Roshan Packages Limited (PSX: RPL) was incorporated in Pakistan as a private limited company in 2002 and was converted into a public limited company in 2016. The principal activity of the company is the manufacturing and sale of corrugation and flexible packaging material.
Pattern of Shareholding
As of June 30, 2023, RPL has a total of 141.9 million shares outstanding which are held by 5230 shareholders. Directors, CEO, their spouses, and minor children have the majority stake of 68.17 percent in the company followed local general public holding 22.31 percent shares of RPL. Around 2.84 percent of the company’s shares are held by Modarabas and Mutual Funds and 2.25 percent by Banks, DFIs, and NBFIs. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-23)
Except for a marginal decline in 2020, RPL’s net sales have been growing in all the years under consideration. Its bottom line, which was in the negative territory until 2019 rebounded in 2020. The net profit further enlarged in 2021 and then nosedived in the subsequent years. RPL’s margins follow an irregular pattern. Gross margin of the company inched down in 2019 and then rose for the next two subsequent years to taper off in 2022. Conversely, operating margin rode an upward trajectory until 2021 and then dipped in 2022. In 2023, both gross and operating margins greatly recovered. Net margin which was in the negative zone in 2018 and 2019, rebounded for the next two years and then slumped in 2022 and 2023. The detailed performance review of the period under consideration is given below.
In 2019, RPL’s topline grew by a substantial 33.88 percent year-on-year which came on the back of a volumetric growth of 18.73 percent. In 2019, the company dispatches stood at 39,012 MT. As of June 2019, the company had an installed capacity of 60,000 MT of its corrugation plant and 12,240 MT of its flexible plant. The company operated its corrugation plant at 51.8 percent capacity in 2019 versus 44.4 percent in 2018. Flexible plant was operated at 69 percent capacity in 2019 versus 57 percent in the previous year. Cost of sales grew by 34.6 percent year-on-year in 2019 which pushed down RPL’s GP margin from 6.17 percent in 2018 to 5.66 percent in 2019 despite 22.89 percent year-on-year growth in gross profit. The company cut back on its administrative expenses by 7.33 percent year-on-year in 2019 despite high capacity utilization which required additional human resources. The company increased in employee head count to 483 in 2019 versus 467 in 2018. However, a check on travelling & conveyance, entertainment, repair & maintenance, etc enabled RPL to control its administrative expenses in 2019. Distribution expenses grew by 29.48 percent year-on-year in 2019 primarily due to higher payroll expenses and added advertisement and promotion budget. Higher distribution expense was largely offset by reversal of allowance on trade receivables in 2019. Higher exchange loss due to depreciation of Pak Rupee culminated into a 39.36 percent year-on-year growth in other expenses. Other income posted a handsome 36.36 percent year-on-year rise due to higher profit on bank deposits, higher markup on long-term loans, and also because of gain on sale of fixed assets in 2019. Operating profit grew by 381.68 percent year-on-year in 2019 with OP margin growing staggeringly from 1.17 percent in 2018 to 4.22 percent in 2019. The stunning growth in operating profit was diluted by 54.85 percent year-on-year growth in finance cost in 2019 due to higher discount rate despite keeping a check on borrowings. The company posted profit before tax of Rs.41.22 million in 2019 as against the loss before tax of Rs.73.22 million in 2018. Upward revision in normal tax rate to 29 percent and turnover tax to 1.5 percent increased the current and deferred charge for the company which translated into net loss of Rs.26.9 million in 2019. The loss posted by RPL in 2019 was 70.29 percent lesser than the net loss posted in 2018. Loss per share stood at Rs.0.19 in 2019 versus Rs.0.64 in 2018.
The topline took a 3 percent year-on-year dive in 2020 due to nationwide lockdowns and supply chain disruptions owing to COVID-19. The volumes of the company fell to 36,261 MT in 2020, signifying 8.3 percent drop. This was due to lackluster performance of HORECA industry amidst lockdown which reduced the demand of packaging material. The capacity utilization of corrugation plant fell to 49 percent and flexible plant fell to 57.5 percent due to plant shutdown. The company was able to rationalize its cost by streamlining its product and customer portfolio and was able to reduce its cost by 7.96 percent year-on-year in 2020. This increased its gross profit by 78.95 percent year-on-year in 2020 and boosted its GP margin to 10.45 percent. The company reduced its number of employees to 434 in 2020 due to restrained operational capacity; however, administrative expenses grew by 27.66 percent year-on-year due to higher payroll expenses, legal and professional charges, and higher depreciation due to idle capacity during the year. Distribution expenses inched up by 90.45 percent year-on-year in 2020 due to higher freight and transportation charges. Other expenses dropped by 85.58 percent year-on-year in 2020 due to lower exchange loss. While profit on bank deposits significantly dropped during 2020, it was greatly offset by higher profit on investment and interest income on loans to related parties. This resulted in a trivial downward movement of 0.65 percent in other income in 2020. Operating profit grew by 74.73 percent year-on-year in 2020 with OP margin surging to 7.61 percent. Finance cost grew by 19.55 percent year-on-year in 2020 due to higher long-term financing secured under SBP’s refinance scheme for the payment of salaries and wages. The company was able to record a net profit of Rs.247.96 million in 2020 with NP margin of 4.74 percent. EPS clocked in at Rs.1.75 in 2020.
In 2021, RPL’s topline boasted 33.69 percent year-on-year rise on the back of 7.9 percent increase in sales volume which clocked in at 38,369 MT. After the outbreak of COVID-19, people became more aware about hygiene and the importance of proper packaging. This buttressed the demand of packaging products. Moreover, the culture of online shopping and online food deliveries further propelled the demand of packaging material. Owing to demand growth, the company’s operated its corrugation plant at 53.5 percent and flexible plant at 65 percent capacity in 2021. The number of employees also grew from 434 in 2020 to 483 in 2021. Cost of sales grew by 30.45 percent year-on-year in 2021 resulting in 61.47 percent growth in gross profit. GP margin climbed up to 12.62 percent in 2021. Administrative and selling expenses grew by 20.27 percent and 19.22 percent respectively in 2021 on account of higher payroll expenses, travelling and conveyance as well as freight charges. Other expenses grew by 106.30 percent year-on-year in 2021 due to higher provisioning for WWF and WPPF. While the company earned exchange gain due to improvement in the value of local currency in 2021, lower profit on bank deposits and short-term investments as well as lower interest income on loan to related parties on the back of lower discount rate pushed the other income down by 32.28 percent in 2021. Operating profit grew by 45.62 percent year-on-year in 2021 with OP margin growing up to 8.3 percent. Finance cost fell by 49.97 percent year-on-year in 2021 due to monetary easing and lesser borrowings. Net profit grew by 39.40 percent year-on-year in 2021 with NP margin of 4.94 percent. EPS surged to Rs.2.44 in 2021.
The demand remained robust in 2022 with 26.73 percent year-on-year growth in topline. The company dispatched 44,884 MT of packaging material in 2022. The capacity utilization of corrugation plant increased to 62.5 percent, however, flexible plant operated at a reduced capacity of 60 percent in 2022. Besides higher dispatches in 2022, the company also rationalized its customer portfolio and focused on top-tier local and international corporate customers which resulted in improved prices. However, rise in the cost of imported raw materials coupled with Pak Rupee depreciation and higher utility charges pushed the cost of sales up by 30 percent year-on-year in 2022. This suppressed the GP margin to 10.6 percent in 2022. The number of employees grew to 565 in 2022 owing to higher capacity utilization. This coupled with inflationary effect pushed up the payroll expense, resulting in 18.41 percent year-on-year rise in administrative expense in 2022. Selling expenses grew by 44.23 percent year-on-year in 2022 on the back of increased advertising and promotion budget and freight charges. Other expenses multiplied by 207.54 percent in 2022 due to massive exchange loss on the back of depreciation in the value of Pak Rupee. Other income also slipped by 8.12 percent year-on-year in 2022 due to lesser profit on bank deposits and short-term investments. Operating profit plummeted by 25.98 percent year-on-year in 2022 with OP margin sliding down to 4.84 percent. 49.82 percent year-on-year increase in finance cost due to higher discount rate and increased short-term and long-term borrowings translated into 23 percent year-on-year drop in net profit which clocked in at Rs.264.71 million in 2022 with NP margin of 3 percent. EPS also plunged to Rs.1.87 in 2022.
RPL’s topline posted 15.58 percent year-on-year growth in 2023. While the company’s sales volume slid by 9.78 percent to clock in at 40,493 MT in 2023, prolonged emphasis on top-tier local corporate and multinational clients enabled RPL to attain price rationalization. This coupled with cost optimization resulted in 39.26 percent higher gross profit in 2023. GP margin also jumped up to 12.44 percent in 2023. RPL’s corrugation plant operated at 58.43 percent capacity and produced 35,060 MT of packaging material in 2023. The capacity utilization of flexible plant stood at 44.38 percent in 2023 resulting in the production volume of 5433 MT. Administrative and selling expenses posted a year-on-year rise of 32 percent and 37 percent respectively in 2023 on account of high inflation which drove up payroll expenses, utility expenses, travelling and conveyance expenses as well as freight and carriage charges. RPL stream lined its workforce from 565 employees in 2022 to 516 employees in 2023. Other expenses slid by 27.23 percent year-on-year in 2023 due to lower exchange loss incurred during the year. Conversely, other income grew by 50.99 percent year-on-year in 2023 due to higher discount rate which pushed up the profit on deposits. Operating profit strengthened by 53 percent in 2023 with OP margin rising up to 6.41 percent. Finance cost surged by 90.44 percent year-on-year in 2023. While borrowings considerably reduced in 2023, high finance cost was the result of excessive monetary tightening over the year. Net profit slashed by 43.21 percent year-on-year in 2023 to clock in at Rs.150.338 million with EPS of Rs.1.06 and NP margin of 1.47 percent.
Recent Performance (9MFY24)
During 9MFY24, RPL’s topline grew by 6.74 percent. Cost of sales swelled by 7.33 percent on account of high inflation, Pak Rupee depreciation, and heightened energy tariff. Gross profit inched up by 2 percent in 9MFY24, however, GP margin slid from 11.16 percent in 9MFY23 to 10.67 percent in 9MFY24. Administrative and selling expenses slid by 15.14 percent and 13.76 percent respectively in 9MFY24 due to curtailed sales volume which kept a check on freight & carriage charges as well as payroll expenses supposedly due to rightsizing of employees. Other expenses slid by 9.25 percent in 9MFY24. Other income mounted by 85.32 percent in 9MFY24 as the company enhanced its income sources and investment activities. Controlled operating expenses and robust other income enhanced RPL’s operating profit by 51.48 percent in 9MFY24 with OP margin clocking in at 6.92 percent versus OP margin of 4.87 percent recorded in 9MFY23. Finance costs grew by 5.45 percent in 9MFY24 due to a higher discount rate while outstanding borrowings shrank during the period. Net profit grew by 79 percent to clock in at Rs.220.74 million in 9MFY24 with EPS of Rs.1.56 versus EPS of Rs.0.87 recorded during 9MFY23. NP margin climbed up from 1.68 percent in 9MFY23 to 2.81 percent in 9MFY24.
Future Outlook
The company has significantly streamlined its customer portfolio to include FMCG and essential commodities segment where demand is expected to remain stable. Increasing population and urbanization will keep the demand of FMCG and essential commodities buoyant in the coming times and so will be the demand of packaging material.
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