ZIL Limited (PSX: ZIL) was incorporated in Pakistan as a private limited company in 1960 and then was converted into a public limited company in 1986. The company is engaged in the manufacturing and sale of home and personal care products. Some of the flagship brands of ZIL include Capri, Opal, and HYPro.
Pattern of Shareholding
As of December 30, 2023, ZIL has a total of 6.12 million shares outstanding, which are held by 1130 shareholders. During the year, the company was acquired by New Future Consumer International General Trading LL.C. [NFCI], a UAE-based company, which holds 84.84 percent of the shares of ZIL. Directors, CEOs, their spouses, and minor children have a 10.046 percent stake in the company, followed by the local general public holding 3.68 percent shares of ZIL. Joint stock companies account for 1.27 percent of shares of ZIL. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-23)
The top line of ZIL has been posting growth since 2019. Conversely, its bottom line didn’t follow a similar trajectory and posted growth only in 2019, 2022, and 2023. The margins of the company posted growth in 2019, followed by a massive decline in 2020 and 2021. In the next two years, ZIL’s margins considerably recovered. The detailed performance review of the period under consideration is given below.
2019 appears to be the most fortunate year for ZIL, as not only did its topline boast a tremendous growth of 27.89 percent year-on-year, but the bottom line proved to be even more stunning, boasting a robust 135.36 percent year-on-year growth. The topline growth was the result of higher volumes coupled with price increases. The major growth propeller was the high volumetric growth of ZIL’s flagship brand, Capri. During the year, the company also enhanced the brand equity of Capri by relaunching hand wash in modern trade and a new variant of Capri, i.e., Capri Velvet Orchid soap. High volumetric sales led to an increase in the cost of sales, which was further pushed by inflation. ZIL’s gross profit posted 33.55 percent year-on-year growth with a GP margin of 29.58 percent in 2019 versus a GP margin of 28.33 percent recorded in the previous year. Distribution expenses grew by 11.74 percent in 2019 on the back of higher freight charges, advertising expenses, and payroll expenses. Administrative expenses escalated by 38.47 percent in 2019 on account of higher salaries disbursed during the year. The company recorded 96 percent stronger operating profit in 2019, with OP margin clocking in at 6.25 percent versus OP margin of 4 percent recorded in the previous year. Financial charges surged by 43 percent in 2019, mainly on the back of higher discount rates and financial charges on assets acquired under lease arrangements and financial charges on liabilities against right-of-use assets. The bottom line was recorded at Rs. 65.74 million in 2019 with an NP margin of 2.71 percent in 2019 as against an NP margin of 1.47 percent recorded in 2018. EPS grew from Rs. 4.56 in 2018 to Rs. 10.74 in 2019.
Followed by an affluent 2019, 2020 proved to be a dull year on the back of the unprecedented outspread of COVID-19 and its effect on the customer base. The volumes showed some resilience in the 2HCY20 as the company introduced new variants of the personal wash category and undertook price adjustments. ZIL’s topline posted a marginal 0.8 percent year-on-year growth in 2020. Supply chain impediments and increases in the prices of raw materials pressured the margins. Gross profit slid by 16.35 percent year-on-year in 2020, with GP margin clocking in at 24.54 percent. Hindered mobility of sales staff, coupled with a lower advertising budget allocated for the year, streamlined the distribution expense by 3 percent in 2020. Administrative expenses also slumped by 5.39 percent in 2020, primarily due to lower travelling and conveyance charges incurred during the year. Other income posted year-on-year growth of 98.69 percent in 2020, particularly on the back of scrap sales and amortization of government grants. Other expenses also dwindled by 44.5 percent in 2020 due to lower profit-related provisioning and lesser impairment against operating fixed assets booked during the year. ZIL recorded 55.44 percent thinner operating profit in 2020, with OP margin sliding down to 2.76 percent. Finance costs ticked down by 36 percent in 2020 on the back of discount rate cuts during the year. The debt-to-equity ratio of the company ballooned to 109 percent during the year as the company secured long-term refinancing for the payment of salaries and wages during the year. Despite stringent cost control mechanisms implemented during the year, the bottom line slid by 79.83 percent year-on-year to clock in at Rs. 13.26 million in 2020. The NP margin nosedived to 0.54 percent in 2020.
2021 proved to be even worse. Although topline posted a 12 percent year-on-year uptick, it couldn’t trickle down, resulting in a net loss. ZIL hadn’t posted a net loss after 2015. The sales growth in 2021 was the result of a revision in product pricing, discount adjustments, an improved sales mix, and the launch of a new hygiene and protection soap bar during the year. Due to COVID-19, the customer base of ZIL was switching to hygiene soap brands, as ZIL brands were mostly in the beauty category. So, the decision to launch Hygiene soap was the need of the time. The company also relaunched its hand-wash brand during the year. These decisions enabled ZIL to attain reasonable growth in its topline; however, the towering prices of palm oil products, which are the main raw materials for soap manufacturing, coupled with high fuel, power, and energy costs and packing material charges, took their toll on the gross profit, which shrank by 52.27 percent year-on-year in 2021, with GP margin drastically falling down to 10.45 percent. Distribution and administrative expenses slumped by 0.37 percent and 2.71 percent, respectively, in 2021. The main reason was lower freight charges, lower salaries expenses, as well as lower legal and professional charges incurred during the year. ZIL also cut down its workforce from 170 employees in 2020 to 143 employees in 2021. Other income continued to grow on the back of the amortization of government grants. No provisioning was done for WWF and WPPF, and no impairment loss was booked on operating assets; it also squeezed operating expenses by 46.52 percent in 2021. The company posted an operating loss of Rs. 232.09 million during the year. During the year, the debt-to-equity ratio of ZIL further magnified to 136 percent as the company secured both short-term and long-term financing, which drove up its finance cost by 54.18 percent in 2021. The company posted a net loss of Rs.291.59 million in 2021 with a loss per share of Rs.47.63.
In 2022, the company appeared to have risen above the hard times. The topline posted a stunning 48.38 percent year-on-year growth. The topline growth was the result of both volumetric sales and increased pricing during the year. This, coupled with a decline in global commodity prices, particularly palm oil products, enabled the company to attain a GP margin of 18.40 percent in 2022. Gross profit posted a significant growth of 161.13 percent during the year. Distribution expenses inched up by 1.67 percent in 2022 due to higher freight charges, travelling and conveyance charges, advertisement expenses, and payroll expenses incurred during the year. The impact was partially offset by lower research and development expenses incurred during the year. Administrative expenses mounted by 34.59 percent in 2022 due to higher payroll expenses, which were the impact of inflationary pressure as the company further trimmed down its workforce to 128 employees in 2022. Other expenses were magnified by 377.45 percent in 2022 due to exchange loss on revaluation of financial liabilities incurred during the year coupled with provisioning done for WWF and WPPF. However, this was partially offset by 24.73 percent higher other income recorded during the year, which was the consequence of robust dividend income recognized during the year. The company was able to recover from operating loss and posted an operating profit worth Rs. 150.70 in 2022. OP margin stood at 3.71 percent in 2022. Finance cost grew massively by 217 percent in 2022 on the back of multiple upward revisions in discount rate during the year coupled with extended credit facility availed during the year. The debt-to-equity ratio showed no respite and clocked in at 169 percent in 2022. The company registered a net profit of Rs. 23.38 million in 2022 with an EPS of Rs. 3.82 and an NP margin of 0.58 percent.
In 2023, ZIL posted a staggering 39.7 percent year-on-year growth in its topline. This was the result of price optimization, improvement in sales mix, expansion of the distribution network, and introduction of appropriate SKUs to grab a greater share of the market. The Cost of sales mounted by 22.64 percent in 2023. The growth in cost was considerably lower than the topline growth recorded in 2023 due to stability in the prices of palm oil and strength shown by the Pak Rupee during the last quarter of CY23. ZIL was able to record 115.34 percent growth in its gross profit, with GP margin climbing up to 28.36 percent. Distribution expenses mounted by 93.47 percent in 2023 due to the strengthening of the sales team and superior promotional and marketing activities organized during the year. Administrative expenses also surged by 71.4 percent in 2023, primarily due to higher payroll expenses. This was the result of inflationary pressure as well as expansion in the workforce, which stood at 159 employees in 2023. Higher dividend income on short-term investments resulted in 52.83 percent growth in other income in 2023. However, its impact was nullified by 124.68 percent taller other expenses incurred during the year. This was due to higher provisioning done for WPPF, one-off plant shifting and dismantling costs incurred during the year, as well as exchange loss incurred on the revaluation of financial liabilities. Operating profit rose by 222.21 percent in 2023, with OP margin jumping up to its highest level of 8.56 percent. Finance costs multiplied by 71.28 percent in 2023 due to a higher discount rate and increased working capital requirements. ZIL recorded a 960.0 percent enhancement in its net profit, which stood at Rs.247.97 million in 2023 with an EPS of Rs.40.5 and an NP margin of 4.37 percent—the highest during the period under consideration.
Recent Performance [9MCY24]
During 9MCY24, ZIL posted 12.28 percent year-on-year growth in its topline. This was on account of growth in sales volume coupled with a better sales mix. Price rationalization to attain competitiveness and higher market penetration resulted in a dip in GP margin, which stood at 27.89 percent in 9MCY24 versus a GP margin of 29.35 percent recorded during the same period last year. An increase in the sales force to expand the distribution network, particularly in the retail sector, and to improve customer service resulted in a 94.73 percent higher distribution expense incurred during 9MCY24. The Administrative expense also registered a 30 percent spike during 9MCY24 due to higher payroll expenses, legal and professional charges, as well as travelling and conveyance charges incurred during the period. ZIL recorded 69 percent thinner operating profit in 9MCY24, with OP margin clocking in at 3.23 percent versus OP margin of 11.7 percent recorded during the same period last year. Finance costs slid by 3.74 percent during the period due to monetary easing. This was despite higher short-term financing obtained during the year. ZIL’s net profit tumbled by 95.47 percent to clock in at Rs. 10.27 million in 9MCY24 versus a net profit of Rs. 226.798 million recorded during the same period last year. EPS also dropped from Rs. 37.04 in 9MCY23 to Rs. 1.68 in 9MCY24. NP margin also radically fell from 5.41 percent in 9MCY23 to 0.22 percent in 9MCY24.
Future Outlook
The UAE-based acquirer may instill more growth into the company by opening the doors of opportunities for the company in the export markets, especially in the GCC market, where the acquirer has its core expertise. The company will continue to optimize its sales force, sales mix, and price competitiveness to stay viable and attain a greater share of the market.
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