Sana Industries Limited (PSX: SNAI) was incorporated as a public limited company in 1985. The principal activity of the company is the manufacturing and sale of man-made blended yarn. The company is an entity of Sanaullah Group of Companies.
Pattern of Shareholding
As of June 30, 2024, SNAI has a total of 19.965 million shares outstanding which are held by 558 shareholders. Directors, their spouses, and minor children have the majority stake of 64.81 percent in the company followed by the local general public holding 29.98 percent shares of SNAI. Modarabas and Mutual funds account for 3.45 percent of the company’s shares. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-24)
Except for a year-on-year decline in 2020, SNAI’s topline has been riding an upward trajectory over the period under consideration. The company posted net losses in 2020, 2023 and 2024. SNAI’s margins which registered significant growth in 2019 declined in 2020. This was followed by a rebound in 2021. In 2022, while the company’s gross margin took a plunge, its operating and net margins continued to tick up. SNAI drew curtains to 2023 with its margins touching the lowest level. In 2024, the margins considerably picked up. The detailed performance review of the period under consideration is given below.
In 2019, SNAI’s net sales grew by 17.37 percent year-on-year. Better pricing along with increased volume enabled the company to attain a 71.44 percent bigger gross profit in 2019 with the GP margin moving up from 6.78 percent in 2018 to 9.90 percent in 2019. Selling and administrative expenses hiked by 37.29 percent and 25.46 percent respectively in 2019 mainly on account of higher payroll expenses in both categories. Directors’ remuneration also played a pivotal role in driving up the administrative expense in 2019. During the year, SNAI expanded its workforce from 183 employees in 2018 to 217 employees in 2019. The company registered 40.1 percent higher operating profit in 2019 with OP margin rising up from 5.98 percent in 2018 to 7.14 percent in 2019. Finance costs mounted by 37.35 percent in 2019 on account of higher discount rates and increased working capital-related borrowings. Net profit improved by 249.33 percent in 2019 to clock in at Rs.65.22 million with EPS of Rs.7.59 versus EPS of Rs.2.17 recorded in 2018. NP margin also spiraled from 1.09 percent in 2018 to 3.26 percent in 2019.
With a 29.13 percent year-on-year plunge in its topline in 2020, SNAI also succumbed to an economic standstill induced by COVID-19. Owing to country-wide lockdowns imposed on account of a global pandemic, the company’s production fell by 22 percent in 2020 with capacity utilization of 74 percent versus capacity utilization of 93 percent recorded in 2019 (see the graph of total capacity versus actual production). The company wasn’t able to squeeze its cost with the same magnitude due to low absorption of fixed cost. Its gross profit slipped by 55.71 percent in 2020 with GP margin sliding down to 6.19 percent. Selling and administrative expenses surged by 6.68 percent and 15.50 percent respectively in 2020 due to higher salaries and wages as well as increased directors’ remuneration. Packing and forwarding charges also raised their head in 2020 due to global supply chain disruptions on account of COVID-19. Operating profit registered a 77.98 percent plunge in 2020 with OP margin deteriorating to 2.22 percent. 18.13 percent higher financial charges recorded by SNAI in 2020 were the consequence of a higher discount rate until 3QFY20. SNAI posted a net loss of Rs.31.46 million in 2020 with a loss per share of Rs.3.59.
SNAI counterbalanced the sluggish sales made in the previous year by achieving 50 percent superior net sales in 2021. With the resumption of operational activities post-COVID-19, the company’s production volume grew by 28 percent. This culminated in a capacity utilization of 94 percent. The stimulus packages for trade and industry offered by the government in 2021 along with monetary easing instilled life in the stagnant local economy. The global economy also started to regain its lost momentum, resulting in a revival in demand and prices of yarn. This enabled SNAI to drive up its gross profit by 192.61 percent in 2021 with GP margin reaching its optimum level of 12.07 percent. Selling and distribution expenses diminished by 23 percent in 2021 due to significantly lower payroll expenses of sales & marketing staff incurred during the year. Conversely, administrative expenses multiplied by 17.52 percent in 2021 due to higher payroll expenses as the company expanded its workforce to 215 employees from 129 employees in 2020. Higher rental income, operating and maintenance charges, gain on sale of operating fixed assets, and amortization of deferred government grants were the main contributors behind 57.7 percent higher other income earned by SNAI in 2021. Increased profit-related provisioning also pushed up other expenses by manifold in 2021. Operating profit recorded a 527.41 percent rise in 2021 with OP margin clocking in at 9.28 percent. A lower discount rate during the year enabled SNAI to cut down its finance cost by 19.15 percent in 2021. This resulted in a net profit of Rs.94.78 million with EPS of Rs.9.10 and an NP margin of 4.45 percent in 2021.
In 2022, SNAI’s topline registered a healthy 23.56 percent year-on-year rise. This was on account of an augmentation in yarn prices coupled with the rise in sales volume. During the year, the company added 2400 spindles to meet the rising demand. The production volume grew by 3 percent year-on-year in 2023 and capacity utilization stood at 89 percent. The cost of sales hiked by 24.2 percent in 2022 on account of a hike in global commodity prices, particularly POL products, Pak Rupee depreciation, a spike in energy tariff, and high Indigenous inflation. This resulted in a downtick in SNAI’s GP margin which stood at 11.62 percent in 2022 despite 18.95 percent growth in the company’s gross profit in absolute terms. Selling and administrative expenses were largely contained and grew marginally by 1 percent and 8.16 percent respectively in 2022. Other income enlarged by 79.92 percent in 2022 due to higher gain earned on the sale of fixed assets as well as gain recognized on the re-measurement of GIDC. This translated into 33.96 percent higher operating profit posted by the company in 2022 with OP margin climbing up to 10.06 percent. Finance cost soared by 50.30 percent in 2022 on account of higher discount rates as well as higher outstanding borrowings during the year. SNAI registered a 35.36 percent rise in its net profit in 2022 which clocked in at Rs.128.29 million with EPS of Rs.6.43 and NP margin of 4.88 percent.
SNAI’s topline posted a paltry 9.69 percent year-on-year growth in 2023 which was merely the result of an increase in yarn price and depreciation in the value of local currency. Production volume slid by 6 percent in 2023 with capacity utilization clocking in at 79 percent. Inflationary pressure, supply chain disruptions due to dwindling foreign exchange reserves, global commodity supercycle, and Pak Rupee depreciation didn’t allow the company’s gross profit to post any improvement in 2023. SNAI’s gross profit slipped by 58.62 percent in 2023 with GP margin marching down to 4.38 percent. Selling and administrative expenses increased by 66 percent and 37.8 percent respectively in 2023. Besides the unprecedented level of inflation, the other main factors behind higher operating expenses were payroll expenses, directors’ remuneration, and packing and forwarding charges incurred during the year. Other income receded by 69 percent in 2023 due to lower rental income and lower gain on the sale of operating fixed assets recognized during the year. SNAI didn’t book any profit-related provisioning during the year, resulting in 96.63 percent lower other expenses incurred during the year. Operating profit tumbled by 93.67 percent in 2023. To make the bottom line even worse, the company’s finance cost escalated by 120.56 percent in 2023 which was the consequence of a higher discount rate and considerably high borrowings particularly working capital-related borrowings obtained during the year. This resulted in a net loss of Rs.105.21 million with a loss per share of Rs.5.27 in 2023.
In 2024, SNAI’s topline registered a year-on-year growth of 31.83 percent. During the year, the company increased its production capacity by 20 percent and utilized 85 percent capacity. Improved yarn prices and higher sales volume due to higher production capacity and integration of a new principal Engro Friesland Campina into its distribution operations resulted in a 137.48 percent rise in gross profit in 2024. GP margin climbed up to 7.9 percent during the year. Selling & administrative expenses mounted by 75.36 percent due to higher sales volume as the company expanded its market reach and introduced new product offerings during the year. Administrative expenses inched up by 4.97 percent in 2024 due to higher payroll expenses as well as directors’ remuneration. SNAI also expanded its workforce from 250 employees in 2023 to 254 employees in 2024. Other income slid by 66.14 percent in 2024 as the company recorded Rs.19.672 million as income related to receivables from Lasbela Industrial Estate Development Authority (LIEDA) in the previous year. This receivable pertained to standard electricity rates billed to the company by the LIEDA despite the fact that it operates under zero-rated status. While the company paid the bills according to standard rates, it recorded the difference between subsidized and standard rates as receivable from LIEDA in 2023. Other expenses multiplied by 63.91 percent in 2024 due to higher provisions booked against slow-moving stores & spares. Operating profit strengthened by 812.49 percent in 2024 with OP margin jumping up to 4 percent. A higher discount rate resulted in a 24.69 percent escalation in finance costs in 2024. This was despite the fact that the company discharged some portion of its external liabilities during the year and acquired an interest-free loan of Rs.19.5 million from company directors to meet its working capital requirement. Regardless, SNAI posted a net loss of Rs.75.49 million in 2024, down 28.25 percent year-on-year. This translated into a loss per share of Rs.3.78
Recent Performance (1QFY25)
During 1QFY25, the company optimized its portfolio and discontinued some of its projects which were contributing to loss making. This resulted in a 23.68 percent year-on-year slump in the topline in 1QFY25. As the company suspended its loss-making projects, it was able to record 18.65 percent year-on-year growth in its gross profit in 1QFY25. GP margin also improved from 4.55 percent in 1QFY24 to 7 percent in 1QFY25. Selling & distribution expenses nosedived by 20.34 percent in 1QFY25 due to streamlining of business operations. Administrative expenses ticked up by 3.7 percent due to inflationary pressure. SNAI also recorded 57.4 percent thinner other income in 1QFY25 apparently due to lower mark-up income on account of monetary easing. Operating profit rebounded by 47.2 percent in 1QFY25 with OP margin clocking in at 2.92 percent versus OP margin of 1.51 percent recorded during the same period last year. Finance cost slid by 7.58 percent in 1QFY25 due to a lower discount rate and relatively fewer outstanding borrowings. Lower tax credit recorded during the year resulted in a 39.86 percent spike in the company’s net loss which stood at Rs.27.085 million in 1QFY25. This translated into a loss per share of Rs.1.36 in 1QFY25 versus a loss per share of Rs.0.97 recorded during the same period last year.
Future Outlook
Recovery in the global market will stimulate demand for textiles in the coming quarters. This coupled with the relatively stable value of local currency will ease the pressure on the cost of inputs. A lower discount rate will significantly improve the finance cost of the company and possibly result in a positive bottom line. SNAI has also announced via notification on the PSX website that it intends to sell its investment property which includes land, building, plant & machinery as well as auxiliary machinery & parts. This pertained to its subsidiary company Sana Logistics (Private) Limited. By disposing off its lesser profitable investments, the company can improve its cash flow position and reduce its debt profile. Alternatively, the company can invest in other profitable avenues and enhance its alternate income streams.
Comments