Ghani Gases Limited

Ghani Gases Limited (PSX: GGL) was incorporated in 2007 as a private limited company, converted into a public limited company in 2008 and listed on the then KSE in 2010. It manufacturers liquid industrial and medical gases in a plant near Lahore (GGL-I) and at Port Qasim (GGL-II).
This includes liquid oxygen for hospitals and liquid nitrogen, liquid argon, calcium carbide and special gases for chemical processes. These chemicals are used for steel manufacturing, motorcycle and steel cutting/welding industries, ship breaking, oil & gas exploration, dairy products and food preservatives.
GGL is part of the Ghani group, which is a multinational conglomerate that operates a diverse range of businesses, including glass manufacturing plants, automobiles industry, beverages and some mining companies. Upholding its parent company's philosophy, Ghani Gases is an interest corporate entity.
Sector overview
In 2014, the global industrial gases market was worth about $45 billion and expected to grow at CAGR of 6 percent from 2015 to 2020. Worldwide, this industry is categorized by a few big players with 8 international players accounting from 80 percent of the market share of which Linde AG is one.
In Pakistan, this sector can be divided into two basic regions: north-west and south region. Major players in the North West region included Linde, GGL, and Sharif Oxygen (Pvt.) Limited, while the southern region is dominated by Linde, Ghani Gases and Agha Steel.
This industry has a significant informal sector that caters to local demand. Excluding the informal sector, total market size of north-west region is around 218 tons per day (TPD), while that of the south region is approximately 167 TPD. Linde Pakistan is the biggest player in the market with 34 percent in terms of reported capacity, whereas GGL has about a quarter of the market.
Financial overview
From FY10 to FY15, CAGR of Ghani Gases top line grew by 36 percent. However, its net profit has given somewhat of a mixed picture mostly because of high core costs and higher operating expenses.
FY12 was an important year for the company because it expanded its production to the south. Ghani Gases merged with associate company Ghani Southern Gases Limited, allowing Ghani Gases to start construction on its second gas plant at Port Qasim. On the back of increasing demand from the ship breaking industry, sales grew significantly during FY12 but its profit margins remained under pressure.
In FY14, the top line grew by 11 percent but its gross profit margin dropped by 800 bps primarily due to an increase in electricity prices by about 53 percent in August 2013. Due to intense competition and a price war in the market, the company was unable to pass on the increase in energy costs to the consumer.
In the last fiscal year, despite increase in production by about 14 percent, the top line barely grew. Even though electricity supply improved, and the power design was aimed at economical cost of production, the bottom-line declined by 15 percent year-on-year. Improvements in air supply to ASU plant at GGL-I and GGL-II took place in FY17 as well as technological upgrades of air compressors. This enhanced the production of oxygen, nitrogen and argon while reducing the power consumption of the company.
1HYFY18
After a sluggish FY17, the first half of FY18 has done very well with significant jumps in the top and bottom-line. Continued recovery in its core business in south and west region led the growth in sales. Gross profit margin increased because the company is working towards using different means for uninterrupted and cheap energy solutions, which is essential since energy is the only raw material for its products.
Profit before tax increased in absolute terms as well as percentage terms. This is because distribution expenses as a percentage of sales decreased slightly from 11.8 percent to 11.7 percent. Administrative costs as a percentage of sales decreased from 7 percent to 6.5 percent over the period under review. This indicates that GGL is undertaking measures to control overheads.
Energy is the only raw materials for the manufacturing of industrial and medical gases thus fluctuations in energy supply greatly impact its performance. The recent up tick in oil prices and the devaluation of the rupee can adversely affect its profits in the coming months.
Future outlook
Improvements in its recent financials depict an increase in market share in the south and west regions. As a result, the company plans to set up another 110 tons per day ASU plant at Port Qasim by way of expansion plans. The estimated cost of this expansion is Rs 900 million and the work on this plant is expected to be completed by June 2018.
Ghani Gases also plans to set up a carbon dioxide manufacturing plant, a calcium carbide manufacturing plant and coal based power plants to meet its energy requirements. Ghani Chemical industries (Pvt.) Limited is the name of the subsidiary formed to set up the calcium carbide plant for which land has already been acquired in Kasur. The project is estimated to cost Rs 1 billion.
Increase in production units of large industries and growth in health care bode well for GGL, especially since the company claims to be the primary supplier for hospital care businesses in Pakistan. The company also serves major defence and government institutions.
Industrial gases are characterised by lower operating margins and require volumetric expansion to be profitable. GGL however enjoys significant profit margins, which indicates its ability to continuing growing sustainably.

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GHANI GASES LIMITED

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Rs. (mn)                    1HFY18     1HFY17         YoY

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Net sales                      918        671         37%

Cost of goods sold            (542)      (442)        23%

Gross profit                   377        229         65%

Distribution costs            (108)       (78)        38%

Administrative expenses        (60)       (47)        28%

Other operating expenses       (14)        (4)       250%

Other income                     9         12        -25%

Finance costs                  (59)       (48)        23%

Profit before tax              144         62        132%

Tax                            (70)         1         N/A

Profit after tax                74         63         17%

Gross profit margin             41%        34%   2000 bps

Pretax profit margin            16%         9%   7000 bps

Eps (Rs.)                     0.56       0.47    1900 bps

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Source: Company accounts

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Pattern of shareholding (as at June 30, 2017)

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Categories of shareholders         No. of        No. of       %

                             shareholders   shares held

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Directors, CEO, their

 spouses and minor children             8    63,312,683      51

Banks, DFI & NBFI                       3    15,385,820      12

Mutual funds                            3        64,120    0.05

Modarabad companies                     3       134,001     0.1

Provident funds                         6     1,438,500     1.1

Insurance companies                     3     4,719,500     3.8

Charitable trust and leasing company    2        11,000       0

Joint Stock companies                  40     9,715,888     7.8

Individuals                          2526    29,999,774      24

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Shareholders holding 5% or more voting interest

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Masroor Ahmed Khan*                     1    15,965,866    12.8

Hafiz Farooq Ahmad*                     1    15,810,995    12.7

Atique Ahmad Khan*                      1    14,615,474    11.7

Rabia Atique*                           1     6,545,148     5.2

UBL-Trading portfolio                   1    15,235,320   12.21

Cedar Capital (Pvt.) Limited            1     6,639,000    5.32

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