Rafhan Maize is the leading manufacturer of refined corn and its derivate industrial ingredients in the country and is a subsidiary of Ingredion Incorporated. The firm has an extensive and diversified product portfolio which includes industrial starches, liquid glucose, dextrose, dextrin and a variety of Gluten meals.
Having manufacturing facilities located across Punjab and now Sindh, the company processes thousands of tons of Maize each year to produce a variety of food grade and industrial ingredients. Some of the industries it serves include textiles, food, cardboard & paper, confectionery, corrugation, beverages, livestock and animal feeds manufacturers.
HIGHLIGHTS 1QCY13 The lackadaisical performance of many of Rafhan's downstream consumers of industrial ingredients meant that the firm's overall health has been affected. During the quarter under review, demand for starches remained largely depressed as the industry in Punjab struggled with power outages. However the company was able to salvage the situation somewhat by making additional sales to industries such as composite textile mills which were able to keep up operation levels due to their own alternate energy arrangements.
During the quarter demand from the paper segment remained dull as the cheaper imports flooding the market continue to weigh heavily on this segment, however increased demand from exporters of citrus fruit for corrugated packaging helped revenues strengthen by 15 percent quarter-on-quarter.
Additionally, demand from large to small scale consumers of industrial ingredients within the food processing sector also remained resilient. During the quarter, demand for the company's corn starches-which are used primarily as thickeners or binders in many processed foods- picked up, however the supply glut of sugar had a negative impact on sales for liquid sweeteners.
From a manufacturing standpoint, Rafhan's biggest concern continues to be the management of the variable costs that are eroding the firm's margins. Higher costs of production thus meant that the gross profits declined by over three percent while the margins slid by more than 30 percentage points during the period. Despite a favourable increase in sales volumes during the period under review, the net income has therefore seen a considerable dent this quarter.
OPERATIONAL PERFORMANCE CY12 For the most part of the year, the firm's financial performance managed to remain on track despite the depressing situation faced by local industries. At the close of the year, Rafhan was able to sustain its growth momentum, having achieved seven percent higher net sales year-on-year and a net income of Rs 2.04 billion. However it barely managed to hold on to this performance as the spiralling costs continue to weigh on Rafhan's operations.
Locally the year was less than stellar for the textile sector and consequently sales for the Texo-Film brand of starches used in manufacturing of specialised textile fabric such as Denim and Coratex were unable to keep up their momentum. However, demand for the company's Penterose -an ingredient used for sizing yarn on high speed looms- saw a substantial hike as exports of Pakistani origin yarn skyrocketed during the year. During the year another positive force remained export sales of Industrial starches, which climbed by over 10 percent year-on-year.
The paper industry's performance remained largely mixed. While the smaller industrial units faced tough competition from cheaper imports, high cost of inputs and energy shortfall, the large scale units operated normally. Additional improvements however can be made if the dumping of Chinese paper in the local markets is curbed. Demand from the corrugated packaging segment over the year remained high as cement, food, fruit and vegetable segments did well, which translated into volume growth for the firm's specialty starches.
During the year 2012 Rafhan's newly constructed Greenfield Mehran Plant at Kotri commenced commercial production. The new plant will have direct impact on Rafhan's geographical reach into different markets locally and is set to help the firm's prospects during the coming quarters.
PROFITABILITY RATIOS Despite increase in fuel prices and the fact that the firm had to use costly alternate energy, Rafhan managed to succeed in keeping up Gross Profit and after tax income ratios at par with 2011. However EBITDA Margin to Sales saw a marginal decrease on 1.5 percent mainly on account of increase in certain manufacturing overheads. Operating Leverage Ratio, Return on equity ratio and Return on Capital Employed moreover remained low owing to heavy investment in new Greenfield plant at Kotri, Sindh.
LIQUIDITY RATIOS The company's current Ratio at 1.79 times has been maintained over the course of 2012 with slight improvement in Quick ratio over the last year. During the year Rafhan's cash to current liabilities ratio meanwhile managed to increase by 0.14 times over last year because of the increase in cash flow from operations. This was mainly due to a number of austerity drives and operational efficiency programmes the company was involved in during the course of the last 12 months.
OUTLOOK Grain prices- which have largely shown a mixed trend last year- are slated to go up and Maize prices in between local and international prices will be a factor on which profitability will hinge in the coming quarters. While further investments in capacity enhancements and for alternate energy arrangements will be on the cards for the firm as a long-term solution to the eroding margins, a lot depends on the performance of the downstream industrial consumers of Rafhan's products. With a new pro-industry and agriculture friendly government slated to come into place very soon, how the year plays out for Rafhan remains to be seen.
RAFHAN MAIZE PRODUCTS CO. LTD
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Operating Results
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Rs(mn) 1QCY12 1QCY13 Chg
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Net sales 4,568 5,296 15.94%
Operating Profit 738 663 -10.16%
NPAT 450 416 -7.56%
EPS 48.77 45.04 -7.65%
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Source: Company Records
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Rafhan Maize Products Co Ltd
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2010 2011 2012
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Net sales 13,912 18,270 19,531
Gross profit 3,297 3,799 3,975
Profit from Operations 2,954 3,399 3,304
NPAT 1,837 2,033 2,040
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Profitability Ratios
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GP margin 23.7 20.8 20.4
NP margin 13.2 11.1 10.4
Operating leverage 1.8 0.5 -0.4
ROE 41.0 37.5 32.0
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Liquidity Ratios
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Current ratio 2.1 2.0 1.8
Cash to current liabilities 0.0 0.0 0.2
Cash flow from operations to sales 0.0 0.1 0.2
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Activity Ratios
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Inventory turnover ratio 3.1 4.3 4.4
Total Assets Turnover 1.9 2.2 1.9
Fixed Asset Turnover 6.4 8.0 5.2
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Investment Ratios
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EPS 199.0 220.2 220.9
Dividend yield 5.0 5.0 3.0
Market Value per share @ year end 2109.9 2513.3 3998.4
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Source: Company Records
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