Rupali Polyester Limited

Rupali Polyester Limited (PSX: RUPL) was incorporated in Pakistan as a public limited company in 1980. The principal activity of the company is the manufacturing and sale of polyester products.

Pattern of Shareholding

As of June 30, 2023, RUPL has a total of 35.069 million shares outstanding which are held by 686 shareholders. Trusts have the majority stake of 81.04 percent in the company followed by individuals holding 12.55 percent of its shares. Directors, CEO, their spouse and minor children account for 3.08 percent of RUPL’s outstanding shares. Around 2.16 percent of the company’s shares are held by NBP Trustee department and 1.14 percent by Banks, DFIs and NBFIs. The remaining ownership is distributed among other categories of shareholders.

Financial Performance (2019-23)

Except for a plunge in 2020, RUPL’s topline has been riding an upward trajectory since 2019. Conversely, its bottomline slid thrice during the period i.e. in 2019, 2020 and 2023. In 2023, RUPL posted net loss. The company’s margins which considerably fell in 2019 improved in 2020 and 2021 (except net margin with slightly dropped in 2020). In 2022, net margin rose while gross and operating margins slightly plunged. In 2023, all the margins registered their lowest levels (see the graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.

In 2019, RUPL’s topline posted a staggering year-on-year growth of 49.79 percent. In line with the rising demand, the company’s production volume also increased by 21 percent year-on-year in 2019 (see the graph of production capacity versus production achieved). However, in the 2HFY19, there were country-wide strikes by textile traders and manufacturers for the levy of sales tax on the entire textile value chain. Moreover, regulatory duty on imported polyester filament yarn (PFY) was reduced to zero in 2019 budget. This distorted the level playing field in the polyester industry and gave competitive advantage to the imported products. Moreover, the requirement of CNIC from unregistered suppliers also raised concerns in the industry. Cost of sales grew by 50.73 percent in 2019 on account of inflationary pressure, imposition of 17 percent sales tax in the entire value chain, higher utility charges and fuel cost. The company was not able to pass on the cost hike on to its consumers because of cheaper alternative (read: imported polyester) available in the market. RUPL’s gross profit grew by 35.22 percent year-on-year in 2019, however, GP margin fell from 6.01 percent in 2018 to 5.42 percent in 2019. Distribution expense escalated by 38.2 percent year-on-year in 2019; mainly on account of higher freight and forwarding charges. Administrative expense inched up by 2.16 percent year-on-year in 2019 primarily due to inflationary pressure and utility charges. Lower scrap sales and lower gain on re-measurement of fair value of investment property trimmed down other income by 24.7 percent in 2019. Other expense also marched down by 34 percent in 2019 on account of lesser charity & donations. As a consequence, there was 46 percent year-on-year growth in operating profit; however, OP margin slightly marched down from 3.88 percent in 2018 to 3.78 in 2019. Finance cost surged by 41.64 percent in 2019 on the back of higher discount rate despite the fact that RUPL’s outstanding borrowings plunged during the year. This culminated into 14.84 percent year-on-year slide in the company’s net profit which stood at Rs.54.974 million in 2019 with EPS of Rs.1.61 versus Rs.1.89 in 2018. NP margin also slumped from 1.07 percent in 2018 to 0.61 percent in 2019.

RUPL couldn’t cope up with the economic uncertainty brought about by COVID-19 and lost its topline by 34.68 percent in 2020. RUPL’s production volume eroded by 31 percent year-on-year in 2020 due to sluggish demand as well as lockdown imposed by the government. While the government had provided relaxation on the CNIC requirement from the traders which created impetus for local sales during 9MFY20, however, no demand in the 4QFY20 counterbalanced the sales of the first three quarters. Cost of sales dropped by 35.53 percent in 2020, resulting in 19.87 percent thinner gross profit recorded by RUPL. On the positive front, GP margin saw an uptick to clock in at 6.65 percent. Distribution expense tumbled by 26.5 percent in 2020 on the back of lower freight & forwarding charges. RUPL was able to squeeze its administrative expense by 1.39 percent in 2020. Other income registered a stunning 125.78 percent rise in 2020 as the company recorded huge rise in gain on re-measurement of fair value of investment property in 2020. Lower charity & donations pushed other expense down by 30.69 percent in 2020. Controlled expenses and robust other income resulted in a meager 0.26 percent slide in operating profit in 2020 despite massive decline in sales. OP margin greatly improved to clock in at 5.78 percent in 2020. Finance cost registered 38.37 percent spike in 2020 as discount rate was high for most part of the year. Furthermore, RUPL’s short-term borrowings also rose during the year. This translated into a year-on-year drop of 39.04 percent in the company’s net profit which clocked in at Rs.33.510 million in 2020 with EPS of Rs.0.98. NP margin slightly ticked down to 0.57 percent in 2020.

In 2021, RUPL’s net sales recorded year-on-year growth of 27.73 percent. Production volume rose up by 42 percent during the year which bear testament to improved sales volume and resumption of economic activity after the slowdown experienced on account of COVID-19. Cost of sales also hiked by 21.55 percent in 2021 owing to higher cost of raw materials as well as elevated energy charges. However, with improved demand in the local market, the company was able to pass on the onus of cost hike on to its consumers, resulting in 114.48 percent higher gross profit recorded by the company in 2021 with GP margin reaching its optimum value of 11.17 percent. Distribution expense expanded by 29.33 percent in 2021 as higher sales volume drove up the freight charges. Administrative expense eroded by 2.58 percent in 2021. Higher profit related provisioning resulted in 268.98 percent surge in other expense in 2021. Conversely, lower fair value gain on investment property drove other income down by 44.51 percent in 2021. RUPL recorded 100.46 percent bigger operating profit in 2021 with OP margin of 9.07 percent. Finance cost also shrank by 40.3 percent in 2021 on account of lower discount rate combined with reduced borrowings. As a consequence, net profit magnified by 771.58 percent in 2021 to clock in at Rs.292.065 million with EPS of Rs.8.57 and NP margin of 3.87 percent.

In 2022 RUPL’s topline magnified by 48.64 percent. Due to dumping of low quality imported PFY available in the market the company’s sales volume were adversely affected in the 4QFY22. This is also evident in 6 percent lower production volume achieved by the company in 2022. Moreover, global commodity super cycle induced by Russia-Ukraine war coupled with Pak Rupee depreciation, hike in energy prices and indigenous inflationary pressure drove the cost of sales by 49.56 percent in 2022. Gross profit grew by 41.4 percent in 2022, however, GP margin eroded to clock in at 10.63 percent. Distribution and administrative expense spiked by 13.54 percent and 21.65 percent respectively in 2022 which was the result of higher freight charges as well as payroll expense. Other expense mounted by 90.81 percent in 2022 due to increased donations and profit related provisioning. During 2022, RUPL didn’t book any gain on fair value of investment property, resulting in 9.11 percent lower other income. Operating profit augmented by 36.9 percent in 2022, however, OP margin slipped to 8.35 percent. Despite monetary tightening taking place during the year, RUPL was able to cut down its finance cost by 48.08 percent in 2022 by considerably reducing its borrowings during the year. This translated into 194.83 percent rise in net profit to clock in at Rs.861.092 million in 2022 with EPS of Rs.25.27 and NP margin of 7.67 percent.

RUPL’s topline registered marginal 2.65 percent year-on-year growth in 2023. While anti-dumping duty was imposed on imported PSY, lackluster demand by the textile industry due to overall economic slowdown resulted in 13 percent lower production volume attained by RUPL in 2023. Smuggling of imported products further restrained the demand in the local market. Cost of sales registered a surge of 12.91 percent in 2023 on account of global commodity super cycle, Pak Rupee depreciation, energy supply crisis, escalated power tariff etc. Gross profit thinned down by 83.62 percent in 2023 with GP margin reaching its lowest level of 1.7 percent. Distribution and administrative expense soared by 14.81 percent and 15.77 percent respectively in 2023 on account of higher prices of POL products which drove up the freight charges and also because of higher payroll expense incurred during the year. Operating expense, to a great extent, was counterbalanced by 235.85 percent higher other income mainly on account of fair value gains on investment property. Operating profit shrank by 81.67 percent in 2023 with OP margin moving down to 1.49 percent. Finance cost undertook massive 372.12 percent spike in 2023 on account of unprecedented level of discount rate and higher short-term borrowings. Higher finance cost coupled with the imposition of super tax pushed RUPL in net loss of Rs.184.828 million in 2023 with loss per share of Rs.5.43.

Recent Performance (1QFY24)

Lower demand from downstream consumers particularly in sectors such as elastic, lace, prayer mats, water jets, grey cloth and knitting on account of economic and political headwinds resulted in lower sales volume of RUPL in 1QFY24. This coupled with slow months of Muharram and Safar also affected the sales. Despite that, RUPL’s topline grew by 20 percent year-on-year in 1QFY24 on account of upward price revisions during the period. Hike in the prices of essential raw materials particularly PTA and MEG, Pak Rupee depreciation as well as hike in energy tariff resulted in 22 percent escalations in cost of sales during 1QFY24. This slashed the gross profit down by 47 percent year-on-year in 1QFY24 with GP margin shrinking from 3.77 percent in 1QFY23 to 1.68 percent in 1QFY24. Distribution and administrative expense spiraled by 14 percent and 2 percent respectively in 1QFY24 on account of inflationary pressure. Operating profit slid by 97 percent year-on-year in 1QFY24 with OP margin dwindling from 1.99 percent in 1QFY23 to 0.04 percent in 1QFY24. Finance cost magnified by a massive 236 percent in 1QFY24 on account of discount rate hike and increased working capital loans. RUPL recorded net loss of Rs.170.814 million in 1QFY24 as against net loss of Rs.22.406 million during the same period last year. Loss per share intensified from Rs.0.66 in 1QFY23 to Rs.5.010 in 1QFY24.

Future Outlook

Poor politico-economic backdrop will continue to take its toll on the demand of PFY and PSF in the near term. However, tamed global commodity prices and stable Pak Rupee will be a good omen for RUPL’s cost of sales. Whether or not this will offset the effect of high energy prices and discount rate and result in improved margins and profitability is yet to be seen.