Tariq Glass Industries Limited (PSX: TGL) was established in 1978 and became a public limited company in 1980. It is essentially engaged in the production of tableware and float glass currently, whereas opal glass will be introduced soon. Within tableware, they have two categories, press and blow and pressware. Press and blow refers to a process used in glass bottle manufacturing whereby several containers of the same size are made simultaneously. In this section, the company produces decorated items, goblets, ice cream cups and tumblers.
Under the pressware category, TGL produces ashtray, tea and cake sets, jugs and mugs and plates and bowls among other things. Float glass, on the other hand, refers to particularly smooth and unadulterated glass used in windows. In this category, the company produces various types such as clear glass used in display cases, shelves and partitions; mirror, used in interior decoration and furniture; sandblasted and reflective/tinted float glass. Some of the company's widely known brand names are Toyo Nasic, omroc and NOVA glassware.
Shareholding pattern
As at June, 2019, nearly 50 percent of TGL's shares are owned by the directors, CEO, their spouses and children, of which about 45 percent is owned by the CEO, Mr. Omer Baig. The local general public owns around 13 percent while 11 percent is held in modarabas and mutual funds; banks, DFIs and NBFIs hold around 7 percent. The rest are distributed between the remaining categories as depicted in the table.
Historical and operational performance
Although Tariq Glass Limited's top-line is following an upward through the years, its margins have been fluctuating. The year FY15 saw some recovery after losses incurred in the preceding year with a negative net margin of 0.2 percent in FY14. The division of the top-line for FY15 reveals that float glass sales increased by 26 percent year on year while tableware sales experienced a decline of 20 percent due to the closure of furnace with a capacity of 110 metric tons per day for maintenance purposes.
Moreover, TGL was able to improve margins that year on the back of higher sales price for float glass while energy costs reduced due to falling oil and diesel prices. Energy costs and price of raw material together make up a large part of the company's cost of production both of which saw a decline in FY15.
While the top-line grew marginally in FY16 by only 0.5 percent, profitability maintained its growth as is depicted in the graph. The company was able to reduce costs of production owing to favourable oil prices. The latter was achieved through the narrowing of the country's current account deficit.
In addition, TGL also adopted a demand-pull strategy and relied significantly on marketing plans, promotional schemes and media campaigns nearly doubling its expenditure on advertisement, exhibitions and sales promotion from Rs16 million in FY15 to Rs30 million in FY16. This resulted in an increased consumption of their products. By the end of FY16, TGL restarted its furnace which was closed for repair in the previous year.
The year FY17 experienced the highest real GDP growth rate in 10 years at 5.28 percent. Oil prices continued to fall while inflation was controlled. Thus, advertisement, efficient operating procedures combined with a favourable macroeconomic environment allowed for continued profitability, with the exception of gross margins which reduced only slightly as a percentage of sales.
The growth momentum of gross and operating margins was interrupted in FY18, while top-line increased around 23 percent year on year. The latter was attributable to commencement of Opal Glass Furnace which resulted in higher inventory available for sale. Moreover, in FY18 the company also faced competition from other players in the market which offered higher discounts and continuously enhanced their capacity. This led to TGL also increasing its expenditure on advertisement. Moreover, energy costs, one of the major components of the company's costs increased considerably causing the cost of production to increase as a percentage of sales from 79 percent in FY17 to 82 percent in FY18.
The economy at large was adversely affected by events such as the general elections during FY18 which led to a great uncertainty and high rates of inflation as well as the devaluation of the rupee. Gross and operating margins saw a decline during the year. The company regained its growth trajectory in FY19 and was able to increase top-line to its highest ever, recorded at approximately Rs14 billion, increasing by 18 percent year on year. Of this the greatest share was taken by the sales of float glass in the local market- Rs7 billion of the total local sales of Rs13 billion. TGL also offered considerable trade discounts in FY19 to counter competition, increasing discounts from Rs7 million to Rs1 billion.
The company also earned Rs38 million from other sources such as exchange gain and gain on disposal of property, plant and equipment which also helped to lift the operating margins from 14 percent in FY18 to 16 percent in FY19.
Quarterly performance and future outlook
Top-line for the quarter continued to grow increasing by 9 percent year on year despite the unfavourable business environment caused my macro level economy correction. The resultant inflation in the economy contributed to rising costs of production. Due to demand being adversely affected along with falling purchasing power of the people, TGL was unable to pass the effect of increased prices to the customer, resulting in falling profitability for the period.
The escalating tensions in the political domain along with a slowdown in the economy may create a negative impact in the top-line of the company.
According to the company's quarterly report, TGL hopes that the current government will be able to handle the political unrest which might bring some stability in the economy and hence the business.
==================================================================== TGL: Quarterly results ==================================================================== Rs (mn) 1QFY20 1QFY19 YoY ==================================================================== Sales 3,577 3,280 9.05% Cost of sales (3,003) (2,696) 11.39% Gross profit 574 584 -1.71% Administrative expenses (62) (51) 21.57% Selling and distribution expenses (63) (61) 3.28% Other operating income 17 24 -29.17% Other operating expenses (23) (30) -23.33% Operating profit 443 466 -4.94% Finance cost (137) (36) 280.56% Profit before taxation 306 430 -28.84% Taxation (76) (96) -20.83% Profit after taxation 230 334 -31.14% EPS 3.13 4.53 -30.91% ====================================================================
=============================================================== TGL: Pattern of shareholding as at June 30, 2019 =============================================================== Categories of shareholders % =============================================================== Directors, CEO, their spouses and minor children 48.47 Associated companies, undertaking and related parti 11.8 NIT & ICP 0.0252 Banks, DFIs and NBFIs 7.0174 Insurance companies 1.5704 Modarabas and mutual funds 11.2949 General public: Local 13.1868 Foreign 1.0641 Others: Joint stock companies 3.1699 Investment companies and cooperative societies 0.0225 Pension funds and provident funds 2.3897 =============================================================== Total 100 ===============================================================
Source: Company accounts
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