Roshan Packages Limited (PSX: RPL) is a venture of the Roshan Group. The latter commenced its operations with the introduction of widely read 'Urdu digest' in 1959. In 1989, it expanded into the fruit industry, later exporting as well. The pursuit of quality packaging material led them to integrate backwards into the packaging industry by the name of Roshan Packages, established in 2002. It became a public limited company in 2016, and listed itself on the Pakistan Stock Exchange in 2017.
It started off as providing packaging solutions to its own fruit production unit, but over the years RPL has developed a clientele with renowned companies such as Ismail Industries, Peak Freans, PepsiCo among many others. It caters to various industries such as snacks, dairy, confectionery, personal care, water and beverage, oil and ghee, agriculture to name a few. Moreover, they also provide cartons used while shifting places.
A recent addition to their portfolio of businesses is RoshPack. It is an online platform targeted at SMEs to access quality packaging as well as ensuring ease of ordering. Mostly, the big companies do not cater to small entrepreneurs who then have to visit the local stores to obtain what they need. RPL saw the niche here and decided to tap the visible gap.
More than 50 percent of the company ownership is with the directors, CEO, their spouses and minor children, while another major chunk of approximately 26 percent is held by the local general public. The remaining almost 6 percent is distributed among public sector companies and corporations, banks, DFIs, NBFIs, insurance companies, takaful, modarabas, mutual funds and others.
Operational and historical performance
Of the last 5 years, the company's top-line has seen the most significant growth in FY19 of around 34 percent year-on-year. Roshan Packages dispatched 39,012 metric tons in FY19, compared to 32,859 metric tons last year, claiming a volumetric growth of 18.7 percent year-on-year. However, higher cost of sales squeezed the gross profit for RPL in FY19. This can be attributed to the increase in cost of raw materials, rising energy prices and devaluation of Pakistani rupee. The rise in cost of raw materials can be explained by implementation of import duties causing an incline in the price of local raw materials.
Usually, with an increase in top-line, there is a corresponding increase in administrative and selling and distribution expense. But unlike the previous years, RPL managed to reduce these expenses in FY19.
Because of the significant decline in gross from 7.6 percent in FY18 to 5.65 percent in FY19, the company's bottom-line was negative - although there has been a reduction in losses - despite FY19 recording the highest sales in the last five years. The management claims to have attempted to reduce costs, although other expenses have increased by an exorbitant 40 percent. If not for the other income, which includes income earned from profits on bank and term deposits among other sources, the company's losses would have been more pronounced. Another major increase is seen in the finance costs, mainly coming from short term borrowings and bank charges.
Roshan Packages Limited's equity has increased over the years, following the IPO in FY17. With the falling net income, return on equity is following a downward trend; however, some recovery is seen in FY19 where losses incurred have reduced. The debt to equity ratios suggest that RPL is moderately leveraged, but a reduction in the ratio is seen through time.
Capacity utilization figures for both their plants, flexible and corrugated have been positive and on a rise. The company used the cash flow from the IPO to expand and add to its capacity. With time, the firm is diversifying and exploring to increase its market share and thus utilize its capacity to the maximum.
Post February 2019, RPL's stock performance has been below the market, but in the last one month, as is the case with other packaging companies' stock, it has performed exceedingly. As per industry sources, this could be triggered by the government's recent plastic ban, which may have allowed for expectations of positive prospects for the paper and packaging related companies.
Future outlook
RPL's recent revenue growth in the face of economic instability and uncertainty is laudable. The company is continuously expanding and diversifying to mitigate the risks of being affected by a lag in a particular industry. They have developed clientele in various industries, and especially FMCGs which are generally not as heavily impacted as other sectors are.
Moreover, with the government's recent ban on plastic bags, a positive sentiment is flowing in the market regarding packaging companies' performance. In anticipation of growing future demand, companies have already begun to realign themselves.
On another tangent, with the imposition of import duties, and companies having to source relatively expensive local raw materials, the decision seems questionable because the costs have risen. Moreover, imports allow for healthy competition, instead of complacency which seems rather likely.
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RPL: Pattern of shareholding as at June 30,2019
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Categories of shareholders %
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Directors, CEO, their spouses and minor children 68.17
Executives 0.01
Public sector companies and corporations 0.1
Banks, DFIs, NBFIs, insurance companies,
takaful, modarabas and mutual 0.9
General public- local 26.13
Others 4.68
Total 100
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Source: Company accounts
Copyright Business Recorder, 2019
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