Al Shaheer Corporation Limited

Al Shaheer Corporation Limited (PSX: ASC) initiated its operations as a partnership concern in 2008. It went public in 2015. The principal activity of the company is trading of a wide variety of halal meat including mutton, beef, chicken and fish. The company was initially only focusing on export market and over the years, expanded its outreach across the GCC countries. The company started its local operations in 2010 through a chain of retail stores named Meat One. Khaas is another brand of ASC which was initiated in 2014 with an aim to target the neighborhood butcheries. The company has also opened up its meat sections in high traffic superstores. ASC also serves institutional clients with bulk orders.

Pattern of Shareholding

As of June 30, 2022, the company has a total of 299.938 million shares outstanding which are held by 6770 shareholders. Local general public have the majority stake of 43.21 percent in ASC followed by directors, their spouse and minor children holding 26.7 percent shares of the company. Modarbas and Mutual funds hold 7.33 percent shares of ASC while Insurance companies account for 7.18 percent shares. Foreign general public own 2.34 percent shares of the company. Banks, DFIs and NBFIs hold 1.5 percent shares. The remaining shares are held by other categories of shareholders.

Performance Trail (2018-22)

The topline of the company which was dropping until 2020 started riding an upward journey thereafter. However, among all the years under consideration, the bottomline posted a year-on-year growth only in 2019 and then started tapering off to record net loss in 2022. The margins of the company also bottomed out in 2022 despite sales growth. An overview of the financial statements will uncover the grounds of the performance trail of ASC.

In 2019, ASC’s revenue plunged by 22 percent year-on-year which came on the back of lackluster growth across various business segments. Export sales dropped by 7 percent year-on-year. Almost half of the Meat One and Khaas outlets which were not delivering satisfactory sales were shut down during the year to focus on the high performing stores. Institutional sales also remained under pressure due to intense competition from the unorganized sector which made the company to streamline its clientele and eliminate the clients which were offering very low or no margins. These turnaround operations enabled the company to reduce its cost of sales by 29 percent year-on-year which resulted in a marginal 1 percent year-on-year rise in gross profit. However, GP margin considerably improved from 22.7 percent in 2018 to 29.5 percent in 2019. Admin and distribution expense also posted a 20 percent year-on-year decline during the year mainly in the categories of cargo expense, salaries and wages as well as rent, rates and taxes. Other income also lent a helping hand and boasted a tremendous 154 percent year-on-year growth particularly on the back of exchange gain due to Pak Rupee devaluation. The operating profit grew by around 122 times in 2019 with an OP margin of 9.5 percent as against 0.1 percent in 2018. Finance cost grew by 339 percent in 2019 due to high discount rate. The company managed to post a net profit of Rs.199.96 million in 2019 as against the net loss of Rs.54.71 million in the previous year. EPS stood at Rs.1.25 in 2019 as against the loss per share of Rs. 0.36 in 2018. The company recorded an NP margin of 4.8 percent in 2019, which is the highest among all the years under consideration.

ASC’s sales continued to shrink in 2020 with a topline dip of 7 percent. While export sales showed a growth momentum in 2020, the other three segments – Meat One, Khaas and institutional sales remained under pressure due to liquidity crunch as well as price wars in the industry which is greatly dominated by informal players. Meat one started showing signs of growth in the last quarter of 2020 when COVID-19 struck and people started choosing hygienic alternatives. However, this was counterbalanced by a major dent in institutional sales when offices, restaurants, marriage halls etc were completely shut down due to lockdown imposed by the government. The curtailed sales also cut down the cost of sales which resulted in a 4 percent year-on-year growth in gross profit with GP margin clocking in at 32.8 percent – the highest among all the years under consideration. Operating expenses shrank by 15 percent year-on-year mainly on the back of low rent, rates and taxes as well as salaries and wages. Other income also thinned down due to low exchange gain. Operating profit of ASC magnified by 13 percent year-on-year in 2020 with an OP margin of 11.5 percent. Finance cost grew by 91 percent year-on-year in 2020 on the back of increased lease liabilities and government grant coupled with high discount rate during the initial quarters of FY20. The enormous rise in finance cost resulted in bottomline narrowing down by 14 percent year-on-year to stand at Rs.172.39 million in 2020. Lower net profit coupled with the issue of right shares during the year resulted in an EPS of Rs.1.01 in 2020. NP margin hovered around 4.4 percent in 2020.

The topline posted a stunning 37 percent year-on-year growth in 2021 on the back of superior performance across the business segments. However, high prices of livestock due to elevated food inflation eroded the gross margin of ASC which stood at 24.5 percent in 2021 despite a skimpy 3 percent year-on-year growth in the gross profit. It is surprising to see that the company could keep a check on its operational expense which dropped 2 percent year-on-year in 2021 despite significant growth in sales volume and business activity. Other income and other expense didn’t behave favorably during the year. Other expense grew by 775 percent in 2021 on the back of a massive exchange loss while other income nosedived by 99 percent on the back of one off income generating events which happened in 2020 but are missing in 2021 such as gain on re-measurement of short-term investment, unwinding of interest on sales tax bonds etc. These blockages didn’t allow the topline growth to trickle down and resulted in a 35 percent year-on-year drop in operating profit. OP margin also shrank to 5.5 percent in 2021. Finance cost ticked down on the back of low discount rate during 2021. The bottomline shrank by 35 percent year-on-year to clock in at Rs.112.68 million in 2021 with an EPS of Rs.0.38. NP margin kept moving down to stand at 2.1 percent in 2021.

In 2022, the topline continued its growth trajectory and posted a 13 percent year-on-year growth which came on the back of robust institutional sales while export sales and retail outlets remained under pressure due to rising prices of livestock, utilities as well as challenges on economic and political front. During the year, ASC also commenced its frozen and processed food facility at Lahore and launched the brand “Chefone” which was showcased at leading stores across Pakistan. The record breaking inflation took its toll on the gross profit of ASC which thinned down by 37 percent year-on-year with a GP margin of 13.8 percent. Admin and distribution charges which were contained in all the years under consideration posted a major jump of 49 percent year-on-year in 2022 which mainly came on the back of rise in marketing and advertising expense, depreciation and salaries and wages. Other income performed exceptionally well due to massive exchange gain earned during the year on account of sharp devaluation in Pak Rupee. Operating profit weakened by 76 percent year-on-year in 2022 with an OP margin of 1.1 percent. Finance cost magnified by 64 percent year-on-year in 2022 due to record high discount rates coupled with increased borrowings. The bottomline posted a net loss of Rs.235.12 million in 2022 with a loss per share of Rs.0.78.

Recent Performance (1HFY23)

During 1HFY23, ASC’s topline recorded a considerable 17 percent year-on-year growth which came on the back of vigorous institutional sales as well as hefty revenue generated from frozen food business. However, high cost of utilities, logistics, livestock and other materials resulted in gross profit shrinking by 26 percent year-on-year in 1HFY23. GP margin also significantly dropped from 19 percent in 1HFY23 to 12 percent in 1HFY22. The company put a check on its operational expenses and also recorded a 54 percent year-on-year growth in other income, yet couldn’t prevent the operating profit from sliding by 21 percent year-on-year in 1HFY23. OP margin also dropped from 3.4 percent in 1HFY23 to 2.3 percent during the period under review. High cost of borrowing coupled with increased outstanding loans resulted in a 99 percent year-on-year rise in finance cost which put a major dent on the bottomline. The net loss of ASC magnified by 476 percent in 1HFY23 to clock in at Rs.176.29 million. The loss per share clocked in at Rs.0.59 in 1HFY23 versus Rs.0.10 in 1HFY22 while net loss margin grew to 5.2 percent in 1HFY23 versus 1.1 percent during the same period last year.

Future Outlook

The topline of the company is expected to mount as institutional sales and processed food segment are making bigger strides. ASC also plans to introduce its processed foods into hotels, restaurants and catering (HORECA) and institutional segment in addition to retail market. This plan will multiply the revenue from both institutional and processed food segment. The company has already signed contracts with McDonalds and Hardees for the supply of burger patties in Pakistan which marks a step in the right direction. However, escalating inflation and discount rate will put pressure on cost of sales and finance cost respectively which can suppress the margins of ASC. Whether or not a better sales mix and revised pricing can pull out the company’s bottomline from red zone is yet to be seen.