Leiner Pak Gelatine Limited

Leiner Pak Gelatine Limited (PSX: LPGL) was established in 1983 jointly with P. Leiner & Sons Great Britain Limited, as a public limited company.

It is primarily a producer and seller of Halal gelatin but the byproduct of the process is Di-calcium phosphate, which finds its utility in poultry feed production. Gelatine is used in confectionery items, dairy, jam, jellies, etc. in the pharmaceutical industry, gelatin is used in hard and soft shell capsules, tablets, hair and skin care items, etc.

Shareholding pattern

The directors, CEO, their spouses and minor children hold the vast majority of the shares- about 45 percent. Of this Mr. Khwaja Ibrar Ahmed, the Executive Director, holds almost 13 percent followed by Mr. Khwaja Imtiaz Ahmed, the Chief Executive and Managing Director, who holds 10 percent of the shares.

Historical operational performance

Leiner Pak experienced a decline in topline twice since FY12, once in FY14 and the second time in FY17. However, in FY17 the company fairly managed its financials, but in FY14 the profit margins dipped drastically.

In 2013 the country experienced a massive flood which adversely affected the company’s production process, resulting in a production of 500 metric tonnes. Apart from this, the water remained stagnant for ten days at the factory premises which ruined the finished product, facilities and disrupted business operations.

Therefore, in the following year of FY15, when the business recovered, its topline registered a growth rate of almost 42 percent. Cost of production although declined as a percentage of revenue in comparison to FY14, which was marked by abnormal events, it had increased in absolute terms due to non availability of power throughout winters and loadshedding the whole year that forced them to resort to expensive alternatives. So while margins did improve when compared to FY14, the company still recorded a net loss of Rs1 4million for the year.

In FY16, the company continued to grow its topline by 5 percent annually. Most of this was a result of sales in the domestic market, while foreign buyers were being negotiated with. Cost of production also declined, albeit marginally, as a percentage of revenue. However, in absolute terms it increased due to an increase in prices of raw materials i.e. crushed bones of animals, as a result of it being exported to China and Japan instead of being used for value addition locally. However, improvement in topline allowed the company to post a profit eventually.

The lower sales figure for FY17- a fall of nearly 5 percent in topline year on year was due to export sales not achieving target. This in turn was because there was a delay by the Malaysian Halal Authority to grant approval for ‘Halal and Veterinary Certification’ which allows the company to export to Malaysia and other countries in the Far East. Thus, until the end of FY17 the company was only able to process 20 percent of the orders. On the cost side, the price of raw material continued to pose a hurdle as it was exported to Iran, China, Japan, etc while escalation in gas charges did not allow profits to take off; rather Leiner Pak posted a net loss of Rs 3 million.

In FY18, Leiner Pak managed to grow its topline by close to 9 percent. A little over 93 percent of the revenue was derived from local customers in the confectionery industry. Despite receiving certifications from the international Halal authorities, the company was unable to tap the export market due to a higher cost of production, while internationally the price of Gelatin fell. The combination of high raw material prices, high energy costs and imported chemicals kept the company from gaining profitability with the company posting a net loss for the fourth time since FY12.

Leiner Pak maintained its growth in topline during FY19- increasing by around 4 percent annually. The share of exports in total revenue increased to 20 percent; previously it was around 7 percent. Cost of manufacturing consumed around 88 percent of the revenue, lower than last year. However, the increase in costs was offset by increase in selling price allowing profits to take off.  The devaluation of the currency brought with it volatility in price of raw material and other inputs so while gross margins did improve comparatively; they still were below the targeted levels.

Half yearly results and future outlook

During the 1HFY20, the company’s topline declined as a result of delay in export contract finalization. What allowed gross margins to improve despite the decline in revenue was the curtailment of costs which made room for other costs to be absorbed. This also translated into higher operating profit margins and a positive profit for the year compared to a net loss of Rs3 million in 1HFY19.

Earlier this year Leiner Pak was granted approval, post-inspection to export gelatin and allied products to Malaysia. It is the only company in Pakistan to be given the certification. With this, and their focus to further expand export markets along with currency devaluation, it may help to boost the topline of the company in the future.