The history of "Servis" traces back to more than sixty years from now when three gentlemen pioneered it as a small scale business in Pakistan. At that time, it was involved only in the manufacturing of handbags and some other sports goods. From there, the company started progressing while also supplying its products to India at the time of partition.
The expansion phase continued in 1954, where a shoe manufacturing plant was installed in Lahore. The plant started production in the same year. Subsequently, the factory was shifted from Lahore to Gujrat whereby in 1959, Service Sales Corporation (Pvt.) Ltd - the Group's marketing company - was established in 1959.
The journey further flourished when the production side of the company led into the formation of Service Industries Limited (SIL) which produces shoes, tyres, tubes, and rubber production facilities in Gujrat and Muridke. SIL is also a distinguished exporter of footwear. Service Sales Corporation (Pvt.) Ltd. (SSC) is today recognized as Pakistan's prominent footwear retailer which is also diversifying into other businesses.
Exports on the rise!
Over the years, Servis has worked on strengthening the share of its footwear exports. This is evident from the sales tally which has increased from 29 percent in 2010 to a healthy 55 percent as of September 2014. Quite naturally, its local sales have been on a constant decline and now its share in revenues stands at 71 percent (2010: 45 percent). Declining sales on the domestic front is the corollary of the tax avoiding cottage industry which seems to be giving the company a tough contest to its footwear business.
However, the case for tyres and tubes is not the same as contribution from exports remains tiny and is still dropping. Its local sales dominate the segment with a whopping share of 95 percent as of September 2014, while export sales have sloped downwards to 5 percent from 7 percent in 2010.
Given the rising exports from footwear business, the overall exports of the firm have also seen a constant up tick. Yet, local sales dominate the portfolio with a share of 67 percent (down from 79 percent in 2010).
Clearly, its domestic sales are under pressure; no thanks to the competition given by cottage industry. To overcome the effect of falling domestic sales, the company is focusing on boosting its export volumes by way of diversification. Here, the GSP plus status for Pakistan is likely to be a plus for the company.
Footwear business - the bigger slice of the cake
Revenues from footwear segment contribute the major share (56 percent as of September 2014), followed by tyres and tubes (44 percent). It's the reason why the company claims to be the leading footwear exporter in the market.
With regards to the shoe business, the firm focuses on in-house manufacturing including model designing, cutting, stitching to lasting (injection) and finishing. This way, the firm can enjoy better cost efficiencies.
Europe- the major export market
Europe befalls as the major export destination for Servis. Unfortunately, Europe's leading economies continue to be struggling against slow and painful business growth. Falling worth of the Euro further adds to these woes. Yet, the exports have been on an uptrend. All thanks to the management for exploring alternative export regions to maintain its growth.
Financial performance regaining strength
The financial journey of Servis reminds one of a 'see-saw movement' where one year of high growth is followed by another year of falling profitability. Here, 2013 was a phenomenal year in the history of the firm. Followed by a year of decline, the company came back with a bang, boasting a profitability growth of nearly five times in 2013.
The phenomenal bottom line growth in 2013 is attributable to its cost efficiencies as a result of improvement in productivity, better pricing, and efficient supply chain management. Besides, improvement in Euro-Rupee parity also lent a hand in up-lifting the margins. Gross margin improved by a healthy 300bps to 16 percent in 2013. These factors also contributed their due share in up-lifting the margins during the nine months ended September 2014 as well where the firm flaunted a bottom line growth of 26 percent year-on-year. Given the favourable trends, it looks likely that the firm will close 2014 on a positive note which will be revealed once its financial results are announced on March 27, 2015.
One interesting feature is that the firm has managed to post double-digit top line growth year-after-year. However, 2012 has been an exception to this trend where suppressed export and domestic demand for its footwear business remained the culprit. But the firm's comeback by way of diversification subsequent to 2012's downfall is to be cherished.
Strong dividend payouts - an added sheen
Besides, a good cash dividend is an added sheen attached to the firm. The firm has kept its cash dividends at around 75 percent are above in previous years. Also, in 2012 when the firm's profitability touched the lowest level, it managed to maintain its cash dividend at 75 percent. Clearly, the firm is strong enough to dole out attractive dividends even in the toughest times. Maybe this feature keeps the investors fascinated about the firm.
Future outlook
The company has managed to keep its footprints strong. Diversification of the export base remains critical as its key export region which is Europe is facing a graved time. Moreover, the implications of GSP plus status will likely be profitable for firm's standing. By focusing on its export sales, the firm can overcome the competition being given by the local cottage industry. Besides, the firm is working on beefing up capacity for its tyres division to meet the increasing local and export demand which will further spruce up company's profitability in years to come.
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