Balochistan Glass Limited

Balochistan Glass Limited (PSX: BGL) was incorporated in Pakistan as a public limited company in 1980. The principal activity of the company is the manufacturing and sale of glass containers, glass table wares and plastic shell. BGL’s has three manufacturing facilities, one of which is located in Hub Balochistan while the other two are located in Sheikhupura, Lahore.

Pattern of Shareholding

As of June 30, 2023, BGL has a total of 261.6 million shares outstanding which are held by 3602 shareholders.MMM Holding (Private) Limited is the major shareholder of BGL with 84.34 percent stake followed by local general public holding 13.07 percent shares of BGL. Joint stock companies account for 2.33 percent of the outstanding shares of BGL. The remaining ownership is distributed among other categories of shareholders.

Financial Performance (2018-23)

Among all the years under consideration, BGL’s topline has slid twice i.e. in 2021 and 2023. However, the company has only recorded a positive bottomline in 2021. Its margins also stood in the negative territory in all the years under consideration except for 2021. The detailed performance review of each of the years under consideration is given below.

In 2019, the hefty topline growth was the result of the start of pharmaceutical operations at the Hub plant. Both local and export sales of BGL more than doubled during the year. However, 80 percent year-on-year rise in cost particularly utilities didn’t allow the company to cherish the tremendous sales growth. The company recorded a gross loss of Rs.103.91 million in 2019, down 50 percent year-on-year. Admin and selling expense also expanded by whopping 114 percent, particularly on the back of freight, handling and forwarding on local sale. The much needed support was provided by other income which grew by a massive 533 percent in 2019 on the back of markup and liabilities from financial institutions written back. While the company still made an operating loss of Rs.61.27 million in 2019, however, it was 74 percent lesser than that of 2018. Finance cost magnified by 54 percent year-on-year on the back of increased discount rate as well as more short-term borrowings obtained during the year. The result was a net loss worth Rs.135.62 million, signifying a dip of 52 percent from the net loss posted by BGL in 2018. Loss per share stood at Rs.0.52 in 2019 as against Rs.1.64 in 2018.

2020 appears to be telling the same tale as 2019 as the company couldn’t make any profit despite a sizeable 33 percent year-on-year growth in topline. The topline growth is mainly attributable to tableware glass division which performed exceptionally well during the year. High cost of sales kept daunting BGL’s financial performance, however, the gross loss of Rs.44.45 million recorded in 2020 was 57 percent lesser than that of 2019. Selling & Administrative expense escalated by 18 percent year-on-year on account of promotional discounts and incentives provided by the company during the year. What made BGL’s bottomline even pitiable than last year was an enormous 44 times rise in other expense coupled with a significant 99 percent drop in other income. Other expense grew on the back of provision for GIDC balance. Other income dropped as a huge amount of liabilities and mark-up written back in 2018 created high-base effect. Consequently, the operating loss grew massively by 444 percent in 2020 to clock in at Rs.333.28 million. To make it worse, finance cost grew by 38 percent year-on-year due to high discount rate during the first three quarters of 2020 coupled with increased short-term borrowings during the year. The net loss of BGL magnified by 242 percent in 2020 to clock in at Rs.464.21 million. Loss per share climbed up to Rs. 1.77 in 2020.

2021 is the only year after 2016 where BGL posted net profit. The adverse effects of COVID-19 which began in 2020 continued to cripple the operations of the company which is evident from the topline slide of 16 percent year-on-year in 2021. Both local and export sales witnessed a dip during the year owing to restricted movement of people and goods on account of global pandemic. Low sales volume was also the result of the closure of pharmaceutical operations during the year which couldn’t be offset by the expansion of tableware glass project during the year.However, lesser sales also meant controlled cost of production which resulted in BGL making a gross profit of Rs.117.50 million in 2021 as against a gross loss of Rs.44.45 million in the previous year. The GP margin stood at 9 percent in 2021.Administrative and selling expense as well as other expense also behaved favorably during the year owing to lesser freight, handling and forwarding charges and absence of provision for GIDC balance respectively. Other income increased by over 38 times owing to unwinding of discount on GIDC payable and reversal of provision for default surcharge on taxation. This culminated into an operating profit of Rs.121.77 million in 2021 with OP margin of 10 percent. Finance cost also slid during the year on the back of low discount rate as well as lower borrowings during the year. The company also received a share of profit from its investment in Paidar Hong Glass (Private) limited (PHGPL). As a consequence, BGL posted a net profit of Rs.25.46 million in 2021 with NP margin of 2 percent. EPS stood at Rs. 0.10 in 2021.

In 2022, BGL posted a marginal topline growth of 7 percent as curtailment of gas supply during the year didn’t allow BGL to attain its targeted production levels during the year. The company also didn’t make any export sales during the year which also affected its topline growth. High inflationary pressure particularly incremental gas prices as well as depreciation of Pak Rupee increased the cost of sales and resulted in a gross loss Rs.170.58 million in 2022. Operating expense also grew by 21 percent on the back of inflation which drove up the payroll expense despite reduction in the number of employees from 268 in 2021 to 120 in 2022. Higher freight and forwarding as well as travelling & conveyance expense due to escalated prices of POL products also pushed the operating expense up during the year. Other expense gave another blow to the company as it grew by 123 percent on the back of higher provisioning for doubtful trade balances. Other income provided the much needed support as it grew by 41 percent year-on-year on the back of markup written back on settlement with bank and other associates. Yet BGL failed to record an operating profit during 2022. Operating loss stood at Rs.158.56 million in 2022. Finance cost grew on the back of high discount rate during the year coupled with higher short-term borrowings during the year. The share of profit from the associate company, PHGPL also dropped during the year. All the downbeat factors culminated into a net loss of Rs.269.44 million during the year with loss per share of Rs.1.03 in 2022.

In 2023, BGL’e net sales drastically drop to the tune of 86 percent year-on-year. This was on account of the closure of the company’s table glassware division since May 2022 to overcome the operational and financial vulnerabilities faced by the company. As of June 30, 2023, BGL had an accumulated loss of around Rs.6118 million due to net losses registered by the company for many years. Cost of sales slipped by 76 percent year-on-year in 2023. Gross loss hiked by 14 percent year-on-year to clock in at Rs.193.69 million in 2023. Administrative and selling expense slumped by 67 percent year-on-year in 2023 due to significantly low payroll expense incurred during the year as the company downsized its workforce from 120 in 2022 to just 6 in 2023. Lower travelling & conveyance and freight charges also contributed to drive down the operating expense in 2023. Considerable reduction in provisioning for doubtful trade debts trimmed down other expense by 37 percent in 2023. Other income also gave some breather as liabilities no longer payable were written back during the year resulting in 129 percent rise in other income in 2023. Thanks to other income, BGL was able to post operating profit of Rs.5.35 million in 2023 with OP margin of 3 percent. However, the operating profit couldn’t trickle down to produce a positive bottomline in the presence of 40 percent hike in finance cost on the back of high discount rate. BGL posted net loss of Rs.135.06 million in 2023, down 50 percent year-on-year. Loss per share also toppled to Rs.0.52 in 2023.

Recent Performance (1QFY24)

During 1QFY24, BGL’s net sales steeply fell by 93 percent year-on-year. The operations of tableware glass division which were halted since 2022 didn’t resume. High energy cost, excessive inventory levels on the back of tamed demand and depreciation of Pak Rupee eroded the margins of the company. Accumulated loss stood at Rs.6209 million as of September 30, 2923. Cost of sales plunged by 60 percent year-on-year during 1QFY24 as the company was only selling the stock in hand. Gross loss of the company dropped by 7 percent year-on-year in 1QFY24 to clock in at Rs.50.88 million. Operating expenses also witnessed a slump of 69 percent during the year due to limited business activity. BGL posted operating loss of Rs. 53.78 million in 1QFY24, down 16 percent year-on-year. Finance cost soared by 25 percent year-on-year during the period on the back of record high levels of discount rate, as well as increased short-term borrowings. BGL posted net loss of Rs. 94.53 million in 1QFY24, up 3 percent year-on-year. Loss per share stood at Rs.0.36 in 1QFY24 as against Rs.0.35 in 1QFY23

Future Outlook

BGL has effectively settled its financial obligations towards external creditors. This put the company in a better position to acquire fresh working capital borrowings and resume its operations. The demand of local glassware has significantly rebounded after import restrictions. Moreover, the share purchase agreement executed by Tariq Glass Industries Limited (TGIL) to acquire a major shareholding in BGL will provide strong market presence to the company. Since TGIL is a prominent player in the glass industry, its involvement will result in better management control which is likely to produce a positive impact on the future performance of BGL.