Treet Corporation

Treet Corporation is among the oldest group of companies in Pakistan. Its history goes back to pre-partition when it was established as a diversification from the canteen and agricultural business. After the creation of Pakistan the company diversified into multiple businesses but now razor blade business is its main bread and butter today.
The company was incorporated in 1977 as a public limited company and is listed on all the three stock exchanges of Pakistan. Treet Group of Companies (TGC) is a consortium of six entities with Treet Corporation Limited (TCL) as the Holding Company. TGC has been operating for more than 55 years and exports to over 35 markets globally. Currently, Treet Group of Companies (TGC) is principally engaged in the manufacturing & sale of blades, soap, corrugated packaging, paper & board, motorbikes and lead base batteries. Over the years, Treet has become a significant player in exports over the years. Currently, Treet is exporting its products to over 35 countries around the globe.
Pages from historical financial performance:
Over the years, Treet Corporation has strategically diversified its portfolio, and the decision has paid them quite well in terms of top line growth in subsequent years. From the sale of Rs 3.5 billion in FY10, the firm's top line clocked-in at Rs 7 billion in FY14, reflecting a 19 percent year-on-year growth over FY13. But, in FY15 the blade company has seen its sale decline slightly by 2 percent and it clocked in Rs 6.9 billion. The major contributors to this growth were corrugation and blade segment. However, the company's bottom line has shown a mixed result over the years.
The gross margin has increased 100 bps in FY15 as against 20 percent in FY14 and 22 percent in FY13. It is because the company was facing the higher cost of electricity tariffs as well as rising cost of raw material over the years but thanks to the global decline in the prices of commodities that helped the company in FY15. It seems that the blade sector is responsible for overall low margins, which is its core segment for the company. Secondly, higher costs of making motorbike are also to be blamed.
Treet Corporation has witnessed a revival in its soap sector after the decline of several years. The company plans to revive the whole soap business by introducing new brands and investing in vegetable base soap brand to take advantage of lower palm oil prices. On the other hand, the company has disposed off its paper and board sector since it is a power intensive sector whereas the company is expecting higher costs of power in the near future. Treet should reconsider the business model of its motorcycle segment. Over the years, the sale of this sector has not performed well and earns very thin gross margins. Nevertheless, the company is adding new models in this sector. Furthermore, the firm's operating margin came down from a height of 12 percent in FY12 to 4 percent in FY14 and stayed at 4 percent in FY15 also. It was also stoked by rising distribution and administrative costs.
Recent Performance:
The consumer company started the FY16 on a higher note. For the three month period ended September 2016, Treet's sales improved by a good 10 percent year-on-year. This is good news for the company. However, the bad news is that the core cost has increased quite a bit, and it has grown evenly in every segment. The higher core cost has negatively affected the gross margins for the period. Treet has further diversified its business into the import and trade of lead acid batteries.
Even though the company has expanded its portfolio over the years, but it is still fundamentally dependent on razor blades for its revenue growth. The production of razor/ blades from Lahore and Hyderabad plants comes to 383.02 million blades as compared to 426.89 million blades produced in the same period of the last year, registering a decrease of 10.28 percent. Even though the company faced the higher operating expenses, it brought its top line success to its bottom line and posted impressive 136 percent increased in its profit against Rs 68 million in the corresponding period of the last year.
Future Outlook:
Going forwards, the company is likely to face challenges. This challenge will specially come from the imports of blades and razors from China and also from local manufacturers. Overall export performance in the blade sector is decent, and discontinuing its paper business its paper business was a wise step.

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Treet Corporation

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Rs (mn)                    1QFY15   1QFY16       YoY

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Sales                       1,757    1,938       10%

Cost of sale                1,366    1,551       14%

Gross Profit                  391      387       -1%

Administrative expenses        45       71       58%

Distribution cost             192      228       19%

Operating profit              154       89      -42%

Finance cost                   92       91       -1%

Other income                   58      168      190%

Profit before taxation        114      177       55%

Taxation                       11       17       55%

Profit after taxation          68      160      135%

Gross Margin                  22%      20%      Down

                                             200 bps

Operating Margin               9%       5%      Down

                                             400 bps

Net Margin                     4%       8%        Up

                                             400 bps

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