EMCO has a long history, with its original parent company The Imperial Electric Company (Pvt) Ltd, being established in 1931. Electrical Equipment Manufacturing Co Ltd (EMCO) was the pioneer in production of all types of insulators including those required for extra high tension lines. It set-up a manufacturing plant in collaboration with Japanese and French assistance in 1954. After the merger of Associated Engineers (Pvt) Ltd with The Imperial Electric Company (Pvt) Ltd further expansion took place with a new plant being set up at Lahore Sheikhupura Road in 1968 under the guidance of NGK Insulators, Japan with which a fifteen years' technical collaboration agreement was also signed.
In 1983, the company was listed on the Stock Exchanges of Pakistan as a Public Ltd, company and was renamed as EMCO Industries Limited. In addition to electric porcelain, the company is also involved in the production of chemical porcelain such as acid proof lining bricks, saddles and special refractories. This line is now fully developed to cater to the requirements of beverage factories, milk plants, chemical, edible oil, fertilizer industries, for acid proof wares. EMCO, in 1995, signed a licensing agreement with M/S. SIEMENS, Germany to manufacture Surge Arresters from 66kv to 420kv.
In 1983 EMCO decided to expand their manufacturing activities and utilize their long experience in ceramics by adding a plant for the manufacturing of decorative wall tiles with an annual capacity of 700,000 square meters. This plant was commissioned in 1985 and used machinery from German and Italian manufacturers according to the company.
The company set up another plant for floor tiles having an annual capacity of 1,000,000 square meters which was commissioned in 1991 in collaboration with SACMI, Italy. EMCO increased the capacity of its wall tile plant from 700,000 to 1,500,000 square meters per annum in 1996 after increase in demand. The overall capacity of the plant is now 2,500,000 square meters and ceramic production is over 30000 tons according to the company's website.
Recent performance
EMCO has suffered consecutive losses for the past nine years and has managed to turn a green bottom line only this year. The reasons for the poor performance of the company could be attributed to the constant increase in prices of electricity and gas as well as severe load shedding which made operations costlier and affected exports as well as local production.
In FY14 the company decided to undertake operational restructuring which involved temporary suspension of manufacturing at its tile division. This was done in order to focus on improving production at its more profitable segment which is the porcelain insulator division. The gas shortage led the company to down this difficult path which has led to the full year depreciation of the tile division being charged to the profit-making insulator segment in FY15 as well as FY16.
During FY15, only the insulator plant was operational and the production of the insulator plant increased by 116 percent and sales by 85 percent during the period. The total orders in hand for insulators were 2600 tons and another 2000 tons were in the pipeline. The financial results for this year showed a higher loss as compared to FY14 but the director's report attributed this to charging depreciation of Rs 53 million on the tile division as well as creating a provision of more than Rs 22 million against doubtful receivables.
EMCO also arranged beneficial structural financing arrangements with banks against confirmed orders from DISCOs and NTDC. The Management injected Rs 89 million during the year to plug the liquidity crunch which the company was facing due to a string of losses in the past decade.
Similarly, in FY16 even though the supply of gas was improved, the company focused on enhancing production in insulator segment which had the desirable results this time around. There was an increase in production of 31 percent in the insulator division which had a positive impact on the gross profit. The company was also able to repay borrowings of over Rs 100 million during the year.
There was an increase of 31 percent in the production (4237 tons from 3200 tons) of the insulator division during this year which had a positive impact on the gross profit. Revenue of the company increased by 35 percent during the year and it was able to repay its borrowings by more than Rs 100 million. Therefore, after nine years the company made an after-tax profit of Rs 27.2 million despite the tile plant being closed and all its costs being charged to the insulator division. The current orders in hand stand at more than 1600 tons the company expected more orders in the coming financial year.
A pertinent point mentioned in the Auditor's report is the poor liquidity position of the company with the current liabilities of the Company exceeds its current assets by Rs 221.184 million. This coupled with the fact that the tile division has been shut down may cast doubt about the company's ability to continue as a going concern according to the auditor.
Stock performance
EMCO has witnessed an extraordinary increase in share price during the last 6 months whereby the stock price increased by over 400 percent in the wake of the company making a profit after a consecutive loss streak for the past 9 years. From July 2015 to March 2016 there was little change in price but after that the price has skyrocketed in the next six months.
From April to June 2016 EMCO has mostly outperformed the KSE-100 index marginally but it has underperformed the benchmark index in the following three months. However, since September, 2016 the stock has caught up with the index and its future financial results will determine the trajectory it will take in the coming year.
Future Outlook
The market demand for insulators is growing because of the government's efforts to eliminate load shedding by 2018. There is substantial investment being made in CPEC, the majority of which is focused on the energy sector. Therefore, the company is in a good position to capitalise on this expansion spree and the increase in orders in the past two years is testament to that.
Direct export sales have decreased considerably in the past year to meet the local demands of Disco's and NTDC as well as increased competition in the international market. But the company believes its indirect exports through international tenders funded by foreign loan agencies are expected to pick up in the next year.
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