Habib Rice Products Limited

Habib Rice Products Limited (PSX: HRPL) was incorporated in Pakistan in 1980. The principal activity of the company is the production of rice-based starch sugar and proteins.

Pattern of Shareholding

As of June 30, 2023, HRPL has a total of 40 million shares outstanding which are held by 2342 shareholders. Directors, CEO, their spouse and minor children have the major stake of 60.15 percent in the company, followed by individuals holding 19.97 percent shares. Associated companies, undertaking and related parties own 11.55 percent shares of HRPL while foreign investors account for 5.6 percent shares. Insurance companies hold 1.38 percent shares of HRPL. The remaining ownership is distributed among other categories of shareholders.

Financial Performance (2018-23)

HRPL’s topline has been riding an upward trajectory since 2018. Its bottomline also followed the suit with a much stronger growth magnitude except in 2022 where it slid. HRPL’s margins went uphill until 2021 with a sizeable drop in 2022. In the subsequent year, the margins considerably recovered. The detailed performance review of each of the years under consideration is given below.

In 2019, HRPL’s topline grew by 9 percent year-on-year. While local sales slumped on account of dumping of sorbitol from India, robust demand of the company’s products in the export market drove the net sales up. The share of export sales in HRPL’s net sales grew from 13 percent in 2018 to 30 percent in 2019. Gross profit rebounded by a massive 47 percent year-on-year in 2019 as export sales provided healthy margins amid Pak Rupee depreciation. GP margin grew from 14.5 percent in 2018 to 19.5 percent in 2019. Higher export sales volume also resulted in elevated freight and commission charges, culminating into a 29 percent spike in distribution charges in 2019. Administrative expense also inched up by 7 percent year-on-year on account of higher payroll expense incurred during the year. HRPL’s net other income rose by 55 percent year-on-year in 2019 due to higher profit on TDR and bank deposits as well as exchange gain. Operating profit multiplied by 129 percent year-on-year in 2019 translating into OP margin of 9 percent, up from 4.3 percent in 2018. Finance cost surged by 161 percent year-on-year in 2019, however, it only comprised of bank charges and commissions as HRPL didn’t have any external borrowings on its books. Net profit spiraled by 79 percent year-on-year in 2019 to clock in at Rs.123.25 million with an EPS of Rs.3.08, up from Rs.1.72 in 2018. NP margin also ascended from 4.8 percent in 2018 to 7.9 percent in 2019.

HRPL’s topline grew by another 9 percent in 2020. The outbreak of COVID-19 and the associated restrictions on the movement of goods and people across border resulted in a complete halt of sorbitol import from India. This created supply gap in the market, allowing the company to increase its prices. HRPL’s export sales also slipped in 2020 on account of COVID-19, however, improved prices in the home market pushed the gross profit up by 24 percent year-on-year with GP margin picking up to 22.2 percent. Distribution expense grew by 5 percent year-on-year on the back of higher freight expense and advertisement expense. Higher payroll expense and depreciation on right-of-use assets drove up the administrative expense by 3 percent year-on-year in 2020. Net other income rebounded by 31 percent year-on-year in 2020 on account of splendid interest income on short-term investment. As a consequence, operating profit widened by 51 percent year-on-year in 2020 with OP margin jumping up to 12.5 percent. Finance cost surged by 34 percent year-on-year in 2020 due to accretion of interest on lease liabilities. Net profit rose by 42 percent year-on-year in 2020 to clock in at Rs.174.52 million, translating into an EPS of Rs.4.36 and NP margin of 10.3 percent.

In 2021, HRPL’s topline posted a marginal 4 percent year-on-year growth due to lower sales volume as the imports from India resumed during the year. However, better margins on export sales saved HRPL’s topline from falling. Gross profit picked up by 12 percent year-on-year in 2021 on account of higher margins on export sales. GP margin jumped up to 24 percent in 2021. Administrative expense stayed at the same level as of 2020. Conversely, distribution expense magnified by 26 percent year-on-year as freight charges soared due to higher export sales. Net other income shrank by 13 percent year-on-year in 2021 due to lower profit on saving accounts and deposit receipts on account of monetary easing during the year. Operating profit picked up by 23 percent year-on-year in 2021 with OP margin rising up to 14.8 percent. Finance cost multiplied by 156 percent year-on-year in 2021 due to unwinding of finance cost on provision for GIDC. Then tax expense narrowed down by 95 percent year-on-year in 2021 on account of tax credit from prior year. This resulted in a 43 percent year-on-year growth in net profit which clocked in at Rs.250.02 million with an EPS of Rs.6.25 and NP margin of 14.1 percent.

HRPL’s net sales grew by 8 percent year-on-year in 2022. The non-availability of energy during the year resulted in curtailed plant operations resulting in lower sales volume. Topline growth was primarily the result of higher export sales which constituted 33.5 percent of HRPL’s cumulative net sales in 2022 versus 16 percent in 2021. High cost of energy coupled with unparalleled level of inflation pumped up the cost of sales by 10 percent year-on-year in 2022. Gross profit grew by 5 percent year-on-year in 2022, however, GP margin slightly tumbled to 23.1 percent. Distribution expense surged by 88 percent year-on-year in 2022 on account of higher freight charges which was primarily the effect of elevated prices of POL products. Administrative expense also multiplied by 18 percent year-on-year in 2022 due to higher payroll expense as well as travelling & conveyance charges. Net other income squeezed by 44 percent year-on-year in 2022 due to higher unrealized loss on listed equity securities and lower profit on TDRs. Resultantly, operating profit shrank by 47 percent year-on-year in 2022 with OP margin falling down to 7.2 percent. To make things even worse, finance cost soared by 62 percent year-on-year in 2023 on account if higher unwinding of finance cost on provision for GIDC. Net profit contracted by 66 percent year-on-year in 2022 to clock in at Rs.84.08 million with an EPS of Rs.2.10 and NP margin of 4.4 – the lowest among all the years under consideration.

Recent Performance (2023)

Among al the years under consideration, HRPL posted the highest year-on-year growth of 32 percent in its topline in 2023. Import restrictions forced the company to locally source its raw materials. This coupled with erratic gas supplies didn’t allow the company to operate at its optimum capacity. Hence, it liquidated its long-accumulated inventory in 2023. Cost of sales grew by 29 percent year-on-year in 2023 resulting in 41 percent higher gross profit and GP margin touching its highest level of 24.7 percent in 2023. Distribution and administrative expense declined by 30 percent and 3 percent respectively in 2023 due to lower freight charges and higher payroll expense respectively. Net other income further slid by 1 percent due to higher provision for WWF and WPPF in 2022. Gain on res-measurement of GIDC grew by 24 percent in 2023 which buttressed the operating results, As a result, operating profit posted a staggering 181 percent rise In 2023 with OP margin climbing up to 15.3 percent. Finance cost grew by 9 percent year-on-year in 2023 due to higher unwinding of finance cost on provision for GIDC. Net profit showed a massive improvement of 296 percent year-on-year in 2023 to clock in at Rs.333.06 million with NP margin of 13.1 percent and EPS of Rs.8.33.

Future Outlook

The international brown rice syrup market is staggeringly growing on account of consumers’ rising inclination towards organic sweeteners. HRPL must capitalize on this opportunity and focus on export sales to earn better margins amid Pak Rupee depreciation. However, HRPL being at the tail end of the gas pipeline suffer from inconsistent gas supply which impedes its production The company is considering cogen (also known as combined heat and power) as a possible substitute of gas to ensure uninterrupted production operations in order to enhance its sales volume.