Tariq Glass Industries Limited

Tariq Glass Industries Limited (PSX: TGL) was incorporated in Pakistan as a private limited company in 1978 and was converted into a public limited company in 1980. The principal activity of the company is the manufacturing and sale of glass containers, opal glass, float glass and tableware. Besides, meeting the demand in the local market, TGL’s renowned brands Toyo Nasic, Omroc and Nova are also exported across the globe.

Pattern of Shareholding

As of June 30, 2022, TGL has a total of 137.733 million shares outstanding which are held by 3878 shareholders. Directors, CEO, their spouse and minor children are the major shareholders of TGL holding 49.13 percent of its shares. This is followed by local general public having a stake of 24.3 percent in the company. Associated companies, undertakings and related parties account for 11.81 percent of the outstanding shares of TGL while Modarabas and Mutual funds hold 6.8 percent shares. 4.67 percent of TGL’s shares are held by joint stock companies and around 1 percent by Pension funds, provident funds and cooperative societies. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

Except for a dip in 2020, TGL’s topline and bottomline have been boasting double digit growth in all the years under consideration. The margins were on the rise until 2019 then took a dip in 2020. Soon after the COVID-19 phase passed, the margins again took a flight to reach their optimum level in 2022. The detailed performance review of each of the year under consideration is given below.

In 2019, TGL’s net sales grew by 18 percent year-on-year. 94.5 percent of the total revenue of Rs.14.389 million made by TGL in 2019 was from local sales while the remaining 5.5 percent sales was from exports to Srilanka, India, Afghanistan and other export destinations. The pulled production of the company clocked in at 267,582 M Tons while packed production stood at 214,538 M Tons in 2019, signifying a year-on-year growth of 5.6 percent and 13.8 percent respectively. Despite depreciation of Pak Rupee and high cost of raw and packaging materials, labor and general overheads and export and freight charges, the company was able to drive its gross profit up by 32 percent year-on-year in 2019, translating into a GP margin of 19.6 percent, up from 17.5 percent in 2018. Administrative expense grew by 12 percent year-on-year in 2019 as the company hired additional human resources to meet the growing demand. The number of employees grew from 914 in 2018 to 992 in 2019. Moreover, elevated Ijarah rentals and depreciation charges also pushed the administrative expense up in 2019. Distribution expense grew by 28 percent year-on-year in 2019 on account of higher payroll expense, travelling expense as well as advertisement and promotion cost. Other income grew by 165 percent year-on-year in 2019 as the company earned gain on the disposal of its property, plant and equipment besides earning hefty exchange gain on its export sales because of weaker Pak Rupee. Other expense also inched up by 30 percent year-on-year in 2019 due to higher provisioning for WPPF and doubtful advances. Operating profit posted a handsome 37 percent year-on-year growth in 2019 with OP margin growing from 13 percent in 2018 to 15 percent in 2019. Finance cost grew by 102 percent year-on-year in 2019 on the back of high discount rate coupled with increased short-term and long-term debt obligations. During the year, the company obtained demand facilities from various banks to finance the manufacturing of new production line of opal glass dinnerware and float glass. Moreover, running finance facilities obtained during 2019 also surpassed the previous year’s level because of high cost of production. This resulted in a debt-to-equity ratio of 119 percent in 2019 versus 66 percent in 2018. The net profit grew by 21 percent year-on-year in 2019 with NP margin clocking in at 9.2 percent versus 9 percent in 2018. EPS dropped from Rs.14.94 in 2018 to Rs. 12.01 in 2019 due to the issuance of 50 percent bonus shares.

In 2020, COVID-19 not only endangered the lives of humans across the globe but also put businesses and economies at risk due to lockdowns imposed all over the world. The pandemic not only halted the operations of the companies but also resulted in dampened demand due to a drop in the purchasing power of consumers. TGL was no different as its net sales nosedived by 6 percent year-on-year in 2020. Due to tamed demand, the company couldn’t pass on the onus of high cost of production to its consumers which not only trimmed down its gross profit by 22 percent year on-year in 2020 but also resulted in a GP margin of 16.2 percent. Administrative expense kept growing in 2020 due to high inflation and an increase in the number of employees to 1006 as the company continued its production and accumulated finished goods inventory during the lockdown period. The pulled production clocked in at 248,391 M Tons in 2020 while packed productions stood at 193,487 M Tons in 2020, indicating a drop of 7.2 percent and 9.8 percent respectively. Distribution expense plunged by 21 percent year-on-year in 2020 due to significant drop in payroll expense, travelling expense as well as advertisement and promotion charges. Other income plummeted by 23 percent year-on-year in 2020 due to high base effect as the company disposed off its fixed assets in the previous year. This diluted the impact of a tremendous rise in foreign exchange gain in 2020 as company’s export sales accounted for 7.7 percent of its net sales versus 5.5 percent in 2019. Other expense slumped by 37 percent year-on year in 2020 owing to a drop in the provisioning for WWF, WPPF and doubtful advances. Despite cost curtailment, operating profit lost its footing and declined by 25 percent year-on-year in 2020, translating into an OP margin of 11.9 percent. Finance cost surged by 83 percent year-on-year in 2020 due to considerable increase in TGL’s borrowings during the year. The company obtained both long-term and short-term loans during 2020 to finance its capital expenditure and meet its working capital requirements respectively. This resulted in a debt-to-equity ratio of 155 percent in 2020. Net profit shrank by 42 percent in 2020 to clock in at Rs.761.59 million with an NP margin of 5.6 percent. EPS also dropped to Rs.5.53 in 2020.

2021 brought about a staggering 41 percent year-on-year in TGL’s net sales. During the year, the company commenced the operations of its new float glass plant unit-II which had a daily production capacity of 500 M Tons. The pulled and packed production increased by 12.9 percent to clock in at 280,426 M Tons and 10.6 percent to clock in at 213,948 M Tons respectively in 2020. Cost of sales grew by 32 percent year-on-year as Pak Rupee was relatively stable during the year. Gross profit posted a stunning 87 percent rise in 2021 with GP margin growing up to 21.5 percent. Administrative expense grew by 9 percent year-on-year in 2021 as the employee headcount grew to 1143 in 2021 to meet the human resource requirement at the new plant as well as old plants. Distribution expense posted an uptick of 28 percent year-on-year in 2021 as the company launched advertising and promotional campaigns to muster sales of its float glass. Impairment allowance for trade debts considerably grew in 2021 to clock in at Rs.15.01 million versus Rs.8.45 million in the previous year. Other income contracted by 51 percent year-on-year in 2021 as the company made net exchange loss due to appreciation in the value of local currency in 2021. Other expense ticked up by 166 percent year-on-year in 2021 owing to higher provisioning for WPPF, WWF as well foreign exchange loss incurred during the year. Operating profit grew by 103 percent in 2021 with an OP margin of 17.1 percent. Finance cost slumped by 45 percent year-on-year in 2021 due to low discount rate and lesser borrowings. Debt to-equity plunged to 77 percent in 2021. Net profit climbed up by 177 percent in 2021 to clock in at Rs.2109.37 million with an NP margin of 11 percent. EPS rose to Rs.15.31 in 2021.

TGL’s topline grew by even greater magnitude of 54 percent year-on-year in 2022. Out of the total sales of Rs. 29,415.67 million in 2022, 9.2 percent pertain to export sales. To meet the growing demand of its products, the company pulled production increased remarkably by 33.8 percent to clock in at 375,229 M Tons. Packed production also boasted a tremendous growth of 41.6 percent in 2022 to clock in at 303,022 M Tons. Upward price revisions coupled with the economies of scale achieved due to the instigation of new float glass plant resulted in a year-on-year growth of 88 percent in 2022 with GP margin jumping up to 26.3 percent. Administrative and distribution expense grew by 23 percent and 28 percent respectively in 2022. The number of employees grew to 1250 in 2022 which greatly increased the payroll expense. Moreover, high advertisement expense, traveling expense and depreciation were the main contributors of elevated operating expense in 2022. Other income multiplied by 671 percent in 2022 due to massive gain earned on the disposal of property, plant and equipment, sizeable foreign exchange gain and high interest income on bank deposits due to high discount rate. Other expense rose by 106 percent year-on-year in 2022 due to high provision for WWF, WPPF and doubtful advances. Operating profit went up by 102 percent year-on-year in 2022, culminating into an OP margin of 22.5 percent. Finance cost inched up by 10 percent year-on-year in 2022 as the company settled its long-term loans to a large extent in 2022. Debt-to-equity ratio slightly reduced to 76 percent in 2022. Net profit rose by 96 percent year-on-year in 2022 to clock in at Rs.4140.67 million with an NP margin of 14.1 percent. EPS also rose to Rs.30.06 in 2022.

Recent Performance (9MFY23)

During 9MFY23, TGL’s net sales grew marginally by 2 percent year-on-year. Conversely, cost of sales grew massively by 18 percent year-on-year in 9MFY23 due to the use of expensive RLNG coupled with unprecedented level of inflation which pushed up the prices of raw and packaging materials. Gross profit declined by 35 percent year-on-year in 9MFY23 with GP margin eroding to 19.3 percent versus 30 percent during the same period last year. Administrative expense grew by 25 percent year-on-year in 9MFY23 while distribution expense inched up by just 3 percent during the said period. Other income grew by 82 percent year-on-year in 9MFY23 may be due to high foreign exchange gain due to Pak Rupee depreciation. Other expense slid by 41 percent year-on-year maybe due to low provisioning for WWF and WPPF. Operating profit sank by 38 percent year-on-year in 9MFY23 with OP margin sliding down to 15.8 percent versus 25.9 percent in 9MFY22. Finance cost grew by 65 percent year-on-year in 9MFY23 due to high discount rate while TGL’s borrowings dropped in 9MFY23. Net profit slipped by 43 percent year-on-year in 9MFY23 to clock in at Rs.2191.27 million with an NP margin of 10 percent versus 17.9 percent during the same period last year. EPS also nosedived from Rs.22.34 in 9MFY22 to Rs.12.73 in 9MFY23.

Future Outlook

With rising cost of production on account of high inflation, Pak Rupee depreciation and elevated energy prices, TGL’s margins and profitability are expected to remain tamed. On the flip, the easing of import restrictions and tamed prices in the international market due to global recession will create conducive environment for TGL to import spare parts and machinery which it couldn’t do for quite some time owing to import restrictions. The import of efficient machinery will boost the momentum of production and result in greater efficiency and productivity resulting in controlled cost and better margins.