Dadex Eternit Limited (PSX: DADX) was incorporated in Pakistan as a public limited company in 1959. The company is engaged in the manufacturing and sale of construction materials including piping systems and other allied products manufactured from chrysotile cement, rubber, and plastic. DADX also undertakes the merchandising of imported pipe fittings, accessories, and other building products. The company’s products are used in construction and housing, architecture, telecommunication, and infrastructure segments catering to the needs of public, industrial, commercial, consumer, and private segments in local and export markets.
Pattern of Shareholding
As of June 30, 2024, DADX has a total of 10.764 million shares outstanding which are held by 3643 shareholders. Sikander (Private) Limited, an associated company of DADX holds 63.18 percent of its shares followed by the local general public holding 21.26 percent shares. Directors, CEO, and their family members account for 15.28 percent of shares of DADX. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-24)
Except for a marginal uptick in 2021, the topline of DADX has deteriorated over the period under consideration. The bottom line also shows a sorry picture of witnessing net loss in all the years. The net loss reached its highest level in 2023. Among all the years under consideration, the company posted operating profit only in 2021. DADX’s gross margin followed a downward trajectory until 2020, rebounded for the subsequent two years followed by a slump in 2023 and 2024 (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.
In 2019, the topline dipped by 3.70 percent year-on-year to clock in at Rs. 2813.52 million. This was the result of reduced government spending on infrastructure projects and the restriction imposed by the Supreme Court on construction activities in Bahria Town and other high-rise projects. This took a toll on the overall sales volume of the company despite growth in export sales. The continuous rise in the prices of energy and petroleum products coupled with Pak Rupee depreciation resulted in a 29.96 percent year-on-year dip in gross profit with GP margin clocking in at 11.42 percent in 2019 versus GP margin of 15.70 percent recorded in 2018. Administrative expenses remained in check during the year as the company greatly restructured its workforce which included 215 employees as of June 30, 2019, versus 349 employees in 2018. Distribution expenses grew by 17.67 percent year-on-year in 2019 mainly on the back of payroll expenses as well as transportation and other charges against export sales. Other expenses posted a drastic jump of over 100 percent year-on-year in 2019 on account of provisions booked against doubtful trade debts as well as exchange loss incurred during the year. Conversely, rental income and write-back of liabilities no longer payable pushed other income up by 28.94 percent year-on-year which almost counterbalanced the other expenses. DADX reported an operating loss of Rs.16.82 million in 2019 as against an operating profit of Rs.180.12 million registered in the previous year. Finance costs also gave a major blow to the bottom line as the discount rate soared during the year and also because of increased short-term borrowings. This culminated in a net loss of Rs.195.53 million in 2019 as against net profit of Rs.5.28 million posted in 2018. DADX posted a loss per share of Rs. 18.16 in 2019 as compared to EPS of Rs.0.49 in 2018.
In 2020, DADX’s topline further shrank by 15.62 percent year-on-year to clock in at Rs.2374.11 million. This was due to a sudden outbreak of COVID-19 which put brakes on the business activities within the country as well as major export destinations of DADX due to the lockdown imposed by the governments. This led to reduced capacity utilization and inefficient absorption of fixed costs. This resulted in DADX’s gross profit thinning down by 26.84 percent year-on-year in 2020 with GP margin ticking down to 9.90 percent. Operating expenses also posted a slump primarily due to curtailed payroll and export-related expenses incurred during the year. DADX further squeezed its workforce to 204 employees in 2020. Other expenses didn’t show any respite in 2020 and magnified by 68.61 percent year-on-year on account of provisions booked by the company in respect of GIDC and expected credit losses. Other income couldn’t offer any support either as it narrowed down by 32.65 percent year-on-year due to the high-base effect as DADX had written off some liabilities in 2019. This drove up operating loss by 843.69 percent year-on-year to Rs.158.74 million in 2020. Finance costs grew by 19.48 percent as the discount rates were on the rise during the first three quarters of 2020. Moreover, DADX also availed the refinance scheme initiated by the SBP for the payment of salaries and wages. Net loss escalated by 84.89 percent year-on-year to clock in at Rs.361.52 million in 2020 with a loss per share of Rs.33.59.
As the economic activity began to resume, DADX’s net sales ticked up by 2.97 percent year-on-year to clock in at Rs.2444.54 million. During the last quarter of 2021, the company divested some of its units and laid off some employees to manage its costs, however, the strategy backfired as the employees went on strike and closed down the complete factory. This nullified the sales growth attained by the company in the first three quarters. However, gross profit improved by 32.25 percent year-on-year with a GP margin of 12.72 percent in 2021. Operating expenses ticked down during the year as the number of employees was reduced to 176 in 2021. Other expenses posted an 80.14 percent plunge as the company didn’t book provision for GIDC and expected credit losses in 2021 as it did in the previous year. These two elements which squeezed other expenses in 2021 drove other income up by 161.90 percent year-on-year as the company reversed the allowance for expected credit losses and realized gain on the extinguishment of GIDC. After two years of reporting operating losses, DADX was able to post an operating profit of Rs.152.01 million in 2021 with an OP margin of 6.22 percent. The cost of borrowing reduced during the year due to monetary easing which narrowed down the finance cost of DADX by 27 percent year-on-year. However, the finance cost was still huge enough to suck up the operating profit and translated into a net loss of Rs.39.01 million in 2021 with a loss per share of Rs.3.62, down 89.22 percent year-on-year.
In 2022, DADX’s topline dropped by 30.60 percent year-on-year to clock in at Rs.1696.85 million. Lack of funds for public sector development projects coupled with cautious infrastructure spending in the private sector on the back of economic and political uncertainty wreaked havoc on the sales volume of the company. Lesser volume pushed the cost of sales down by 32.1 percent year-on-year in 2022. Gross profit tumbled by 20.28 percent in 2022, however, GP margin climbed up to 14.6 percent. Operating expenses continued to slide for the third consecutive year due to lower export-related expenses as well as reduced payroll expenses as the DADX workforce comprised only 157 employees as of June 30, 2022. Conversely, other expenses magnified by 250 percent year-on-year on the back of massive exchange loss due to the Pak Rupee depreciation and also because of loss on disposal of fixed assets. During the year, the company disposed of its Lahore and Karachi buildings and land on forced sales value (FSV) and incurred a loss which is reported in other expenses. The disposal of these fixed assets was intended to restructure the financial obligations of the company and to reduce its bank loans. Other income shrank by 44.31 percent in 2022 on account of lesser reversal of allowance for ECL and no gain recorded on the extinguishment of GIDC in 2022. DADX registered an operating loss of Rs.21.21 million in 2022. Due to settlement and re-profiling of its outstanding loans, DADX was able to cut down its finance cost by 12.71 percent despite discount rate hikes during 2022. The company posted a net loss of Rs.142.94 million which was 266.42 percent higher than the net loss reported by the company in 2021. The loss per share stood at Rs.13.28 in 2022.
DADX recorded 17.43 percent erosion in its topline in 2023 due to political and economic headwinds that restricted construction activity in the country. Tardy disbursements of PSDP funds coupled with devastating floods in the southern region of the country at the onset of the financial year further squeezed DADX’s sales volume. A hike in the international prices of raw materials coupled with Pak Rupee depreciation and a surge in energy tariff compressed gross profit by 47.71 percent in 2023 with GP margin slipping to 9.25 percent in 2023. Distribution expenses multiplied by 16 percent in 2023 due to elevated payroll expenses, transportation, and other charges related to exports as well as utility charges incurred during the year. While the number of employees was further reduced to 151 in 2023, the adjustment of the minimum wage rate drove administrative expenses up by 28.25 percent in 2023. 34.78 percent higher other expenses incurred by DADX in 2023 was the effect of hefty exchange loss as well as an allowance for ECL booked during the year. Other income also improved by 45.69 percent in 2023 due to higher other income, write-back of liabilities as well as gain on disposal of property, plant & equipment during the year. Among all the years under consideration, DADX posted the highest operating loss of Rs.196.23 million in 2023, up 825.28 percent year-on-year. Finance cost escalated by 24.71 percent in 2023 due to sky-rocketed level of discount rate despite the reduction in its outstanding loans during the year. Net loss clocked in at Rs.420.029 million in 2023, up 193.85 percent year-on-year with a loss per share of Rs.39.02.
2024 brought no signs of relief for the company as political and economic uncertainties continued to take their toll on the financial performance of the company. Overall construction sector shrank by 5.2 percent in 2024. During the year, DADX’s topline further slid by 20.12 percent year-on-year to clock in at Rs.1119.26 million. This was due to halted public and private infrastructure projects, particularly in the commercial and residential sectors. High raw material and fuel prices as well as Pak Rupee depreciation pushed gross profit down by 56.26 percent year-on-year in 2024 with GP margin recorded at 5.1 percent. The management decided to shut down its Karachi factory in 2024 and focus on Hyderabad and Sundar factories. During the year, distribution expenses plummeted by 19.11 percent due to lower sales volume. Administrative expenses inched up by 4 percent during 2024 on account of inflationary pressure and elevated utility charges. DADX streamlined its workforce to 134 employees in 2024 which drove down its payroll expenses. Other expenses nosedived by 85.60 percent in 2024 as no exchange loss was incurred during the year. Other income also ticked down by 20.68 percent year-on-year in 2024 as no gain was recorded on the sale of fixed assets and no liabilities were written back unlike the previous year. Operating loss clocked in at Rs.145.40 million, down 25.90 percent year-on-year. Finance costs dropped by 1.19 percent in 2024 due to reduced borrowings. DADX’s gearing ratio tapered off from 55 percent in 2023 to 44 percent in 2024. Net loss ticked down by 16.58 percent to clock in at Rs.350.403 million in 2024. This translated into a loss per share of Rs.32.55.
Recent Performance (1QFY25)
During 1QFY25, DADZ posted year-on-year topline growth of 53.95 percent to clock in at Rs. 222.869 million. This was due to increased sales volume. However, gross profit tumbled by 95.83 percent in 1QFY25 due to the hefty cost of sales. This drastically pushed down the GP margin to 0.42 percent in 1QFY25 versus the GP margin of 15.49 percent recorded in 1QFY24. Distribution expenses dropped by 42.67 percent in 1QFY25 as the company didn’t make any export sales during the quarter. Administrative expenses spiked by 19.77 percent in 1QFY25 probably due to higher payroll expenses and utility charges incurred during the period. Other expenses slid by 45.28 percent in 1QFY25 as no exchange loss was incurred during the period owing to resilience exhibited by Pak Rupee against the greenback. DADX posted a 54.58 percent improvement in its other income in 1QFY25 on account of exchange gain. Operating loss lessened by 15.2 percent to clock in at Rs.53.128 million in 1QFY25. Finance costs slid by 17.72 percent in 1QFY25 due to monetary easing. DADX posted a net loss of Rs.95.549 million in 1QFY25, down 14.28 percent year-on-year. This translated into a loss per share of Rs.8.88 in 1QFY25 versus a loss per share of Rs.10.36 posted in 1QFY24.
Future Outlook
As of December 31, 2024, the company’s current liabilities exceed its current assets by Rs.1631.102 million. After making persistent losses since 2019, the accumulated loss of the company as of December 31, 2024, has reached Rs.1198.970 million. This casts doubts on the ability of the company to continue as a going concern. The performance of the company is contingent on public and private spending on infrastructure projects. With the recent improvement in its net sales and a downtick in its net loss, the company is pinning hopes to record profitability soon. Monetary easing will also prove to be beneficial for the company and cut down its cost of borrowing. The company is also exploring new geographical markets to broaden its customer base and source its raw materials and expects the efforts to yield positive results soon.
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