Bunny’s Limited (PSX: BNL) was incorporated in Pakistan as a private limited company in 1980 and was later converted into a public limited company. The principal activity of the company is the manufacturing and sale of bakery and other food products. BNL has its factory located in Lahore, Pakistan. Its products are sold across the country as well as internationally. The company co-manufactures with some of the leading national and multinational companies, including PepsiCo, Unilever, and Engro.
Pattern of Shareholding
As of June 30, 2023, BNL has a total of 66.805 million shares outstanding, which are held by 2879 shareholders. Directors, their spouses, and their minor children have the majority stake of 51.57 percent in the company, followed by the general public holding 23.83 percent shares of BNL. Banks and DFIs account for 9.65 percent shares, while joint stock companies hold 6.78 percent shares of BNL. Modarabas and Mutual funds own 4.79 percent shares of BNL. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-24)
BNL’s topline has shown steady growth in all the years under consideration. However, its bottom line could only ascend in 2020 and 2021. BNL’s margins tumbled in 2019, followed by an uptick in 2020. In the subsequent two years, gross and operating margins followed a downward trajectory, while net margin ticked up in 2021 and then plunged in 2022. In 2023, gross and operating margins recovered considerably; however, the net margin continued to descend. BNL’s margins hit their lowest ebb in 2024 (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below:
In 2019, BNL’s topline grew by 11 percent year-on-year to clock in at Rs.2,568.87 million. The growth came on the back of increased demand combined with an upward pricing strategy. As the eating patterns of the people were evolving, people were increasingly focusing on convenience food, which was creating demand for bakery items, particularly buns and bread. Buns and bread are the star products of BNL and contribute profoundly to its overall sales mix.BNL has an installed capacity of 13,500 metric tons in the bakery division and 1800 in the snacks division. In 2019, the company produced 11,150 metric tons of bakery products as against 10,965 metric tons produced in 2018. The snacks division produced 550 metric tons in 2019, up from 455 metric tons in 2018. Capacity utilization in the snacks division is less due to low demand. The high cost of utility and raw materials, which mainly included sugar, flour, eggs, milk, cooking oil/ghee, etc, as well as costly packaging material, culminated into a 14.64 percent year-on-year rise in the cost of sales. Gross profit marginally grew by 2.16 percent year-on-year in 2019, however, the GP margin slumped to 26.80 percent in 2019 from a GP margin of 29.12 percent recorded in 2018. The company made a significant reduction of 58 percent year-on-year in directors’ remuneration in 2019. This, coupled with curtailed entertainment expenses, charity and donation, as well as legal and professional fees, trimmed down the administrative expense by 4.81 percent year-on-year in 2019. Selling and distribution expenses mounted by 10.18 percent year-on-year in 2019, owing to higher sales force commission and discounts as well as vehicle running and maintenance charges incurred during the year due to increased deliveries to meet the demand. Other expenses slid by 9.59 percent year-on-year in 2019 due to lesser provisioning for WWF and WPPF. Despite keeping a check on expenses, operating profit shrank by 2.6 percent year-on-year in 2019, with OP margin inching down to 8.31 percent from OP margin of 9.47 percent registered in 2018. Finance cost grew by 2 percent year-on-year, mainly on account of the high discount rate. Net profit contracted by 18.66 percent year-on-year in 2019 to clock in at Rs.112.38 million with an NP margin of 4.37 percent as against an NP margin of 5.97 percent posted in 2018. EPS also slipped to Rs.2.19 in 2019 from Rs.2.69 in 2018.
In 2020, the net revenue of BNL posted an 8.68 percent year-on-year rise to clock in at Rs.2,791.86 million. While the closure of restaurants, educational institutions, and offices due to COVID-19 produced a dent in the demand for bakery items, particularly buns and bread, increased household consumption of the same came to the rescue. Moreover, higher sales made in the initial quarters offset the effect of tamed demand during the COVID quarter. Overall, BNL produced 11,400 metric tons of bakery items and 565 metric tons of snacks in 2020. High flour costs, energy charges, and other input costs resulted in the cost of sales going up by 7.70 percent year-on-year in 2020. Yet, gross profit increased by 11.37 percent year-on-year in 2020, with GP margin clocking in at 27.46 percent. This was on account of stable sales volume and upward price revision. BNL hired additional employees during the year, taking the total employee count to 682 employees in 2020 from 669 in 2019. This pushed the salaries expense up, which, combined with an uptick in directors’ remuneration, pushed the administrative expense up by 3 percent year-on-year in 2020. Selling expenses also surged by 5.76 percent year-on-year in 2020, primarily due to vehicle running and maintenance charges coupled with commission and other sales incentives. High provisioning for WWF and WPPF resulted in a 22.33 percent hike in other expenses in 2020. BNL also made Rs.6.6 million worth of other income in 2020, up from the other income of Rs.0.41 million recorded in 2019. This was on account of gain on the sale of fixed assets as well as amortization of deferred income during the year. Operating profit boasted a considerable 27.91 percent year-on-year growth in 2020 with an OP margin of 9.78 percent – the highest among all the years under consideration. Finance costs surged by 44.32 percent year-on-year in 2020 due to a higher discount rate for most of the year. Long-term borrowings of BNL also rose during the year as it availed the SBP Refinance scheme for the payment of salaries and wages. Moreover, the company also installed a gas-based power plant during the year to cut back on its power costs. Besides, the company also started working on a fully automated production line for buns and bread, for which the basic infrastructure was installed in 2020. Higher finance cost diluted the bottomline growth, which posted a 13.73 percent year-on-year rise to clock in at Rs.127.80 million in 2020 with an NP margin of 4.6 percent. EPS also climbed up to Rs.2.49 in 2020.
Among all the years under consideration, BNL posted the highest topline growth of 27.87 percent year-on-year in 2021. Net sales were recorded at Rs.3570.05 million in 2021. The gradual resumption of economic activity led to an upsurge in demand. BNL produced 12000 metric tons of bakery items and 765 metric tons of snacks in 2021 to meet the demand. During the year, the company completed the installation of its duly automated bun line and started working on a fully automated cake line and continuous fryers for its snack division. The cost of sales grew by 29.75 percent year-on-year in 2021. While gross profit climbed up by 22.91 percent year-on-year in 2021, GP margin inched down to 26.40 percent. This was because the company didn’t fully utilize its newly installed production lines, which added to its fixed cost. Administrative and selling expenses grew by 31.55 percent and 21.66 percent, respectively, in 2021. As of December 2021, the company had a total of 751 employees, which greatly drove the salary expense up. BNL also upped its advertising and sales promotion during the year to achieve higher market penetration besides providing commission and other sales incentives to pitch sales of BNL products. Other expenses grew by 32 percent year-on-year due to higher provisioning for WWF and WPPF on account of increased profitability. Other income posted a massive 268.84 percent year-on-year growth on the back of gain on sale of fixed assets coupled with amortization of deferred grant. The operating profit magnified by 24.913 percent year-on-year in 2021; however, OP margin fell to 9.56 percent. Finance cost provided some breather as it slid by 10.16 percent year-on-year in 2021 due to monetary easing. This was despite the fact that BNL’s short-term and long-term borrowings considerably increased during the year to meet its working capital requirements and support its expansion plans, respectively. Net profit registered a stunning 39.24 percent year-on-year growth in 2021 to clock in at Rs.177.95 million with an NP margin of 4.98 percent. EPS clocked in at Rs.2.66 in 2021, which signifies a growth of 6.83 percent, as the company issued 30 percent bonus shares during the year, which increased its share capital. The company didn’t pay a cash dividend in 202,1, keeping in view its investment plans and the associated funds requirements.
2022 brought in another 25.18 percent year-on-year growth in BNL’s topline, which was recorded at Rs.4,468.90 million. However, during 2022, the topline growth was driven by upward revision in prices to counterbalance the effect of rising input cost due to domestic floods as well as the Russia- Ukraine crisis. The production slightly inched up to 12400 metric tons in the bakery division and 925 metric tons in the snacks division in 2022. The cost of sales spiked by 32.37 percent year-on-year in 2022. Gross profit grew by 5.12 percent year-on-year in 2022, however, the GP margin drastically fell to 22.17. The company kept a check on its administrative expenses, which grew by a mere 5.15 percent year-on-year in 2022, despite unprecedented inflation. While salaries expense grew substantially, the company contained directors’ remuneration during 2022, resulting in a small uptick in administrative expense. Distribution expenses grew by 23.65 percent year-on-year in 2022 due to a sharp increase in fuel prices, while other expenses slumped by 34 percent year-on-year in 2022 due to lesser provisioning for WWF and WPPF. Other income also declined by 55 percent year-on-year in 2022. Gain on sale of fixed assets was the main component of BNL’s other income in the past years; however, the company didn’t sell any of its fixed assets during 2022. Operating profit contracted by 19 percent year-on-year in 2022, and OP margin also stood at its five-year low of 6.18 percent. Finance cost escalated by 32 percent year-on-year in 2022 due to multiple rounds of monetary tightening during 2022. The bottom line plunged by 21.91 percent year-on-year in 2022 to clock in at Rs.138.96 million with an NP margin of 3.11 percent. EPS also plummeted to Rs.2.08 in 2022.
During 2023, BNL’s topline grew by 27.25 percent year-on-year to clock in at Rs. 5,686.62 million. This was due to an increase in demand as well as prices. The cost of sales grew by 24.40 percent year-on-year in 2023 due to rising food inflation. An upward revision in the prices of its products helped BNL achieve a slightly higher GP margin of 23.91 percent in 2023. Gross profit also rose by 37.26 percent in 2023. While the company was able to cut its payroll expense during the year by keeping its workforce size constant at 758 employees, exorbitant vehicle running, maintenance, and insurance charges took their toll on the administrative expense, which surged by 12.35 percent in 2023. A steep 42.48 percent year-on-year escalation in distribution expense in 2023 was the effect of higher payroll expense, commission & other incentives to sales staff, and also hefty vehicle running & maintenance expense incurred during the year. Other expenses contracted by 2.8 percent in 2023 due to lower provisioning for WWF. Other income also plummeted by 17.72 percent in 2023 due to lower amortization of deferred grants recorded in 2023. BNL recorded a 47.17 percent stronger operating profit in 2023, with OP margin climbing up to 7.15 percent. Finance costs rose by 87.58 percent year-on-year in 2023 due to a record-high discount rate. While BNL put brakes on its long-term borrowings, its short-term borrowings showed no breather owing to increased working capital requirements. Due to high finance costs, the bottom line slid by 5.37 percent year-on-year in 2023 to clock in at Rs.131.505 million with an NP margin of 2.31 percent. EPS also plunged to Rs.1.97 in 2023.
While the company’s bottomline had been shrinking of-late due to surging cost and financial charges, it was able to record net profit. However, in 2024, BNL’s financial performance succumbed to soaring inflation and finance costs, and the company ended up making a net loss despite a reasonable 23.26 percent year-on-year improvement in its net revenues, which clocked in at Rs.7,009.26 million in 2024. 29 percent escalation in the cost of sales was due to inflationary pressure and high energy costs. BNL’s gross profit ticked up by 4.72 percent in 2024, however, its GP margin fell down to its lowest level of 20.31 percent. Shrunken pockets of consumers translated into affordability concerns, which didn’t allow the company to increase its prices proportionately. This shoved off its margins. Administrative and distribution expenses hiked by 46.94 percent and 15 percent, respectively, in 2024. The main drivers of high operating expenses were payroll expenses, sales commissions, vehicle running, maintenance, and insurance charges. BNL didn’t book any profit-related provisioning, resulting in no other expense. Other income grew by 85.75 percent in 2024 due to gains recognized on the sale of fixed assets. Operating profit dwindled by 34.37 percent in 2024, with OP margin drastically falling down to 3.81 percent. Finance cost gave no breather and escalated by 30.54 percent in 202,4, owing to a high discount rate and increased short-term borrowings. This resulted in a net loss of Rs.108.129 million in 2024, with a loss per share of Rs.1.62.
Recent Performance (1HFY25)
During 1HFY25, BNL’s net sales ticked up by 6.6 percent to clock in at Rs.3,687.24 million. Lower flour prices resulted in a paltry 1.16 percent uptick in the cost of sales in 1HFY25. This resulted in 27.29 percent higher gross profit in 1HFY25, with GP margin recorded at 24.88 percent versus GP margin of 20.83 percent posted in 1HFY25. Administrative and distribution expenses surged by 29.50 percent and 32.11 percent, respectively, on account of higher payroll expenses, commission on sales, traveling, as well as vehicle running & maintenance charges incurred during the year. Higher profit-related provisioning resulted in a 123.89 percent surge in other expenses in 1HFY25. It was offset by 237.37 percent higher other expenses recorded during the period, which probably came on the back of increased gain on the sale of fixed assets. BNL’s operating profit strengthened by 21.74 percent in 1HFY25, with OP margin clocking in at 6.33 percent versus GP margin of 5.54 percent recorded in 1HFY24. Finance cost plunged by 20.92 percent in 1HFY25 due to monetary easing. Net profit picked up by a massive 473.35 percent in 1HFY25 to clock in at Rs.113.18 million. This translated into EPS of Rs.1.69 in 1HFY25 versus EPS of Rs.0.30 recorded in 1HFY24. NP margin jumped up from 0.57 percent in 1HFY24 to 3.07 percent in 1HFY25.
Future Outlook
With steady demand growth and periodic price revisions, the company can keep its bottom line and margins afloat. Upgrading its plant & equipment to cutting-edge technology may also result in lower conversion costs and strong margins. Besides, tapping new product and geographical markets will also provide an added advantage to the company. The decline in inflation and discount rate will also aid the financial performance of BNL.
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