesser than that of 2019. The gross loss margin also slid to 3 percent, showing signs of improvement over last year. What made BGL’s bottomline even pitiable than last year was an enormous rise in other expense and a significant drop in other income. Other expense grew on the back of provision for GIDC balance. Other income dropped as a huge of liabilities written back in 2018 created a high-base effect. Consequently, the operating loss grew massively by 444 percent in 2020, with operating loss margin clocking in at 22 percent versus 5 percent in 2019. To make it worse, finance cost grew by 38 percent year-on-year due to high discount rate during the first three quarters of 2020 coupled with increased short-term borrowing during the year. The net loss of BGL magnified by 242 percent in 2020 to clock in at Rs.464.21 million with net loss margin as high as 31 percent. The loss per share climbed up to Rs. 1.77 in 2020.

2021 is the only year after 2016 where the bottomline is in the profit zone. The effects of COVID-19 which began in 2020 continued to cripple the operations of the company which is evident from the topline slide of 16 percent year-on-year in 2021. Both local and export sales witnessed a dip during the year owing to restricted movement of people and goods on account of global pandemic. Low sales volume was also the result of the closure of pharmaceutical operations during the year which couldn’t be offset by the expansion of tableware glass project during the year.However, lesser sales also meant controlled cost of production which resulted in BGL making a gross profit of Rs.117.50 million in 2021 as against a gross loss of Rs.44.45 million in the previous year. The GP margin stood at 9 percent in 2021.Administrative and selling expense as well as other expense also behaved favorably during the year owing to lesser freight, handling and forwarding charges and absence of provision for GIDC balance respectively. Other income increased by over 38 times owing to unwinding of discount on GIDC payable and reversal of provision for default surcharge on taxation. This culminated into an operating profit of Rs.121.77 million in 2021 with OP margin of 10 percent. Finance cost also slid during the year on the back of low discount rate as well as lower borrowings during the year. The company also received a share of profit from its investment in Paidar Hong Glass (Private) limited (PHGPL). The bottomline posted a net profit of Rs.25.46 million in 2021 with NP margin of 2 percent. EPS stood at Rs. 0.10 in 2021.

In 2022, BGL posted a marginal topline growth of 7 percent as curtailment of gas supply during the year didn’t allow BGL to attain its targeted production levels during the year. The company also didn’t make any export sales during the year which also affected its topline growth. High inflationary pressure particularly incremental gas prices as well as devaluation of Pak Rupee rendered an increase in the cost of production and resulted in a gross loss yet again in 2022. Then operating expense also grew on the back of inflation. Other expense gave another blow to the company as it grew by 123 percent on the back of allowance for doubtful balances of trade debt. Other income provided much-needed support as it grew by 41 percent year-on-year on the back of markup written back on settlement with bank and other associates. Yet BGL failed to record an operating profit during 2022. Finance cost also grew on the back of high discount rate during the year coupled with higher short-term borrowings during the year. The share of profit from the associate company, PHGPL also dropped during the year. All the downbeat factors culminated into a net loss of Rs.269.44 million during the year with a net loss margin of 20 percent. Loss per share stood at Rs.1.03 in 2022.

Recent Performance (1HFY23)

During 1HFY23, the tableware glass division was temporarily halted on account of high energy cost, excessive inventory levels on the back of tamed demand and devaluation of Pak Rupee which eroded the margins of the company. The discontinuation of operations took its toll on the topline which posted a massive year-on-year slide of 81 percent in 1HFY23. Cost of production also plunged by 69 percent year-on-year during 1HFY23 as the company was only selling the available stock in hand. Yet, the gross loss of the company enlarged by 172 percent in 1HFY23 with gross loss margin standing at a whopping 69 percent as against 5 percent in 1HFY22. Operating expenses also witnessed a slump during the year due to restricted business activity. Other income didn’t support either as BGL wrote back of markup on settlement with bank and other associates in 1HFY22 which elevated other income during that period. High other income enabled the company to make an operating profit of Rs.18.39 million in 1HFY22, however, the absence of the same in 1HFY23 resulted in BGL making an operating loss of Rs. 102.58 million in 1HFY23. Finance cost also grew during the period on the back of record high levels of discount rate, although the short-term and long-term borrowings took a slide in 1HFY23. The bottomline of BGL posted a net loss of Rs. 165.49 million in 1HFY23 which is 591 percent more than the net loss recorded by the company in 1HFY22. The net loss margin stood at a distressing level of 131 percent in 1HFY23 as against 4 percent during the same period last year. The loss per share stood at Rs.0.63 in 1HFY23 as against Rs.0.09 in 1HFY22.

Future Outlook

The company is looking for the market to resume its operations. Even if the company succeeds in doing so, high cost of production will keep intimidating the financial performance of the company. BGL needs to streamline its cost of production before resuming its production to evade losses in future.