Matco Foods Limited

Matco Foods Limited (PSX: MFL) was established in 1964 as a private limited company under the Companies Ordinance 1984.

It is essentially in the business of processing and exporting rice, along with other related products. In 1967 it set up its first rice processing plant in Larkana, Sindh, after which it has continued to add to its production capacity and product portfolio. Some of its known brands include Falak, Amber and Bahar. In addition to rice and rice related products, the company has also ventured into the flour and spices segment which it sells under the brand name ‘Falak’.

Currently it has five rice processing and milling plants including vertically-integrated paddy drying, storage, husking and processing facilities in Punjab and Sindh. In 2018, it commenced a new plant for the production of Rice Glucose and Rice Protein; the plant has a capacity of producing 10,000MT rice glucose annually and 1000MT rice protein per year.

Apart from its presence in the domestic market, MFL also exports to countries such as the USA, Netherlands, Italy, Greece, Middle East, Australia and South Africa among others.

Shareholding pattern

Matco Foods has largely been owned by the directors, CEO and their spouses and children- about 60 percent. There have minor changes in ownership in the rest of the categories between FY18 and FY19. The next major shareholder is the foreign shareholder’s category, which primarily includes the International Finance Corporation, owning about 15 percent of MFL.  The local general public has reduced its holding from 14 percent in FY18 to 11 percent in FY19. The remaining shares are distributed between the rest of the categories.

Historical operational performance

Matco Foods Limited has consistently been growing its topline. However, during FY15 and FY16 its topline declined but the company remained profitable, albeit lower than before. Profitability, on the other hand has been rather fluctuating, dipping FY14 and again in FY16, after which it peaked in FY17 and been stable since then.

The costs of production for Matco Foods have been above 80 percent of its topline through the years, of which the major constituents are the raw materials, salaries and electricity and power.

During FY18, the company’s topline grew by 10 percent year on year which was largely driven by higher prices in the international market. The company’s basmati per metric ton commanded an export price of USD 1,119.68 on average as compared to USD 849.83 in FY17. Moreover, the net exchange gain pushed the net margins upwards. Gross margins did not incline due to a corresponding elevation in costs of production for the year which consumed about 87 percent of the sales value.

In FY19, MFL’s topline increased by nearly 17 percent year on year- the highest recorded in the last five years of operation, standing at Rs 7.8 billion as compared to previous year’s Rs 6.7 billion. The increase was again governed by high export prices, although slightly lower than that of FY18.- USD 1045. FY19 was an overall a decent year for the rice industry, as Pakistan’s rice exports increased by almost 10 percent in terms of value, according to the company’s annual report for the year, whereas in volumetric terms it grew by around 19 percent. MFL’s own export sales recorded volumetric growth of about 2.5 percent due to their focus on high margin basmati rice.

Recent results and future outlook

The recent result of the six months ended December 31, 2019 shows year on year growth by about 6 percent in the topline whereas the costs of production although have increased in value terms but as a percentage of sales, it has decreased marginally allowing gross profits to improve from Rs406 million in FY19 to Rs503 million in FY20.

As has been the case across various sectors, the increase in the policy rate caused finance costs of many companies to escalate. Similarly, MFL also experienced a rise in its finance cost from Rs120 million in FY19 to Rs154 million in FY20. Moreover, the company also saw a net exchange loss in FY20 as opposed to a net exchange gain of Rs63 million in FY20. Collectively these factors caused net profit to nearly halve between the two periods.

As per MFL’s annual report, the change in European law for pesticide MRLs has hindered Indian basmati exports which made way for Pakistani basmati exports to grow. The company expects this to continue. On the other hand, the company’s exports to other countries have contracted due to low demand as a result of political disturbance in Middle East among other factors.

Considering the stringent economic policies adopted by the current government, and the dependence on external sources to support the economy stability, the company in the future plans to focus on cost controls, operational efficiencies, and portfolio diversification. With the government’s focus to boost exports may also improve the financial performance of the company in the future.