Thal Limited (formerly Thal Jute Mills Limited) is a pioneer industrial project of the House of Habib. The company was incorporated on January 31, 1966 as a public limited company and is quoted on Karachi and Lahore stock exchanges. Its name was changed from "Thal Jute Mills Limited" to "Thal Limited" and was approved by the SECP in February 2004.
There was an amalgamation of Khyber Papers (Pvt) Ltd and Pakistan Papersack Corporation Ltd with Thal Limited, effective from July 1, 2005. The company is engaged in manufacturing of jute goods, assembly and manufacture of engineering goods comprising auto air-conditioners, wire harness and heater blowers, papersack and laminates. The company has a sound financial base with a paid up capital of Rs 70 million and a free reserve of Rs 500 million.
The FY08 was clouded with political instability in the country, rising inflation and uncertainty of trade, both locally and internationally, caused the industry to suffer. As most of the operations of the company are those which required intensive labour, so the company was affected more due to the absences and strikes in the country. The company, however, maintained a minimal growth in sales, particularly on account of its jute and papersack operations. The only loss in sales was in the laminates division, due to a fire in the warehouse, which destroyed a large amount of stock.
The rising cost of inputs and rupee depreciation made hard for the company to maintain its profits, particularly in the engineering sector, as most raw materials are imported and its major buyers ie car manufacturers witnessing declining sales, the company incurred an overall loss of around Rs 819.2 million. In other sectors, especially due to escalating input prices accompanied with the depreciating rupee, the costs of production rose abnormally in the year.
The company was not able to pass on these to the customers due to tough competition, especially in the papersack and engineering divisions. Only the jute division was able to show significant profits, having found new export markets in Hungary and Tunisia. As the amalgamation with papersack and laminates is relatively current, it is expected that with time, these divisions will show their own strength in the industry.
During the year, the company acquired 13,000,000 ordinary shares of a face value of Rs 10 each by subscribing to the right issue of Makro-Habib Pakistan Limited at Rs 10 each. The company also acquired 215,760,000 shares of a face value of Rs 10 each of Makro-Habib Pakistan Limited from SHV Interholding, AG at Rs 6.977 per share. Hence from effective May 01, 2008 Makro-Habib Pakistan Limited became a subsidiary of the company.
The profitability of the company has been fairly consistent over the years, with later years showing a downward trend. In FY08, the profits declined significantly, due to increase in costs of production. The gross and net profit margins have also eroded due to the same reason. For the jute division, the sales rose due to increased demand of jute goods for packing of imported/local wheat, and also exports rose from Rs 355 million to Rs 409 million, showing an increase of 15%. The production during the year under review of 32,038 metric tons was highest-ever in the history of the company versus 27,832 metric tons in the previous year.
As far as the engineering operations, the sales turnover went up during the year by 2%, yet due to high costs, the division incurred a loss of Rs 819.2 million. Robust sales growth in the papersack division due to the presence of two strategic production sites could not trickle down to the bottom line. The rising cost of production is again the reason.
Both the total assets and the total equity have been rising steadily over the years. In the last few years, the increase in assets can mainly be attributed to the merger activity with the KPL and the PPCL. In FY08, the investment in Makro-Habib raised the total assets of the company by a large volume. The equity base has increased largely due to an increase in the reserves of the company, which have shown a rising trend over the years, particularly in 2006. Also in 2008, the rise in equity was due to the buying of Makro-Habib shares. Resultantly the ROA and ROE have shown a declining trend as the sharp rise in assets and equity base over the years was not backed up by an equivalent or greater rise in the net profit of the company.
The company has witnessed a rising trend in its liquidity. The current ratio has been way above 1.00 over the years, exceeding 4 in 2007. Both the current assets and current liabilities, have increased over the years, however, the increase in current assets has been proportionately greater than the increase in the current liabilities. Consequently, the overall liquidity of the company has risen.
In FY08, there was a major rise in current liabilities, particularly the short term borrowings done by the company from Habib Metropolitan Bank, a related party and others, raising the amount from Rs 175,622 to Rs 659,458. Also the cash balances from the current assets decreased during the year from Rs 865,478 to Rs 76,323. This led to a significant rise in current liabilities vis-a-vis current assets, causing the current ratio fell to 2.10.
The asset management performance of the company has been showing an irregular trend over the years. The day sales outstanding, which initially were high, has been constant since FY06 showing that the company has improved its policy for creditors. The inventory turnover was raised in FY08, particularly due to the time consumed in exporting goods, hence rising the overall operating cycle. The total asset turnover and sales/equity has been decreasing in FY08, as the assets and equity rose exponentially due to the buying of Makro.
The company has maintained a praise-worthy debt-management profile till FY07. The total debt to assets ratio has been declining as has the long-term debts to equity ratio. This is because even though the total debts of the company have been rising, the increase in debts is not proportionately greater than the increase in assets and equity. In FY08, the company availed long term finances and short-term borrowings, mostly from Habib Metropolitan Bank, specifically for buying the shares of Makro, which led to the high increases in both current and long term liabilities, hence rising the debt to asset and long term debt to equity ratios. But as these are one-time expenses, they are unlikely to affect the debt management of the company for the future. Also, the finance secured is from a related party, so the shareholders should not feel threatened with high interest rates. However, the financial costs may increase in the rising interest rate regime.
The Times Interest Earned (TIE) ratio of the company faced a decline in 2005. This is because the financial expenses for the year under review escalated to Rs 15.869 million from Rs 8.550 million in 2004, due mainly to an increase in the rate of mark-up by the financial institutions and funds tied up in increased inventory and receivables.
The loss on account of foreign exchange amounting to Rs 2.261 million has also been classified under financial expenses under the new IAS requirements. However, even in 2005 the TIE was pretty high at 38.28. The TIE improved to a swooping 68.57 in 2006, mainly because of a decline in the company's financial costs to Rs 13.920 million while the operating profit increased to around Rs 954.5 million. However, it again declined in FY07 due to higher financial costs. In 2008, the interest rates on the short and long term loans undertaken caused the TIE ratio to decrease to 22.87, still a fairly impressive figure for a company that also faces high costs of manufacturing.
With a rising trend in the average market price, the book value and the earnings per share, the company has been maintaining a commendable market worth. The rising market prices, quite high at above Rs 150 during the last two years, indicate greater investor confidence in the company. The recent merger and the anticipated benefits to the company's financial results can also be a reason for the rise in the average market prices of the company. The one-year price of Thal's stock vis-a-vis the benchmark 100-index has been volatile with the stock outperforming the index till year-end FY07 and under-performing in the later end of FY08.
The book value of the company has also increased tremendously over the years (though it declined in FY07), mainly because the total equity base of Thal Limited increased due to an increase in its reserves. In 2008, the book value again declined as a result of an increase in company's equity due to shares bought for the amalgamation of Makro-Habib. Similarly, the earnings per share also increased as the net profit of the company increased consistently over the years under review. The company maintained a steady increase in the earnings per share till 2007. In 2008, the EPS decreased slightly as the net income declined for the year as compared to last year.
FUTURE OUTLOOKThe growth in auto sector seems to have slowed down with the economy. It is likely that as the new models being introduced in the coming year, the interest in automobiles will regenerate. This along with the production of Cooling System Module (CSM) to Indus Motors will generate profits for the company.
The jute division, being the most developed sector of the company, has the biggest challenge of removing the debts incurred by the company through high profits, and also to look for new measures for cutting the costs of production.
The planned expansion in the indigenous cement industry has been gradually coming on line. The government's Public Sector Development Programme (PSDP) and construction activities at home coupled with rebuilding efforts in the neighbouring counties is expected to create a higher demand for cement and papersacks. The growth in the cement sector is expected to yield higher capacity utilisation and improved profitability for PPD. The concern for the division will be the internationally rising prices of paper supply; hence the company has begun to look for alternate sources as well as to cut its high costs of production. The company is also expecting good revenues and profits from its recent acquisition, Makro-Habib, as a source to increase its overall income.
Overall, the company has been performing quite well in terms of profitability, debt management and liquidity. It needs to keep a watch over its asset management as its operating cycle has risen over the years. The recent trends for 2008 have been slightly deviant from the prior years, due to the bold steps taken by the company in the form of acquisition of Makro, but hopes are high that the investment will yield good results and the company will be able to retain its prior high performance trends in the years to come.
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THAL LIMITED - FINANCIALS
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INCOME STATEMENT 2003 2004 2005 2006 2007 2008
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Turnover 2,097,287 2,677,560 3,516,827 5,907,105 6,826,389 7,514,233
Gross Profit 494,045 532,512 714,522 1,173,150 1,308,496 1,278,148
Operating Profit 421,015 457,165 607,411 954,477 1,190,088 1,203,721
Profit Before Tax 394,704 445,667 596,374 963,538 1,078,935 1,074,843
Net Profit 265,179 314,329 411,756 663,173 740,094 730,204
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BALANCE SHEET 2003 2004 2005 2006 2007 2008
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Total Equity 569,554 804,986 1,195,027 2,431,827 3,033,115 3,743,160
Current Liabilities 425,897 514,095 442,555 756,885 640,616 1,473,147
Non-current Liabilities 28,216 15,391 14,511 24,771 27,351 419,034
Current Assets 848,589 1,158,617 1,459,697 2,678,121 3,018,705 3,097,627
Non-current Assets 175,078 175,855 192,396 535,362 682,377 2,537,714
Total Assets 1,023,667 1,334,472 1,652,093 3,213,483 3,701,082 5,635,341
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LIQUIDITY 2003 2004 2005 2006 2007 2008
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Current Ratio 1.99 2.25 3.3 3.54 4.71 2.10
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ASSET MANAGEMENT 2003 2004 2005 2006 2007 2008
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Inventory Turnover 87.78 105.03 90.88 101.84 81 100
Days Sales Outstanding 18.44 25.2 39.27 37.4 27 31
Operating Cycle 106.22 130.23 130.15 139.23 108 131
Total Asset Turnover 2.05 2.01 2.13 1.84 1.84 1.33
Sales/Equity 3.68 3.33 2.94 2.43 2.25 2.01
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DEBT MANAGEMENT 2003 2004 2005 2006 2007 2008
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Debt to Asset Ratio 0.44 0.40 0.28 0.24 0.18 0.34
Debt to Equity Ratio 0.80 0.66 0.38 0.32 0.22 0.51
Long Term Debt to Equity 0.05 0.02 0.01 0.01 0.01 0.11
Times Interest Earned 42 55.6 38.28 68.57 37.83 22.87
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PROFITABILITY 2003 2004 2005 2006 2007 2008
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Gross Profit Margin 24% 20% 20% 20% 19% 17%
Profit Margin 13% 12% 12% 11% 11% 10%
Return on Assets 26% 24% 25% 21% 20% 13%
Return on Equity 47% 39% 34% 27% 24% 20%
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MARKET VALUE 2003 2004 2005 2006 2007 2008
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Book Value 8.19 11.57 17.18 34.96 25.90 24.59
EPS 8.71 10.32 16.16 21.78 24.3 24.0
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