Incorporated in 1982, Dynea Pakistan Limited provides adhesive and surfacing solutions. Its main divisions are resin which is used for the manufacturing of chipboards, panels, and lamination, and aminoplast which is used in the making of household objects, tableware and parts for electrical industries respectively.
It was formed as joint venture between Habib Group of Companies and Dynea Industrier A.S.A. of Norway as Dyno Pakistan Limited. Dynea A.S.A is a multinational with 100 wholly or partly owned companies in over 40 countries. Its core business is manufacturing formaldehyde and formaldehyde based resins. The name of Dyno Pakistan was changed to Dynea Pakistan Limited in 2002.
As per a report by Pitad, Dynea is Pakistan's largest producer of moulding compound used for manufacturing dinner sets and electrical accessories. Manufacturing of formaldehyde and aminoplast resins and of moulding compound were both pioneering ventures introduced for the first time in Pakistan. Now only a small quantity of moulding compound is imported whereas formaldehyde and liquid resins are not being imported now.
While the industry for resin and aminoplast compound is competitive, Dynea has been doing well in recent years. It has a history of giving out cash dividends with 25 percent cash dividend being the lowest in recent years and the highest being in FY17 at 80 percent. This was due to its increase in sales and curtailing of cost which resulted in the highest PAT in the last decade.
Financial overview
Overall Dynea's sales have been increasing steadily over the last few years. Investments in increase in volume, better plant efficiencies and improved implementation of procurement policies allowed it to register its highest turnover in FY14. The decline in FY15 was caused by an increase in cost of major raw materials. The cost could not be entirely passed on to consumers due to intense competition in the market, which resulted in the lowest PAT in the last six years. Since then however, turnover and profits have resumed its upward trajectory.
Contribution towards sales of aminoplast and resins is roughly equal. However, while aminoplast is the bigger contributor towards PAT, resins profits have more than doubled since FY16. One of its strategies is to broaden its customer base to ensure its long term sustainability. It is also working towards its expanding it formaldehyde production capacity along with that of downstream processes for which it has taken a loan of half a billion rupees from commercial banks. Commercial production is expected to commence by the third quarter of FY18.
There is a case in the Supreme Court which, if lost, would make the company liable to pay nearly Rs 1.5 billion in vend and permit fee for methanol consumed since 1990. Based on legal advice, no provision has been made for this since Dynea won this case in the Sindh High Court. The management expects the Supreme Court to confirm the previous decision thereby not affect Dynea's ability as a going concern. However, if the decision is against Dynea, the company will be pushed into bankruptcy since the value of the total assets of the business is Rs 1.29 billion.
1QFY18
Continuing its trend of strong growth in turnover and profitability, the 1QFY18 results registered a whopping increase in sales with net profit more than tripling. Driver of the growth in profitability was the increase in gross profit margin.
Sales of both resins and aminoplast grew last quarter but it was resin that was resulted in Dynea's stellar performance with an increase in turnover of 53 percent and increase in profits of 211 percent compared to the corresponding period last year. Aminoplast registered relatively smaller but significant gains with turnover increasing by 36 percent and profits by 63 percent when compared to 1QFY17.
Distribution costs, the biggest operating expense, though increased in the latest financials, declined significantly as a percentage of gross profit from 37 percent in the corresponding quarter last year to 22 percent. Similar improvement was seen in administrative expenses which though increased saw a decline from 22 percent of gross profit to 14 percent of gross profit. Of the Rs 500 million loan, Rs 250 million was utilised for the expansion of production capacity. The loan is repayable in 16 equal installments from November 2018.
Future outlook
The market that Dynea operates is competitive where increase in costs of raw materials cannot be passed on to consumers. However, its management has been working on better process planning and improving the quality of the product which is reflected in its increase in profitability.
Its recent investment in increasing production capacity indicates that it is confident of its increase in demand. In the past increase in production has led to economies of scale which it has been able to leverage despite excess capacity in the market. Given its past trends, it is expected that Dynea will continue its growth trends.
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Dynea Pakistan Limited - latest financials
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Rs mn 1QFY18 1QFY17 % chg
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Net turnover 697 482 45%
Cost of sales -554 -404 37%
Gross Profit 143 79 81%
Distribution costs -32 -29 10%
Administrative expenses -20 -17 18%
Other income 4 1 471%
Operating profit 96 34 182%
Finance costs 0.6 1 -40%
Other charges 7 3 133%
Profit before tax 89 30 197%
Tax 26 10 160%
Net profit for the period 62 20 210%
EPS 3.29 1.05 213%
Gross profit margin 21% 16% 25%
Net profit margin 6% 7% -20%
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Source: company accounts
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Pattern of shareholding (as at June 30, 2017)
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No. of %
shares held
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Individuals 4,856,240 26
Investment companies 2,200 0.01
Joint Stock Companies 1,476,659 8
Directors, CEO, spouses and minor children 6,000 0.03
Associated companies, undertakings
and related parties 4,716,216 25
Banks, DFIS, NBFIS, insurance companies,
takaful, modarbas and pension funds 693,143 4
Mutual funds 2,109,343 11
Foreign investors 4,859,399 26
Co-operative societies 2,701 0.01
Charitable trust 144,137 0.76
Others 6,375 0.03
Shareholders holding 5 percent
or more voting interest
Aica Asia Pacific Holding Pte Ltd. 4,716,216 25
CDC-Trustee National Investment Trust 1,750,110 9
Aylesbury International Ltd. 1,548,715 8
Robert Finance Corporation AG 1,105,169 6
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Source: company accounts
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