The leading corn refiner of Pakistan, Rafhan Maize Products Co Ltd (PSX: RMPL) is the premier provider of agricultural-based products and ingredients in Pakistan. The company has a market capitalisation of over Rs 71 billion and is on the KSE100 list.
Rafhan Maize is an affiliate of Ingredion Incorporated, a US-based corn-refiner with commercial and manufacturing operations in more than 60 countries. It has three manufacturing locations: Faisalabad and Jaranwala (Punjab), and Kotri, Jamshoro (Sindh).
The company processes thousands of tons of maize each year to produce food and industrial products. Although it falls under the category of food producer, Rafhan Maize produces a variety of starches and sweeteners that have applications in over 60 different types of industries, including textile, confectionery and bakery, paper and corrugation, food and beverages, pharmaceutical and chemical, poultry, livestock, aquaculture, and edible oils.
Stock price & pattern of shareholding
RMPL stock has largely been underperforming the KSE100 index since the start of 2016. In fact, the stock has been following a downward trajectory since November of last year. The pattern of shareholding indicates that the majority of the shares (over 70 percent) belong to one single entity - the corn-refining multinational that is its parent concern, Ingredion.
Prior performance
Rafhan Maize has seen some robust growth over the past five years, with a top line CAGR of 7.74 percent. However, margins have taken on a mixed trend. Corn accounts for roughly two-thirds of the company's cost of production. There was a sustained surge in corn prices from June 2012 to 2013, which accounts for the lower margins in 2013. However, subsequently, corn prices plummeted and eventually Rafhan Maize achieved new highs in profitability.
The company invested in enhancing its production capacity in 2013. As the graph illustrates, the cost of the main raw material, corn, has remained steady from 2014-16, while production has improved substantially (there was a decline in 2014 due to the floods in Punjab). This explains the record-high gross profit in 2015, in spite of lower sales.
Despite the myriad products and industries it caters to, Rafhan Maize does not have separate operating segments. This makes it difficult to pinpoint which of the firm's products are earning more and leaves a detailed analysis out of the question. However, as per the Directors' Reports, the textile sector is the largest consumer of the company's industrial grade starches, followed by the paper, board, and corrugation sector. Naturally, the slowdown in the textile industry of Pakistan has been weighing on the demand for the company's products. However, the latter sector has been performing well.
In the food and beverage segment, Rafhan Maize has been adapting to changing consumer patterns, not to mention a slowdown in the overall industry due to cash flow issues, as per the last yearly Director's Report. As for the animal nutrition segment, the company has had to reduce its product prices multiple times to compete with grains and other substitutes.
As for exports, there is not much to say. A recurring theme in the company's annual reports has been the mention of pursuing new growth opportunities in export markets. To this end and to its credit, Rafhan Maize has managed to double its exports from 2011 to 2015. However, as a percentage of net sales, exports are still negligible.
Recent performance
For the nine months ended September 2016, the firm's top line grew by three percent year-on-year, while lower costs gave a huge boost to gross profit and margins. The bottom line has grown an astounding 32 percent over last year.
As mentioned earlier, the continuous slide in textile exports has adversely impacted demand for Rafhan Maize's products. However, the confectionery, paper and corrugation, and pharmaceutical sectors led the company's growth during the period, as per the half-yearly Director's Report.
Moreover, Rafhan Maize has reinforced its cost-saving initiatives and greatly benefited from better energy availability, effective management of controllable costs, and optimising operational efficiencies. The company has passed the cost-reduction to its customers by reducing the prices of its products in different phases, claims the Director's Report.
The benefits from low crude oil prices and lower grain prices have also played a huge role in enhancing profitability. Increase in corn crop area and a better crop yield helped keep the price of maize stable in Pakistan.
Outlook
Rafhan Maize is riding high on the low corn prices, all the while introducing new products to keep up with consumer trends. Going forward, Rafhan Maize has initiated a 12MW coal-fired co-generation plant at its site in Jaranwala. The project is nearing completion and will help reduce energy related issues at the site by providing low cost electricity and steam.
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