Incorporated as a public limited company in 1980, Balochistan Glass Limited (PSX: BGL) manufactures and sells glass containers, tableware and plastic shells. It commenced operations in 1983 and was acquired by the Gharibwal Group in 1999.
Though sales were rising prior to FY13, BGL had not posted profits. Since FY13, sales have been falling to the point that the company's status of going concern has raised questions, despite management's assertions otherwise. Insufficient supply of gas has been quoted as the main reason behind the company's losses.
It has three manufacturing units: BGL Unit-I, BGL Unit-II, and BGL Unit-III. BGL I is in Hub whereas the other two are in Lahore. The manufacturing capacity of each of these units is 36,000 tons, 75,000 tons and 22,000 tons respectively.
Industry overview
Pakistan did not have a glass industry at the time of independence. About four decades ago, Pakistan started manufacing basic types of glass such as mirrors, toughened glass and laminated glass, which were consumed locally. Premium varieties of glass that are used in industrial, commercial, construction and residential sectors incur high manufacturing costs and have limited demand, which is why they are imported.
Pakistan is a major exporter of some categories of glassware, which include float glass, bottles, drinking glasses and tableware. Main destinations are Afghanistan, Bangladesh, and Tanzania. Glassware demand has shown a rising trend due to increase in population and income levels locally. There are about 5 companies manufacturing tableware with an annual capacity of about 30,500 tons as per a 2010 report by Pitad.
There are more than 35 glassworks in Pakistan producing a variety of types of glass products. Production capacity of units ranges from 15 to 250 tons per day as per Pitad's report. This makes BGL one of the biggest players in the market.
The glass manufacturing sector is energy intensive with gas being the primary fuel used in production. Over 80 percent of manufacturers rely on natural gas, which results in decreased production in winter as a result of fuel shortages of natural gas and electricity. More than 50 percent of glass industry has had to suspend its activities while remaining units are on the verge of closure due to gas and power load shedding as per Pitad's report.
Financial overview
FY13 marked an epoch for BGL with sales highest in history, boasting a growth of nearly 40 percent year-on-year. Turnover rose on the back of higher prices and higher volume due to start of Unit II. In 2013, all three units were operational. BGL's Unit I was converted to production of amber pharma glass to meet growing demand of pharma market. Tableware production at Unit-III was unable to meet demand thus part of its production was shifted to Unit-II.
Sales fell by nearly 20 percent in FY14 and losses more than doubled. BGL Unit II was shut down due to unavailability of gas, whereas operations in the other units suffered as well. The shifting of amber pharma glass did not provide desired results but its Marimax tableware brand performed remarkably well. Sales of tableware increased by 19 percent in the local market and 22 percent in the export market therefore its production was enhanced.
FY15 was more of the same with net sale revenue sliding down further by nearly 30 percent. Since tableware continued to perform well, its production was started in the previously close Unit-II. Reduction in oil prices helped reduce cost of production, which decreased losses by about Rs 100 million.
Competitive pressure in the market resulted in a downward revision of prices in FY16. Though production increased by 20 percent, sales revenue continued to decline. Unit-III remained closed and Unit-I was partially closed though Unit-III was fully operational. To capitalise on domestic and international demand for tableware, a new brand "Pearl" was introduced by the company.
Sales fell below the Rs 1 billion mark in FY17. Closure of its production facilities at Unit-I and Unit-II and lower operation efficiencies of existing operations were part of the reason for sales downward spiral. Supply of RLNG increased energy costs, which given the existing losses created further challenges.
Throughout its history of losses, the company has blamed non-availability of smooth gas supply, which pushed the company to consume other alternative expensive fuels. Uncertainty and discrimination in supply of gas in Punjab has been repeatedly attributed to shutting down of units, which has resulted in losses.
FY18 performance
Units I & II remained closed in FY18 as sales slid down to a fraction of what they have been five years back. Though the company intends to re-operate the closed units on a profitable basis, it seems unlikely that their financials will improve. To that end, it has implemented a BMR plan for Unit I to manufacture pharma products. It believes that it is in favourable position to attract the pharma market of Sindh as well as export its products.
There is material uncertainty relating to its ability to continue as a going concern. The company incurred a loss of Rs 284 million in FY18, which takes its accumulated losses up to Rs 5.2 billion. The series of losses in the last few years has resulted in a net capital deficiency of Rs 2.5 billion and its current liabilities exceed current assets by Rs 606 billion.
Future outlook
Tableware is a challenging sector to operate in. Not only there are severe energy issues but there is also a lot of competition from dumped products from various countries. Given the country is on austerity mode, it is unlikely that demand for tableware will rise substantially in the near future. Higher tariffs on gas and electricity will put further pressure on BGL. Going forward, it seems unlikely that the company would be able to turnaround given the losses it has been making.
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Balochistan Glass Limited
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Rs. mn FY18 FY17 YoY
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Net sales 476 674 29%
Cost of sales 676 939 28%
Gross loss -201 -265 24%
Administrative and selling expenses -40 -32 -25%
Other expenses -17 -8 -113%
Other income 21 26 19%
Operating loss -236 -279 15%
Finance cost -54 -210 74%
Loss before tax -290 -489 41%
Tax 6 -3 300%
Loss after tax -284 -492 42%
Loss per share 1.64 -2.87 43%
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Source: company accounts
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Pattern of shareholding (as at June 30, 2018)
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Categories of shareholders Shares held %
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Directors, CEO, their spouses and minor children 177,981,369 68
Associated Companies, undertaking and related parties (Parent Com 33,177,922 13
NIT and ICP 50 0
Banks, Development Financial Institutions, Non-banking financial 3,995,582 2
Insurance companies 172,640 0
Modarabas and mutual funds 1,410,000 1
General pubic
Local 26,083,196 10
Foreign 78,637 0
Others
Pension funds 54,080 0
Foreign companies 15,351,039 6
Joint stock companies 3,202,516 1
Other companies 92,969 0
Shareholders holding 5% or more
Muhammad Tauseef Paracha 175,935,924 67
Pak Hy-Oils Limited 33,177,922 13
Globalink glass technology and equipment company limited 15,000,000 6
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Source: company accounts
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