United Distributors Pakistan Limited (PSX: UDPL) is a public limited company that came into existence in 1981. The company is engaged in the manufacturing, trading and distribution of pesticides, fertilizers and other allied products. The company has its formulation plant in Karachi with warehouses in all the provinces across the country.
Pattern of Shareholding
As of June 30, 2022, UDPL has 35.271 million shares outstanding which are held by 1184 shareholders. Genesis Holdings (Private) Limited which is the holding company of UDPL has the major stake of 85.14 percent in the company. This is followed by local general public accounting for 6.74 percent shares of UDPL. Modarbas and Mutual funds hold 6.10 percent shares of the company. The remaining shares are held by other categories of shareholders, each having a stake of less than 1 percent in UDPL.
Performance Trail (2018-22)
UDPL’s topline has by and large shown and upward trend since 2018, however, the growth momentum considerably reduced after 2020. The GP and OP margins of the company, after hitting their lowest levels in 2020, rebounded thereafter, however, the company is unable to post a positive bottomline since 2020. With operating profit boasting considerable growth in all the years under consideration and OP margin also showing a recovery after 2020, what drags the bottomline to the red zone can be identified by an analysis of detailed financial statements of UDPL.
In 2019, UDPL’s topline boasted a significant growth of 20 percent year-on-year driven by sales contribution of new brands, improved sales mix and enhanced marketing strategies. Gross profit also grew by 17 percent year-on-year in 2019, however, high cost of raw materials consumed drove the GP margin slightly down from 41.4 percent in 2018 to 40.4 percent in 2019. Distribution and admin expense grew by 8 percent and 14 percent year-on-year in 2019 in line with inflation coupled with new marketing and promotion activities undertaken during the year. Handsome dividend income from investment in International Brands Limited and IBL Healthcare Limited escalated the other income by 30 percent year-on-year in 2019. This resulted in a tremendous 62 percent year-on-year rise in the operating profit with OP margin also ticking up from 7 percent in 2018 to 9.3 percent in 2019. Finance cost grew by a staggering 360 percent year-on-year mainly on account of exchange loss borne by the company during 2019. Discount rate and short-term borrowings also rose during the period. A considerable support to the bottomline was provided by share of profit from investment in an associate company i.e. FMC United (Private) Limited. However, with high finance cost and a massive drop in share of profit from an associate company squeezed the bottomline by 70 percent year-on-year to clock in at Rs.50.37 million in 2019. EPS also drastically dropped from Rs.5.43 in 2018 to Rs.1.43 in 2019. NP margin also posted a freefall from 37 percent in 2018 to 9.3 percent in 2019.
2020 also witnessed a considerable 20 percent year-on-year growth in topline. However, a sharp increase in the cost of products on the back of Pak Rupee devaluation thinned down the GP margin to 36.6 percent in 2020. While administrative expense remained almost intact during 2020, distribution expense grew by 7 percent year-on-year in 2020 which was the result of cutthroat marketing strategies to enhance the off-take. Other income couldn’t offer any support as it dropped by 33 percent year-on-year on account of low dividend income. Operating profit still managed to increase by 8 percent year-on-year, however, OP margin shrank to 8.4 percent in 2020. Although discount rate increased in the first three quarters of 2020 along with the outstanding loan portfolio of UDPL, finance cost plunged by 58 percent year-on-year as the company made net exchange gain in 2020 as against humongous exchange loss in 2019. This could’ve produced a healthy bottomline growth; however, a massive share of loss from associate company resulted in UDPL making a net loss worth Rs.223.04 million in 2020 with a loss per share of Rs.6.32.
In 2021, UDPL could achieve a meager 0.4 percent growth in sales. Low sales growth was the result of low cultivation of cotton which is a substantial revenue driver of UDPL. Delayed arrival of import shipments due to COVID-19 also wreaked havoc on the topline of the company. Lesser off-take also meant low cost of sales which drove the gross profit up by 6 percent year-on-year with a GP margin of 38.6 percent in 2021. Operating expenses grew in line with inflation. Other income grew by 20 percent year-on-year in 2021 on the back of exchange gain, dividend income from IBL Healthcare Limited, grant recognized as income and also due to gain on disposal of property, plant and equipment. Operating profit grew by 20 percent year-on-year with a significant improvement in OP margin which stood at 10 percent in 2021. Finance cost considerably narrowed down during the year on the back of discount rate cuts during the year. Once again, what marred the bottomline was a huge share of loss from associate company. UDPL posted a net loss of Rs.78.48 million in 2021 which is 65 percent lesser than that of 2020. Loss per share stood at Rs.2.22 in 2021.
In 2022, the topline growth was very marginal i.e. 2 percent year-on-year due to poor availability of key fertilizers as the producers were facing challenges due to high cost of production, cost of borrowing, energy cost etc. The company played around with its sales mix to sustain its revenues amidst challenging times. Gross profit improved by 17 percent year-on-year while GP margin clocked in at 44.1 percent which is the highest mark in all the years under consideration. Operating expenses grew by 14 percent year-on-year due to inflationary pressure. During the year, the company also booked provision on expected credit losses which spurred its other expense account. Other income also magnified by 52 percent year-on-year on the back of gain on disposal of property, plant and equipment during 2022. All these factors contributed to achieve a year-on-year growth of 27 percent in the operating profit with a five year high OP margin of 12.4 percent in 2022. However, this couldn’t cascade to produce a healthy bottomline as high finance cost and share of loss from associate company watered down the growth culminating into a net loss of Rs.352.41 million in 2022 which is also the highest net loss ever posted by the company. The loss per share clocked in at Rs.9.99 in 2022.
Recent Performance (1HFY23)
After posting muted growth for two years, the topline shows some signs of life in 1HFY23 whereby it grew by 8 percent year-on-year. However, record high inflation and sharp depreciation of Pak Rupee drove the cost of sales up by 20 percent year-on-year in 1HFY23, compressing the gross profit by 6 percent year-on-year with a GP margin of 40.2 percent as against 46.3 percent in 1HFY22. High fuel cost and inflation also enlarged the operating expenses. Other income posted a staggering 112 percent year-on-year growth in 1HFY23, however, operating profit plunged by 74 percent year-on-year in 1HFY23 with OP margin considerably shrinking to 3.9 percent as against 16 percent during the same period last year. Massive rise in finance cost on the back of high discount rate and increased borrowings and also the share of loss from associate company made things even worse and pushed UDPL into a red zone with a net loss of Rs.137.28 million in 1HFY23 as against the net profit of Rs.96.08 during 1HFY22. UDPL posted a loss per share of Rs.3.89 in 1HFY23 versus an EPS of Rs.2.72 in 1HFY22.
Future Outlook
High inflation, discount rate, material cost, energy charges, Pak Rupee devaluation etc are the factors that are hitting many industries alike including UDPL. These macroeconomic factors can be dealt with by including high margin products in the sales mix, extensive marketing strategies and better pricing. However, what remains the bone of contention for UDPL is its investment in FMC United (Private) Limited which is making persistent losses and due to 40 percent equity stake of UDPL in FMC, UDPL also ends up making net losses despite reasonable revenue growth. The company needs to rethink its investments in order to embark on the journey of profits in future.
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