Siddiqsons Tin Plate Limited (PSX: STPL) was incorporated in Pakistan on January 1996 as public company limited under the now repealed Companies Ordinance, 1984.
The principal activity of the company is manufacturing and sale of tin plates, cans, and other steel products. Registered offices of the company are located in Clifton, Karachi; Sindh. Manufacturing facility for Tinplate plant is located in Special Industrial Zone, near Winder tehsil of district Lasbella; whereas the Canning plant is located in Malir area of Karachi.
STPL is the first and only Tin Plate industry in Pakistan. Established in 1999, collaboration with SOLLAC of France and Mitsubishi Corporation of Japan.
The Tin Plate project was founded with an installed capacity of 120,000 tons per annum which is primarily used for making cans and containers for packaging of cooking oil, fruits, foods, vegetables, sea foods, beverages, lubricant oil, and other edible stuff among others.
Tin Plate is prepared under Ferrostan process technology, which is a proprietary tinplating process, developed by US steel, which according to company website, and is used by over three-fourths of world tin plate producers.
During the last financial year, the company has issued right shares at a premium of Rs2 per share to finance the project of cold rolling mill. As a result, issued capital of the firm increased from Rs785 million to Rs2,594 million (inclusive of share premium).
Pattern of shareholding
The company was formed with an investment from Sollac France, which has since been acquired by Arcelor Mittal and currently holds 9.29 percent shareholding in the company.
Primary local sponsor family is Siddiqsons Group, which is known to be the largest denim manufacturer and exporter in Pakistan. Largest shareholding is represented by group associate undertaking - Siddiqsons Limited at 15.28 percent, with Chairman Tariq Rafi together with his spouse owning 26.1 percent. Cumulatively, Siddiqsons sponsor family together with indirect holding through group entities hold over 52 percent shareholding; this only includes explicit shareholding disclosed in the annual report as of June 30, 2019; and may not include less than five percent shares held by non-directorial group family members.
No salient shareholding is held with local corporates, mutual funds, or public sector corporations.
Industry dynamics
Despite strong group support, the company has not come close to fully utilizing its potential in the past due to low domestic demand for its primary range of tin plate products. Dynamics of the Electrolyte Tin Plate sector have historically been different from other steel product sectors such as construction and automobiles, as tin plate products are used in food packaging and therefore require effective regulatory measures to monitor hygiene and healthcare; moreover, due to low consumer awareness towards hygienic packaging, low quality products thrive in the market, resulting in depressed demand for the ETP sector.
In addition, food stuff packaging in the medium to low price range is largely dominated by pouches/polybags, and pet bottle packaging that expose food content to health hazards. Therefore, while the category has significant potential, poor demand-side dynamics has compressed its potential.
Financial performance
During the last financial year, imposition of anti-dumping duty on import of Electrolyte Tin Plate (ETP) came as a big relief to the company, which going forward is expected to curb import of low quality and under invoiced Chinese-origin tin plate competition.
| Siddiqsons Tin Plate Limited | |||
| Rs (mn) | 1QFY20 | 1QFY19 | YoY % chg |
| Sales | 602 | 561 | 7% |
| Cost of Sales | (546) | (505) | 8% |
| Gross profit | 56 | 56 | 0% |
| Selling & distribution expenses | (17) | (14) | 26% |
| Administrative expenses | (7) | (4) | 80% |
| Profit/(Loss) from core operations | 32 | 38 | -17% |
| Other income | 17 | 1 | 2302% |
| Other expenses | (2) | (5) | -69% |
| Earnings before interest & taxes | 47 | 34 | 38% |
| Finance cost | (56) | (11) | 395% |
| Profit before tax | (9) | 23 | -138% |
| Taxation | (9) | (7) | 29% |
| Net profit for the period | (18) | 16 | -212% |
| Earnings per share (Rs) | (0.08) | 0.07 | bps |
| GP margin | 9.32% | 10.01% | ê 69 |
| Operating margin | 5.28% | 6.86% | ê 158 |
| EBIT margin | 7.81% | 6.05% | é 175 |
| PBT margin | -1.42% | 4.05% | ê 547 |
| PAT margin | -2.92% | 2.80% | ê 572 |
| Interest coverage (x) | 0.85 | 3.02 | ê 218 |
| Source: based on company notice on PSX | |||
As a result of the regulatory measure, the company was able to improve selling prices of its products, leading to top line increasing by 29 percent compared to previous year, despite lower volumetric off take, which declined by 2.5 percent. Lower sale volume off take came in a year of increase in production volume by ten percent, which despite double-digit improvement remained on a substantially lower side, at 16 percent capacity utilization. In the past seven years, highest capacity utilization of Tin Plate division was just 23 percent.
| Pattern of Shareholding (as on June 30, 2019) | |
| Categories of Shareholders | % |
| Associated undertakings | |
| Siddiqsons Limited | 15.28% |
| Siddiqsons Denim Mills Ltd. Staff Providend Fund | 0.01% |
| Minority shareholding | |
| M/s Arcelor Mittal, France | 9.29% |
| Directors, spouses, & their dependents | |
| Tariq Rafi, chairman | 19.72% |
| Nighat Tariq, w/o Tariq Rafi | 6.38% |
| Alia Sajjad | 4.90% |
| Ibrahim Shamsi | 1.45% |
| Rahma Ibrahim, w/o Ibrahim Shamsi | 4.11% |
| Others, cumulative | 4.47% |
| Modarabas & Mutual Fund | 0.07% |
| Employees (non-executive) | 0.08% |
| Foreign companies (other than significant minority holder | 0.01% |
| Others | 2.33% |
| General Public - foreign | 0.46% |
| General Public - local | 31.44% |
| Total | 100.00% |
| Source: Annual Report, 2019 | |
On the profitability side, EBITDA of the company in full year FY19 increased by 29 percent reflecting strong operational improvement. However, effect of higher debt servicing became visible on the bottom-line, which resulted in a before-tax profit margin of just 3.8 percent, despite strong pre-finance payment performance.
Interim financial performance and outlook
The just ended financial quarter of September 30, 2019 saw net revenue growing by seven percent, in tandem with increasing production costs. As a result, the company saw no change in its gross profit; which due to higher per unit increase in production resulted in gross margin declining by 69bps over same period last year.
Inflationary had a strong impact on operational expenditures, resulting in tightening of operating profits to cover overheads and distribution expenses. As a result, profit from core business operations declined by 17 percent compared to previous year, with operating margin retreating by 158bps.
Despite the contraction of core operating margin, the company still managed to grow its EBIT on the back of support from one-time other income head, although not disclosed in interim notes to financials, but might represent gain on foreign exchange conversion.
The respite received on EBIT level was nearly not enough to cover for the steep rise in interest expenses due to high short-term debt levels, which the company relies on to finance its working capital requirements.
As a result, PBT and PAT margins receded by almost 550bps, with interest coverage for the period declining to just under 85bps compared to a healthy 3.02x in same period last year. With expected inflation anticipated to slow down in coming months and a rate-cut in discount rate anticipated by maximum mid-February, STPL is expected to get out of the storm by next year. Meanwhile, favourable regulatory conditions, coupled with strong sponsor support and sustainable debt levels will ensure that despite the business and interest rate risks the business will stay out of troubled waters.
Comments
Comments are closed.