Dynea Pakistan Limited (PSX: DYNO) was incorporated in Pakistan as a public limited company in 1982. The principal activity of the company is the manufacturing and sale of formaldehyde, urea/melamine formaldehyde, and molding compound.
Pattern of Shareholding
As of June 30, 2023, DYNO had a total of 18.87 million shares outstanding which are held by 1430 shareholders. Foreign investors have the majority stake of 26.08 percent in the company followed by AICA Asia Pacific Holding Pvt. Limited, a related party of DYNO, holding 24.99 percent of its shares. Local individuals account for 20.73 percent of the outstanding shares of DYNO followed by Mutual funds with 12.67 percent shares. Joint stock companies hold 9.21 percent shares of DYNO while Banks, DFIs, and NBFIs hold 5.10 percent shares. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-23)
During the period under consideration, DYNO’s top line dipped only once in 2020, however, its bottom line plunged twice i.e. in 2019 and 2022. DYNO’s margin nosedived in 2019 and then recovered for the two successive years before slipping again in 2022. In 2023, gross margin slightly ticked up while operating and net margins continued to fall. The detailed performance review of the period under consideration is given below.
In 2019, DYNO’s net revenue posted a 33.22 percent year-on-year rise. This was on account of a 15.21 percent growth in the turnover of the resin division and a 56.05 percent growth in the turnover of moulding compound division. The resin division of the company operated at 59 percent capacity in 2019 versus 60 percent capacity utilization recorded in 2018. Conversely, the actual production of moulding compound division stood at 110 percent of the rated capacity in 2019 versus 87 percent capacity utilization recorded in 2018. The steep depreciation of the Pak Rupee and rise in raw material and energy prices pushed the cost of sales up by 40 percent during the year. While DYNO’s gross profit in 2019 was 1.63 percent higher than that in 2018; GP margin tumbled from 17.82 percent in 2018 to 13.60 percent in 2019. Distribution expenses dropped by 7.75 percent year-on-year in 2019 on account of lower freight charges as well as significantly curtailed sales promotion expenses. Conversely, administrative expenses grew by 19.30 percent year-on-year in 2019 which was the result of higher payroll expenses caused by high inflation. Operating profit posted a 2.71 percent decline in 2019 translating into an OP margin of 7.73 percent versus an OP margin of 10.58 percent recorded in 2018. Finance cost posted 159.63 percent growth in 2019 due to the high discount rate. All these factors resulted in a 23 percent year-on-year shrinkage in net profit in 2019. Net profit clocked in at Rs.226.90 million in 2019. DYNO recorded an NP margin of 4.41 percent in 2019 versus an NP margin of 7.6 percent recorded in 2018. EPS also slid from Rs.15.63 in 2018 to Rs.12.02 in 2019.
In 2020, DYNO’s top line registered a 12.6 percent year-on-year decline. Owing to the deceleration of economic activity due to COVID-19, construction and allied industries also came to a standstill. Consequently, the turnover of both resin and moulding compound divisions nosedived by 22.7 percent and 3.14 percent respectively in 2020. Weak demand was also evident in the curtailed capacity utilization of both DYNO plants during the year. In 2020, the resin segment operated at 47.5 percent capacity versus 59 percent in 2019 while moulding compound division operated at 99 percent capacity versus 110 percent in 2019. Cost of sales dropped by 16.48 percent year-on-year which drove gross profit up by 12 percent year-on-year in 2020. GP margin also grew to 17.4 percent during the year. Lower cartage and freight charges on account of a drop in sales volume translated into an 8.93 percent year-on-year dip in distribution expense. Conversely, administrative expenses remained constant during the year. During the year, DYNO also booked a provision of Rs.95.59 million against expected credit losses (ECL). This was due to depressed economic activity which increased the probability of non-payments on trade debts. The provision against ECL booked in 2020 was 696.20 percent higher than the provision booked in 2018. Cost optimization and operational efficiency enabled DYNO to attain a 4.91 percent higher operating profit and OP margin of 9.28 percent despite depressed sales in 2020. Finance cost also buttressed the bottom line as it dwindled by 23.37 percent year-on-year in 2020 which was the consequence of a significant reduction in borrowings. Net profit rose by 11.66 percent year-on-year in 2020 to clock in at Rs.253.35 million with an NP margin of 5.64 percent and EPS of Rs.13.42.
2021 appears to be the rejuvenating year for DYNO where it recovered from the scars of the previous year and posted a robust 51.97 percent year-on-year growth. Both resin and moulding compound divisions posted a rebound in their net revenue to the tune of 39.03 percent and 61.63 percent respectively in 2021. The company also increased its moulding compound capacity from 20,000 MT in 2020 to 35,000 MT in 2021 and operated at 89 percent capacity. The resin plant also operated at an enhanced capacity of 68 percent in 2021 to meet the rising demand which was the result of recovery in the construction and allied industries. Cost of sales grew by 39.96 percent year-on-year, resulting in 108.83 percent growth in gross profit in 2021. GP margin posted its optimum value of 23.96 percent in 2021. Higher payroll expense was incurred in 2021 due to an increase in the size of the workforce in line with moulding compound segment’s expansion. This resulted in a 32.48 percent year-on-year hike in administrative expenses in 2021. Distribution expense also posted a 39.35 percent year-on-year spike in 2021 on account of higher cartage and freight charges. As against previous years, in 2021, the company booked reversals of Rs.111.31 million against ECL. Some noticeable movement was also observed in the other expense and other income accounts in 2021. Other expenses grew by 159.73 percent year-on-year to stand at 1.4 percent of the net revenue in 2021 as against 0.8 percent in the previous year. This was due to massive provisioning for WWF and WPPF booked during the year. Other income also grew by 285.36 percent year-on-year to stand at 0.5 percent of DYNO’s net sales in 2021 as against 0.2 percent in 2020. This was primarily on account of profit on saving accounts as well as exchange gain. Operating profit grew by 224.97 percent year-on-year in 2021 with OP margin touching a new height of 19.83 percent. Finance cost slid by 56.32 percent year-on-year in 2021 due to lower discount rate and lower external financing obtained during the year. Net profit multiplied by 270.48 percent year-on-year in 2021 to clock in at Rs.938.61 million with NP margin of 13.75 percent and EPS of Rs.49.73.
The growth trajectory continued in 2022 with 39.68 percent year-on-year growth in the top line. This was backed by 58 percent year-on-year growth in the turnover of the resin division and 28 percent year-on-year growth in the turnover of moulding compound division. To meet the growing demand, the company increased the capacity of the resin division from 186,000 MT to 196,000 and operated at 65 percent capacity. Moulding compound division also witnessed capacity enhancement from 35,000 MT to 41,000 MT with a capacity utilization of 81.78 percent recorded during the year. 2022 came with its own baggage of challenges whereby not only did the prices of raw materials hike in the international market, Pak Rupee depreciation made matters even worse. To top it off import restrictions were imposed due to dwindling foreign exchange reserves of the country. High local inflation, energy price hikes as well as high discount rates and taxation greatly suppressed the business sentiments. Cost of sales grew by 52.66 percent year-on-year, pushing the gross profit down by 1.51 percent in 2022. GP margin also slipped to 16.89 percent in 2022 from 23.96 percent in the previous year. Distribution and administrative expenses grew by 30.22 percent and 19.81 percent respectively in 2022 not only because of expansion in the size of the business and yearly off-take but also on account of an unprecedented level of inflation. Operating profit shrank by 22.40 percent year-on-year in 2022 with OP margin ticking down to 11 percent. Despite lesser borrowings, the high discount rate resulted in a 60.38 percent hike in finance costs. This pushed net profit down by 33.78 percent year-on-year to clock in at Rs.621.50 million in 2022 with an NP margin of 6.52 percent and EPS of Rs.32.93.
In 2023, DYNO’s net sales grew by 16.19 percent year-on-year. This is on the back of a 6.3 percent rise in the turnover of the resin division and a 24.06 percent growth in the turnover of moulding compound division in 2023. During the year, the company also commenced its export business and recorded export sales of Rs.45.276 million. Cost of sales escalated by 15.92 percent in 2023 due to a surge in the prices of raw materials, and high conversion costs due to soaring inflation as well as Pak Rupee depreciation. However, with better prices, the company was able to register a 17.54 percent rise in its gross profit in 2023 with the GP margin slightly inching up to clock in at 17.1 percent. Distribution expense escalated by 28.1 percent in 2023 due to higher cartage & freight charges. Administrative expenses also spiked by 28 percent in 2023 on the back of higher payroll expenses and amortization expenses. The workforce was squeezed to 227 employees in 2023 versus 231 employees in 2022. Higher profit-related provisioning and exchange loss resulted in a 97.19 percent spike in other expenses in 2023. Other income grew by 187.97 percent in 2023 due to hefty profit earned on deposit and savings accounts. Operating profit improved by 9.54 percent in 2023 with OP margin sliding down to 10.39 percent. Finance costs multiplied by 74.83 percent in 2023 due to a higher discount rate while outstanding borrowings significantly reduced during the year. DYNO’s gearing ratio inched down from 4.04 percent in 2022 to 1.85 percent in 2023. Net profit strengthened by 7 percent to clock in at Rs.665.16 million in 2023 with EPS of Rs.35.25 and NP margin of 6 percent.
Recent Performance (9MFY24)
During 9MFY24, DYNO’s top line ascended by 22.85 percent year-on-year. This was on account of the 5.42 percent higher turnover of the resin division and 34.99 percent higher sales of moulding compound division. The cost of sales grew by 11.61 percent during 9MFY24. Improved prices and cost-cutting measures such as the installation of a solar plant resulted in 81.81 percent higher gross profit in 9MFY24 with GP margin clocking in at 23.70 percent versus GP margin of 16.02 percent recorded during the same period last year. Distribution expense inched up by 8.78 percent during the period owing to higher freight & cartage charges. Administrative expenses surged by a massive 73.53 percent during the period. The company also booked a provision of Rs.94.66 million during 9MFY24 versus a reversal of Rs.13.27 million booked during the same period last year. Other expenses slid by 33.57 percent during 9MFY24 may be due to the relatively stable value of Pak Rupee during the period. Other income also strengthened by 886.72 percent during 9MFY24 supposedly due to exchange gain and higher profit on bank deposits. Operating profit improved by 140.33 percent during 9MFY24 with OP margin clocking in at 16.96 percent versus OP margin of 8.67 percent recorded during the same period last year. Finance cost tapered off by 71.25 percent during 9MFY24 due to lower outstanding borrowings. Net profit multiplied by 141.52 percent during 9MFY24 to clock in at Rs.1074.65 million with EPS of Rs.56.94 versus EPS of Rs.23.58 registered during the same period last year. NP margin also picked up from 5.32 percent in 9MFY23 to 10.46 percent in 9MFY24.
Future Outlook
DYNO’s expansion into the export market will not only improve its turnover and margins but will help minimize exchange losses incurred on the purchase of raw materials from the international market. Moreover, a reduction in financial charges by keeping a check on external borrowings will also buttress DYNO’s bottom line.
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