Pak Agro Packaging Limited

Pak Agro Packaging Limited (GEMPAPL) commenced its operations in 2001. The company is engaged in the manufacturing and sale of agricultural textile products for use by farmers. These include greenhouse shades, plant support nets, fishing nets, mulching films, anti-bird and insect nets, etc. In June 2020, the company turned from a private limited company to a public limited company and got listed on PSX in November 2021. It was the first company listed on the GEM board of PSX.

Pattern of Shareholding

At the time of listing, the company offered 8 million of its shares for public subscription at the strike price of Rs.24.75. The funds worth Rs.198 million collected through IPO were used for the import of machinery and the construction of a new production hall as per its expansion plan.

As of June 30, 2023, GEMPAPL has a total of 20 million shares outstanding which are held by 103 shareholders. Directors & Executives have the majority stake of 64.41 percent in the company followed by individuals holding 19 percent of its shares. 8.51 percent of GEMPAPL’s shares are held by joint stock companies while Mutual funds and Takaful companies hold 3.33 percent and 3.17 percent shares respectively. The remaining shares are held by other categories of shareholders.

Financial Performance (2022-23)

GEMPAPL’s topline has ascended over the period under consideration; however, its bottom line has declined in both years. The company’s margins considerably fell in 2022. In 2023, gross and operating margins slightly recovered but net margin continued to fall. The detailed performance review of the period under consideration is given below.

During 2022, GEMPAPL recorded a 24.94 percent year-on-year increase in its net revenue. This was the result of combination of both volumetric and price increases registered during the year. However, the high cost of raw materials coupled with the Pak Rupee depreciation resulted in a 29.39 percent spike in the cost of sales. The weak state of the agricultural sector didn’t allow GEMPAPL to fully transfer the impact of cost hikes to its consumers. This resulted in a paltry 2.85 percent year-on-year uptick in gross profit in 2022 with GP margin sliding down from 16.74 percent in 2021 to 13.78 percent in 2022. Administrative expense multiplied by 77.32 percent in 2022 due to elevated payroll expense which was the consequence of inflation as well as workforce expansion from 193 employees in 2021 to 222 employees in 2022. Carriage outward or distribution expenses also escalated by 47 percent in 2022. Lower profit-related provisioning pushed down other expenses by 13.71 percent in 2022. Other income also slumped by 31.18 percent in 2022 due to the high-base effect as the company recorded a hefty gain on the sale of its assets in the previous year. GEMPAPL’s operating profit contracted by 14.59 percent in 2022 with OP margin clocking in at 9.18 versus OP margin of 13.42 percent recorded during the last year. GEMPAPL was able to squeeze its finance cost by 40.15 percent in 2022 despite monetary tightening. This was the result of the improved liquidity position of the company in 2022. Net profit declined by 15.72 percent to clock in at Rs.28.316 million in 2022 with EPS of Rs.1.42 versus EPS of Rs.2.8 recorded in 2022. NP margin also nosedived from 8.35 percent in 2022 to 5.63 percent in 2023. The issuance of 17.35 million ordinary shares and 2.65 million bonus shares resulted in a 49.29 percent year-on-year drop in EPS in 2022.

In 2023, GEMPAPL’s net sales grew by 17.14 percent year-on-year. Due to devastating floods in the country, agricultural performance was severely affected. Delays in the commissioning of the company’s new plant also resulted in lesser-than-expected sales growth in 2023. High energy and labor costs, elevated cost of raw materials, and Pak Rupee depreciation resulted in a 16.98 percent higher cost of sales in 2023. Gross profit rose by 18.2 percent in 2023 with GP margin slightly inching up to clock in at 13.91 percent. Distribution expense multiplied by 91.27 percent in 2023 due to increased sales volume and high prices of POL products. Administrative expenses ticked up by 7.93 percent in 2023. This was due to higher salaries as well as rent, rates, and taxes incurred during the year. In 2023, GEMPAPL streamlined its workforce to 204 employees. Other expenses surged by 22.76 percent in 2023 due to higher provisioning for WWF and WPPF done in 2023. Other income declined by 37.63 percent in 2023 due to lower profit on TDRs. During the year, the company suspended its short-term investments and TDRs and invested in maintaining a high level of inventory due to the erratic supply situation emanating from the country’s dwindling foreign exchange reserves. GEMPAPL’s operating profit strengthened by 20.31 percent in 2023 with OP margin ticking up to 9.42 percent. Finance costs mounted by 224.77 percent in 2023 due to high discount rates and increased borrowings. Net profit dwindled by 31.15 percent to clock in at Rs.19.494 million in 2023 with EPS of Rs.0.97 and NP margin of 3.31 percent.

Recent Performance (9MFY24)

During 9MFY24, GEMPAPL’s net turnover grew by 53.58 percent. A sizeable portion of the company’s sales mix is comprised of green shades whose demand usually increases in the summer season. Fish nets also made a significant contribution to the company’s top line in the absence of considerable demand from the agricultural sector. Stability in the value of the Pak Rupee resulted in relatively stable prices of imported raw materials, however, high indigenous inflation and energy cost resulted in a GP margin of 12.89 percent in 9MFY24 versus a GP margin of 13.36 percent recorded during the same period last year. In absolute terms, gross profit improved by 48.186 percent in 9MFY24. Distribution expense declined by 81.58 percent during 9MFY24 due to lower carriage outward charges incurred during the period. Administrative expenses surged by 15.175 percent during 9MFY24 due to higher rent, rates, and taxes incurred during the year. GEMPAPL reduced its headcount from 204 employees in June 2023 to 182 employees in March 2024. Higher profit-related provisioning drove other expenses by 69.36 percent in 9MFY24. The company didn’t record any other income during the period due to the suspension of its short-term investment and TDRs last year. Operating profit strengthened by 65.1 percent in 9MFY24 with OP margin clocking in at 8.83 percent versus OP margin of 8.21 percent recorded during the same period last year. Finance cost escalated by 41.16 percent in 9MFY24 due to a high discount rate and increased utilization of working capital lines. This was to accumulate high inventory levels to be used at the time of constrained FOREX position and difficulty in opening L/Cs. Net profit grew by 90.52 percent in 9MFY24 to clock in at Rs.23.896 million with EPS of Rs.1.19 versus EPS of Rs.0.59 recorded during 9MFY23. NP margin rose from 3.21 percent in 9MFY23 to 3.98 percent in 9MFY24.

Future Outlook

GEMPAPL’s introduction of new product lines such as fish nets is adding diversity to its revenue lines. While the company has the expertise, it needs to enhance its capacity to meet the increasing local demand and make room for export sales. The onset of monetary easing will make it easier for the company to acquire long-term loans for the purchase of plant and machinery to expand its production lines without increasing the burden of financial cost.