Karam Ceramics Limited was incorporated in Pakistan as a public limited company in 1979. The company is engaged in the manufacturing and sale of wall and floor tiles
Pattern of Shareholding
As of June 30, 2024, KCL has a total of 14.55 million shares outstanding which are held by 284 shareholders. The company’s Directors, CEO, and their children have a major stake of 90.31 percent in the company followed by the local general public holding 7.29 percent shares. Banks, DFIs, and NBFIs account for 2.15 percent of KCL shares. The remaining ownership is distributed among other categories of shareholders.
Financial Performance (2019-24)
KCL’s net sales portray a fluctuating pattern over the period under consideration. In 2019, the company posted an uptick in its topline followed by a decline in 2020. A similar pattern continues for the subsequent two years. In 2023 and 2024, the company’s topline posted year-on-year growth. Its bottom line and margins followed suit and depicted a similar pattern until 2022. However, in 2023, when KCL’s topline improved, its bottom line illustrated the highest-ever net loss with margins touching rock bottom. In 2024 too, the company registered a net loss, however, with a lower magnitude (see the graph of profitability ratios and EPS). Over the period under consideration, KCL posted net profit only in 2019 and 2021. The detailed performance review of the period under consideration is given below.
In 2019, KCL’s net sales grew by 18.91 percent year-on-year on account of improved tile prices as well as higher sales volume. During the year, the company produced 2.668 million sq. meters of tiles, up 21 percent year-on-year. This translated into a capacity utilization of 41 percent in 2019 versus a capacity utilization of 34 percent recorded in 2018. Due to upward price revision, the company was able to attain a 37.41 percent rise in its gross profit despite high fuel and electricity charges as well as high material costs on account of Pak Rupee depreciation. GP margin picked up from 11.27 percent in 2018 to 13 percent in 2019. Selling expenses slid by 5.28 percent year-on-year in 2019 on account of lower freight charges. Conversely, administrative expenses were magnified by 47.14 percent year-on-year in 2019, on the back of bad debts worth Rs.12.45 million sustained by the company in 2019. Operating profit strengthened by 62.47 percent in 2019, culminating in an OP margin of 7.87 percent in 2019 versus an OP margin of 5.8 percent recorded in 2018. Finance cost multiplied by 15.47 percent year-on-year in 2019 due to a higher discount rate while the company squeezed its borrowings in 2019. Reduced borrowings coupled with higher revaluation gain on fixed assets translated into a lower gearing ratio of 44 percent in 2019 versus a gearing ratio of 65 percent recorded in 2018. Net profit built up by 109.44 percent in 2019 to clock in at Rs.28.88 million with EPS of Rs.1.98 versus EPS of Rs.0.95 registered in 2018. NP margin also progressed from 1.14 percent in 2018 to 2 percent in 2019.
In 2020, the breakout of COVID-19 halted the construction and infrastructure-related activities in the country, resulting in a 35.59 percent year-on-year plunge in KCL’s net sales. Depressed demand as well as the imposition of lockdown resulted in the suspension of the company’s production activities in the 4QFY20. As a consequence, KCL produced 1.8 million sq. meters of products in 2020, down 32 percent year-on-year. This translated into a shrunken capacity utilization of 28 percent in 2020. The cost of sales didn’t fall with the same momentum due to higher fixed cost per unit on account of idle plant capacity. Moreover, the company couldn’t increase its prices on account of dejected demand. This translated into a gross loss of Rs.66.74 million in 2020. Selling and administrative expenses declined by 69.53 percent and 28.55 percent respectively in 2020. This was on account of considerably low freight charges and no bad debts recorded in 2020 respectively. Other income multiplied by 1717.38 percent in 2020 primarily on the back of present value adjustment on modification of interest-free loan from directors. Exchange gain also buttressed other income in 2020. Curtailed expenses and robust other income somehow diluted the operating loss which stood at Rs.13.76 million in 2020, much lower than the gross loss incurred during the year. Finance costs escalated by 31.51 percent in 2020 due to considerably higher borrowings obtained in 2020. This culminated in a gearing ratio of 56 percent in 2020. KCL registered a net loss of Rs.43.77 million in 2020 with a loss per share of Rs.3.01.
2021 proved to be the year of recovery whereby not only did KCL’s net sales improve by 21.53 percent year-on-year but its bottom line also recovered from net loss. A stronger topline was the result of both higher sales volume as well as an increase in selling prices. The low-cost housing scheme initiated by the government coupled with the real-estate boom greatly strengthened the allied industries including ceramics. To make the most of the demand recovery, KCL produced 2.36 million sq. meters of tiles in 2021, up 31 percent year-on-year. This culminated in a capacity utilization of 36 percent in 2021. The company was able to pass on the effect of cost hikes to its consumers, resulting in a gross profit of Rs.35.74 million in 2021. This translated into a GP margin of 3.17 percent in 2021. Selling and administrative expenses continued to slide in 2021 due to lower vehicle running and maintenance charges, traveling expenses, fees, and subscription charges as well as advertising expenses incurred in 2021. The company posted an operating profit of Rs.80.51 million in 2021 which translated into OP margin of 7.15 percent. Despite monetary easing, finance costs surged by 8.64 percent in 2021 on account of increased borrowings. KCL posted a net profit of Rs.41.63 million in 2021 with EPS of Rs.2.86 and NP margin of 3.7 percent – the highest among all the years under consideration.
The topline growth of 2021 was followed by a 27.39 percent slump in net sales in 2022. The political and economic headwinds took a toll on the infrastructure and construction activities in the country. Low investor confidence on account of deteriorating macroeconomic indicators as well as high discount rates also resulted in a depressed real-estate sector. KCL’s production ticked down by 41 percent year-on-year in 2022 to clock in at 1.392 million sq.meters. This translated into a thin capacity utilization of 21 percent in 2022. The cost of sales couldn’t shrink proportionately owing to the escalated cost of raw materials and packaging materials, high fuel and power charges as well as sharp depreciation of the Pak Rupee. The company incurred a gross loss of Rs. 198.04 million in 2022. Selling and administrative expenses surged by 14.19 and 15.11 percent respectively in 2022 due to higher payroll expense, fee and subscription charges as well as legal and professional charges. Operating loss was recorded at Rs.199.89 million in 2022. KCL was able to squeeze its finance cost by 34.51 percent in 2022 despite a higher discount rate due to increased borrowings from related parties for the retirement of external loans. KCL incurred a net loss of Rs.251.76 million with a loss per share of Rs.17.30.
KCL’s topline registered a 19.44 percent year-on-year rise in 2023. KCL’s production plummeted by 13 percent year-on-year in 2023 to clock in at 1.216 million sq. meters. This translated into capacity utilization of 19 percent in 2023, the lowest since 2018. This gives a hint that the inclined net sales were primarily the effect of upward revision in prices. The imposition of new taxes on property, dejected macroeconomic indicators, shrunken purchasing power of consumers, and high discount rates kept the investors at bay from the real-estate sector. This radically shattered the performance of the ceramics industry. Cost of sales mounted by 31.75 percent year-on-year in 2023 on account of massive depreciation of the Pak Rupee, high commodity prices as well a hike in electricity tariff. Another reason for the high cost of sales in 2023 was due to increased investment in repair and maintenance in order to boost plant efficiency and reduce cost. Gross loss amplified by 82.61 percent in 2023 to clock in at Rs.361.65 million. Selling expenses rose exorbitantly by 131.35 percent in 2023 due to exceptionally high freight charges on account of elevated fuel charges. Conversely, administrative expenses marched down by 10.48 percent in 2023 as the company replaced its permanent employees with contractual ones which reduced its payroll expense. Directors’ remuneration also massively plunged in 2023. Other expenses surged by 184.11 percent in 2023 due to massive exchange losses. Conversely, other income slipped by 92.17 percent in 2023 due to high base effect as the company earned gain on sales of its fixed assets in 2022. KCL’s operating loss magnified by 111 percent in 2023 to clock in at Rs.421.94 million. Finance cost ticked up by only 8.22 percent in 2023 despite a high discount rate as the company considerably reduced its external borrowings. KCL’s gearing ratio drastically fell to 3 percent in 2023 from 64 percent in 2022. The company incurred a net loss of Rs.474.96 million in 2023 which translated into a loss per share of Rs.32.65.
In 2024, KCL recorded year-on-year topline growth of 38 percent. During the year, the company’s production grew by 46 percent to clock in at 1.776 million square meters. This culminated in capacity utilization of 27 percent in 2024. During the year, the company introduced a new brand “NOVA” with superior quality and design which was very well received by the market. 145 percent increase in the cost of gas over the year pushed up the cost of sales by 32 percent in 2024. This resulted in a gross loss of Rs.418.78 percent in 2024, up 15.8 percent year-on-year. Selling expenses inched up by 3.74 percent in 2024 due to higher freight as well as traveling & conveyance charges incurred during the year. Administrative expenses ticked up by 3.2 percent in 2024 due to higher fees & subscriptions as well as utility expenses incurred during the year. The company downsized its workforce from 369 employees in 2023 to 309 employees in 2024. This considerably reduced the payroll expense incurred during the year. Other expenses tapered off by 84.28 percent in 2024 due to lower exchange loss as the Pak Rupee greatly stabilized of late. Other income slid by 3.52 percent in 2024 as, unlike last year, the company didn’t record any gain on the sale of its fixed assets in 2024. Operating loss surged by 11.95 percent in 2024 to clock in at Rs.472.37 million in 2024. Finance costs massively dropped by 97.56 percent in 2024 as the company sponsors extended interest fee loans to pay off external financing. This resulted in a 9 percent downtick in the net loss of KCL which stood at Rs.432.088 million in 2024. Loss per share stood at Rs.29.7 percent in 2024.
Recent Performance (1QFY25)
In the first quarter of FY25, KCL recorded 54 percent thinner topline compared to a similar period last year. This was on account of wavering investor confidence which kept them shying away from real-estate investment despite token improvements observed in macroeconomic indicators lately. Market saturation and high competition also slashed sales during the period. Cost of sales dropped by 36.87 percent in 1QFY25 which resulted in a gross loss of Rs.93.57 million, up 99.97 percent year-on-year. Higher gas price was the main culprit which drove up gross loss for the period. Selling & administrative expenses plummeted by 33.91 percent and 25.27 percent respectively during the period due to curtailed operations. KCL recorded an operating loss of Rs.100.55 million in 1QFY25, up 78.34 percent year-on-year. Finance costs continued to shrink during the period due to lower discount rates and paying off external debts. Net loss mounted by 57.13 percent in 1QFY25 to clock in at Rs.98.98 million. This translated into a loss per share of Rs.6.80 in 1QFY25 versus a loss per share of Rs.4.33 recorded during the same period last year.
Future Outlook
With shattered confidence of local and foreign investors, high excise duties, and elevated property taxes, the demand for real estate may not see any considerable recovery in the near to medium term. Potential investments from Saudi Arabia and UAE as well as the resumption of CPEC phase 2 are expected to instill some life into a dreary construction and infrastructure sector in the long run. However, escalated energy prices and inflated construction costs as well as political uncertainty will pose a risk to the industry’s capacity utilization.
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