Shezan International Limited

Incorporated in Pakistan in 1964, Shezan International Limited (KSE: SHEZ) was initially a joint venture between Shahnawaz Group and the Alliance Development Corporation of USA. Mainly engaged in the manufacturing and selling of juices, pickles, jams and ketchups, the company has been constantly expanding both into local and in international markets.
After purchasing all shares of the company in 1971, the Shahnawaz Group made it a Public Limited Company. It is now listed on the Karachi and Lahore Stock Exchanges. The company has been steadily expanding its production capacity over the years. In 1980-81 a separate unit was installed in Karachi, which now caters for Karachi, Sindh and the export demand. A new bottle filling plant was also set up in 1983 in the Lahore unit, increasing the capacity five folds. An independent Tetra Brick plant was commissioned in 1987 making the unit a leading manufacturer with comprehensive range of production in the fruit processing field in Pakistan. The registered office of the company is situated in Lahore, Pakistan.
PERFORMANCE FOR 1H FY14 SHEZ's top line in 1H FY14 grew by 30.9 percent year on year, going up to Rs 3.089 billion as compared to Rs 2.359 billion in the corresponding period of last year. The increase in sales is due to a quantitative increase in export sales of juices in bottled as well as tetra packaging. Sales for condiments (which include products like jams and jellies), however, remained range-bound. Moreover, their production facility at Karachi continued to meet the export requirements in Middle East, Africa, USA and Europe.
Gross profits for SHEZ have strengthened in 1H FY14 even though cost of sales grew by 28 percent year on year. This is due to energy crisis playing havoc, especially in Punjab. The firm continuously has to rely on furnace oil for boilers in the absence of gas and diesel to run the generators due to electricity shortages. That adds to the company's cost of production.
Profit after tax for SHEZ clocked in at Rs 130 million as against Rs 99 million of the previous accounting period due to impressive sales revenue. However, SHEZ's distribution costs have been climbing up incessantly throughout the year and grew by 47.5 percent year on year. These costs include advertisement and sales promotion expenses made on account of increased promotional activity amid the stiff competition between local and foreign packaged food brands in the market.
Moreover, the firm's finance costs also increased by Rs 75 million, going up a significant 32 percent year on year over the last corresponding period. Both current assets and current liabilities of the firm declined by 12.8 percent and 11.6 percent, respectively, over the same period of last year. That came about thanks to reduced trade deposits, lower loans and advances, and no previous long-term borrowing by the company. The EPS was up by 30.8 percent year on year to Rs 17.92 as compared to Rs 13.7 that was recorded last year, rounding off the company's impressive results in the face of increased energy costs during the aforementioned period.
FUTURE OUTLOOK Although there is much consternation among experts regarding the health of businesses in the country, general consensus remains that the future remains bright for the food producing and manufacturing sector of the economy.
The outlook for SHEZ remains positive, despite the appalling power situation in Punjab. Although the detracting effects of the gas load shedding are going to show up in the company's financials for the 2H FY14; the firm remained largely on track with its cost-cutting austerity drives. So, the margins are very likely to hold up. And despite the fact that there has been a rapid upsurge in prices of materials such as pulps, edible oils, sugar and the tetra-packaging, margins have remained intact mainly as a consequence of the SHEZ's ability to keep its administrative expenses into check.
As a result, the profit earned from the firm's core business operations has historically shown a positive trend, and is abetted by the fact that the rising consumerism in the country means big bucks for food manufacturers. The future for SHEZ looks nothing less than decidedly rosy.

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                           1HFY12      1HFY13      1HFY14

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Profitability

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Gross profit margin         26.8%       28.9%       30.4%

Operating profit margin      8.2%        9.5%        8.5%

Net profit margin            3.5%        4.2%        4.2%

ROE                          8.1%        8.6%        9.5%

ROA                          3.9%        4.4%        5.6%

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Liquidity

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Current ratio                1.62        1.72        1.69

Quick ratio                  0.40        0.46        0.66

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Turnover

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Total asset turnover         1.12        1.05        1.32

Fixed asset turnover         4.68        4.89        3.82

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Market

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EPS - Rs                   13.39         13.7       17.92

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