Shabbir Tiles and Ceramics Limited (PSX: STCL) was founded by the 'House of Habib' in 1978 as a public listed company. It was done through strategic and technical collaboration of Agrob Anlagenbau GmbH of West Germany.
STCL is a manufacturer of bathroom tiles, kitchen and floor tiles, feature wall and outdoor tiles. They are also engaged in providing various flooring solutions to different kinds of industries such as pharmaceuticals, hospitals, hotel and restaurants etc. They also provide car parking coating which is a waterproofing membrane with some slip resistance; grouts and sealants which is a construction material used to connect sections of pre-cast concrete, fill gaps, and seal joints. STCL also offers waterproofing systems for buildings.
Shareholding pattern
Foreign companies hold most of the shares in STCL at 54 percent followed by the local general public, owning almost 28 percent. Directors, their spouses and children hold less than 5 percent shares in STCL. The remaining shares are distributed between the rest of the categories as shown in the table.
Historical operational performance
Since FY14, Shabbir Tiles and Ceramics Limited began incurring losses with a reduced top-line and hence profitability. While the top-line has been increasing since FY16, positive figures for profits were not seen until FY18.
FY14 was noted to be a challenging year for the local ceramic industry. The rate of sales tax on local industry was increased by 2 percent while gas supply was intermittent. The inflow of imported tiles from Iran and China further worsened the situation. Although the construction sector of the country grew by 11.3 percent indicating an increase in potential demand for the company's products, the company was unable to take advantage of this situation due to an increase in cost of production consuming 78 percent of revenue.
Supply of tiles in the grey market continued to pose a challenge for the local ceramic industry. While the construction sector recorded a growth rate of 7 percent during FY15 accompanied by an approximate 5 percent growth rate in tiles, the company's top-line reduced considerably by 14 percent year on year. This was due to the company focusing on streamlining operations. It built teams to cater to large volume customers primarily. The company also looked towards introducing new technology to cater to new trends in the market.
STCL as part of the industry approached the National Tariff Commission (NTC) to protect the industry and impose anti-dumping duty on cheaper imported tiles from China. While the top-line of the company grew by 12 percent year on year in FY16, the cost of production consumed a significant 88 percent of revenue. This was owing to a high expense of fuel and power, making up 44 percent of the total costs resulting in a considerable decline in profitability.
The top-line continued to grow at 9 percent in FY17; however the cost of production also continued to consume 89 percent of the revenue. Of this a major expense was again fuel and power in addition to up gradation costs off machinery. Another contributing factor to the loss recorded for the year is the existence of cheaper imported tiles from China which resulted in the reduction of selling price in the market.
In FY18, the company finally recovered from a period of four consecutive years of loss. The top-line increased by 15 percent on the back of enhanced manufacturing facilities in addition to entering mid-high end markets. Moreover, the company was also able to curtail costs as a percentage of revenue, making up 78 percent of the total revenue as compared to 89 percent of the revenue on FY17. However this was mostly due to an increase in top-line, since in value terms the cost of production had actually increased year on year, although by an insignificant percent.
In FY19, STCL continued its growth momentum with net revenue growing by 20 percent year on year. This was due to a better product range, quality improvement, and market penetration. Moreover, the company also added to its production capacity during the year increasing it from 12.76 million square meters to 14.04 million square meters. In addition, STCL focused on marketing and promotions doubling their advertisement expenditure from Rs40 million in FY18 to Rs94 million in FY19, which translated into improved bottom-line for the year.
Quarterly result and future outlook
During the first quarter of FY20, STCL was able to maintain the trend of a growing top-line, increasing by 7 percent when compared to the same quarter of FY19. However, a 31 percent incline in gas tariff largely contributed to a reduction in bottom-line since energy is a major component of the company's cost of production. Thus, the company recorded a loss of Rs129 million in 1QFY20 as compared to a profit of Rs50 million in 1QFY19.
A contraction in the market was noticed as a result of the requirement of documenting the undocumented sector, which in turn adversely impacted the purchasing power of trade as well as consumers.
During the year 2019, the government undertook several corrective measures at the macroeconomic level, which adversely impacted a lot of the sectors with the tile industry being no exception. There was a slowdown in the construction business as well, which indirectly affected the tiles industry. The initiative to broaden the tax net also caused contraction in the market, along with tile supplies in the grey market remaining a threat. However, the company hopes a revival in the construction business and the economy at large, hence a demand for tile industry while emphasizing on brand development at the same time.
================================================================= STCL: Quarterly results ================================================================= Rs (mn) 1QFY20 1QFY19 YoY ================================================================= Net revenue-LHS 1,665 1,560 7% Cost of sales (1,420) (1,163) 22% Gross profit 245 397 -38% Distribution expenses (285) (223) 28% Administrative expenses (74) (66) 12% Other operating income 14 14 0% Other expenses 0 (9) -100% Operating profit/(loss) (100) 113 -188% Finance cost (16) (20) -20% Profit/(loss) before taxation (116) 93 -225% Taxation (13) (43) -70% Profit/(loss) after taxation (129) 50 -358% EPS (0.54) 0.21 ================================================================= Source: Company accounts ================================================================= COS % of sales 85% 75% =================================================================
================================================================== STCL: Pattern of shareholding as at June 30, 2019 ================================================================== Categories of shareholders % Directors, their spouses and children 4.69 Associated companies, undertakings and related parties 1.65 Public sector companies and corporations 0.46 Banks, DFIs, NBFCs, insurance companies, 2.37 takaful, modarabas and pension funds Mutual funds 2.79 Local general public 27.63 Foreign companies 54.81 Others 5.59 Total 100 ==================================================================
Source: Company accounts
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