United Distributors Pakistan Limited

United Distributors Pakistan Limited (PSX: UDPL) is incorporated in Pakistan as a public limited company. The company is engaged in the manufacturing, trading and distribution of pesticides, fertilizers and other allied products.

Pattern of Shareholding

As of June 30, 2023, UDPL has a total of 35.271 million shares outstanding which are held by 1,155 shareholders. Genesis Holdings (Private) Limited, the parent company of UDPL, holds 85.14 percent of its shares followed by local general public holding 6.71 percent shares of UDPL. Around 6.10 percent of the company’s shares are held by Modarabas & Mutual Funds. The remaining ownership is distributed among other categories of shareholders.

Financial Performance (2018-23)

UDPL’s topline boasts an uphill journey in all the years under consideration. However, unlike other years, the magnitude of growth in 2021 and 2022 was quite insignificant. UDPL’s bottomline slid in 2019, yet, stayed in the positive zone. Albeit since 2020, the company never registered net profits. Its net loss tumbled in 2021 but then started escalating. UDPL’s margins portray an oscillating pattern over the years (see the graph of profitability ratios). Net profit margin is found to be the most erratic one on account of share of profit/loss from associate companies. The detailed performance review of each of the years under consideration is given below.

In 2019, UDPL’s net sales grew by 20 percent year-on-year on account of contribution of new brands, better sales mix and concentrated branding efforts by changing the look and feel of the products. Cost of sales surged by 22 percent year-on-year in 2019 on account of a spike in the price of raw and packaging material due to Pak Rupee depreciation, rising global commodity prices as well as general inflation. Gross profit improved by 17 percent in 2019, however, GP margin ticked down to 40.4 percent from 41.4 percent in 2018. Operating expense expanded by 9 percent year-on-year in 2019 on the back of increased sales volume, sales territory expansion, inflation and higher amortization expense incurred during the year. Payroll expense also hiked in 2019 due to an uptick in the number of employees from 80 in 2018 to 93 in 2019. Operating profit picked up by 62 percent year-on-year in 2019 with OP margin rising up from 6.9 percent in 2018 to 9.3 percent in 2019.The tables turned for UDPL when its finance cost multiplied by 360 percent on account of hefty exchange loss incurred in 2019 due to steep depreciation in the value of local currency. This coupled with a 68 percent year-on-year decline in the share of profit from associate company translated into a 70 percent year-on-year plunge in UDPL’s bottomline which stood at Rs.50.37 million in 2019. EPS dived from Rs.5.43 in 2018 to Rs.1.43 in 2019. NP margin also registered a drastic slump from 37 percent in 2018 to 9 percent in 2019.

In 2020, UDPL’s net sales registered a decent 19 percent year-on-year rise. This was despite economic headwinds emanating from the outbreak ofCOVID-19, locust attack on crops as well as non-seasonal rainfall in 2020. Cost of sales radically hiked by 27 percent year-on-year on account of steep depreciation of Pak Rupee which inflated the product cost. Gross profit inched up by 8 percent in 2020, however, GP margin shrank to 36.6 percent. Operating expense grew by 5 percent year-on-year in 2020 due to higher payroll expense, depreciation and amortization as well as commission and incentives. Lower dividend income from IBL Healthcare Limited in 2020 drove down the other income by 33 percent. Operating profit rose by 8 percent year-on-year in 2020, however, OP margin plummeted to 8.4 percent. 58 percent reduction in finance cost in 2020 gave some hope, however, hefty share of loss from associate company proved to be disastrous for UDPL’s bottomline and translated into a net loss of Rs.223.04 million in 2020. Loss per share clocked in at Rs.6.32 in 2020.

UDPL’s topline registered a negligible 0.4 percent growth in 2021. This was on account of curtailed cultivation of cotton crop which is a significant source of revenue for the company. This coupled with the disruption of global supply chain delayed the company’s import shipments and resulted in idle capacity. Gross profit improved by 6 percent year-on-year due to addition of high-margin brands to the company’s sales mix. GP margin progressed to 38.6 percent in 2021. UDPL kept a check on its operating expense which surged by only 2 percent in 2021. Operating profit improved by 19 percent year-on-year in 2021 with OP margin climbing up to 10 percent. Finance cost tumbled by 34 percent year-on-year due to monetary easing. Share of loss from associate company also slipped by 55 percent. This translated into a 65 percent reduction in the net loss for the year which clocked in at Rs.78.48 million in 2021. Loss per share also contracted to Rs.2.22 in 2021.

In 2022, the topline growth was recorded at 2 percent. Despite deteriorating macroeconomic indicators, the company was able to boost its net revenue on account of sizeable contribution of fertilizer products and other high margin products in its sales mix. Gross profit jumped up by 17 percent year-on-year in 2022 with GP margin reaching its optimum level of 44 percent. Operating expense magnified by 14 percent year-on-year in 2022 due to a significant escalation in payroll expense, freight and vehicle running expense incurred during the year. Higher provisioning against ECL and exorbitant exchange loss drove up the other expense by 945 percent in 2022. However, it was largely offset by high other income earned in 2022 due to gain on the disposal of fixed assets. Operating profit progressed by 14 percent in 2022 with OP margin reaching 11 percent – the highest since 2018. Finance cost inched up by 2 percent in 2022, however, what pushed UDPL’s bottomline into net loss was a substantial 222 percent spike in share of loss from associate company. As a consequence, the company posted a huge net loss of Rs.352.41 million in 2022, up 349 percent year-on-year. Loss per share also magnified to Rs.9.99 in 2022.

Recent Performance (2023)

Followed by two years of lackluster sales growth, 2023 proved to be the year of recovery for UDPL with 19 percent year-on-year rise in its topline. However, the plant operations of UDPL tell another tale. During 2023, the company’s packaging of powder and granular products radically fell by 43 percent and 9.5 percent respectively to clock in at 450,716 kilograms and 813,324 kilograms respectively. This translated into a reduced capacity utilization of 50 percent of powder product packaging plant and 60.17 percent of granular product packaging plant. UDPL also fills bottles of liquid fertilizers which also slumped to 142,796 liters in 2023, down 1.24 percent year-on-year. The curtailed operations of UDPL were the result of heavy rainfall and floods during the 1HFY23, import restrictions which hindered the availability of fertilizers. This shows that the topline growth was the result of upward revision in the prices during the year as Pak Rupee extremely dwindled, commodity prices rose and indigenous inflation touched an unparalleled mark in 2023. However, the company couldn’t pass on the entire effect of cost hike to its consumers, which is evident by a 3 percent slide in its gross profit in 2023 with GP margin marching down to its 6-year lowest mark of 36 percent. Operating expense amplified by 40 percent year-on-year in 2023 on account of high payroll expense, legal and professional charges, sales promotion expense as well as vehicle running expense incurred during the year. Bad debt worth Rs.62 million written off during the year coupled with an exchange loss of Rs.15.5 million pushed up UDPL’s other expense by 661 percent in 2023. This culminated into an operating loss of Rs.98.61 million in 2023. Finance cost further worsened the financial results of UDPL in 2023 as it surged by 179 percent. Share of loss from associate company shrank by 72 percent in 2023, however, still stood at a massive Rs.130.25 million further adding to the net loss. UDPL registered a net loss of Rs.372.53 million in 2023, up 6 percent year-on-year with a loss per share of Rs.10.56.

Future Outlook

The ease of import restrictions and strengthening of Pak Rupee off-late may be a good omen for UDPL whose sales are highly contingent on imported products. This may also ensure smooth and unhindered operations in 2024. However, rising prices of packaging material, high electricity charges, elevated discount rate and uncertain weather conditions may weigh down UDPL’s financial performance. Another downside risk is the company’s investment in its associate company, FMC United (Private) Limited. The curtailed revenue of the associate company has been translating into massive share of loss for UDPL since 2020, hindering its profitability and margins. The company needs to revisit its investment strategy to avoid further losses.