Thal Limited (formerly Thal Jute Mills Limited) enjoys the distinction of being the 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 the Karachi and Lahore stock exchanges.
The name of the company has changed from "Thal Jute Mills Limited" to "Thal Limited" and was approved by the SECP in February 2004. The company has a sound financial base. Its authorized capital is Rs 100 million and the paid up capital is Rs 70 million and free reserve is Rs 500 million. Thal commands a market share of about 26% of the total production of the 12 jute mills operating in the country.
The company is engaged in the manufacture of jute goods and assembly and manufacture of engineering goods consisting of auto air conditioners, wire harness and heater blowers. There was an amalgamation of Khyber Papers (Pvt) Ltd and Pakistan Papersack Corporation Ltd with Thal Limited, becoming effective from July 1, 2005. The company is currently engaged in the manufacturing of jute goods, engineering goods, papersack and laminates.
JUTE DIVISIONThe jute mill is located at D.G. Khan Road, Muzaffargarh, Pakistan and is engaged in the manufacturing of A. twill sacks, B. twill sacks, coffee sacks, sugar sacks, heavy cees, light cees, hessian cloth, hessian bags (ordinary/natural white), jute yarn and twine used mainly for packing of wheat, rice and cotton, etc.
The jute division is one of the largest employer of skilled and unskilled workers with a strength of more than 3,300 people. It enjoys excellent labour-management relations which have resulted in a cordial and harmonious working environment at the mills.
ENGINEERING DIVISION
The company diversified its business activity into the assembly and manufacturing of auto air conditioners in 1995-96 by signing a technical license agreement with Denso Corporation, Japan. The engineering division accomplished the deletion target of 50% set by Ministry of Industries, Government of Pakistan. The plant has a production capacity of 40,000 units per annum on a single shift basis.
The division is supplying air conditioners to the auto manufacturers, ie, Indus Motor Company Ltd and Pak Suzuki Motor Co Ltd. Further expansion in the engineering division was made into wire harness project, which too has been successfully launched. The engineering division has made investments in assets worth over Rs 100 million and attained sales turnover of Rs 1.3 million.
PAPERSACK DIVISIONHaving a production capacity of 30,000 MT per annum it was established in 1970. It is one of the largest manufacturer and exporter of paper bags mainly for cement industry.
LAMINATE DIVISIONEstablished in 1980 first unit of its kind manufacturing high-pressure decorative and technical laminates in Pakistan under the brand name of Formite. The fiscal year 2008 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 that require intensive labor, 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 operations and papersack operations.
The only loss in sales was in the laminates division, on account of a fire in the warehouse destroying a large amount of their stock. Yet due to the rising cost of inputs, and the depreciating rupee, made it hard for the company to maintain its profits.
Especially in the engineering sector, as most raw materials are imported, and also major buyers ie car manufacturers witnessing declining sales, the company incurred an overall loss of around Rs 819.2 million. In the other sectors as well, especially due to the rising prices of inputs due to inflation, accompanied with the depreciating rupee, caused the costs of production to rise abnormally in the year.
The company was not able to transfer these rises in costs 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 exports markets in Hungary and Tunisia. As the amalgamation with papersack and laminates is relatively current, there is hope 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.
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Recent Results (Pkr '000) Q3'09 Q3'08 % chg
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Sales - net 5,870,191 5,329,333 10%
Cost of goods sold 4,896,673 4,371,237 12%
Gross profit 973,518 958,096 2%
Distribution expenses -72,534 -88,873 -18%
Administrative expenses -139,220 -118,790 17%
Other operating income 47,091 172,018 -73%
Profit on trading activities 8,888 8,714 2%
-155,775 -26,931 478%
Operating profit 817,743 931,165 -12%
Finance cost -165,107 -23,368 607%
Other changes -51,261 -59,450 -14%
-216,368 -82,818 161%
Profit before taxation 601,375 848,347 -29%
Provision for taxation -182,225 -243,724 -25%
Profit for the period 419,150 604,623 -31%
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Earnings per share - Basic 9.83 14.18
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RECENT PERFORMANCE (NINE MONTHS 2009)
The nine months of FY09 continued to be a mixed one for the industry and the company. Thal Limited had a sales revenue growth to Rs 5.87 billion from Rs 5.33 billion (10% increase) with some divisions going with profits while others not even being able to cover their losses. In the engineering division the company faced a decline of Rs 2.688 billion as against Rs 2.844 billion last year. Even though the last quarter was the best for the company. This decline was mainly due to the decline in car sales by 47%. Also the Pak rupee devaluation against the Chinese ten caused financial problems for the company, as losses could not be transferred completely to the customers.
In the jute division, the company had an increased production of 25,580 metric tons as compared to 22,909 metric tons in nine months of 2008 (11% increase). The papersack division maintained its market share, but had some problems with local competition, coupled with ongoing infiltration of woven polypropylene sack in the market. The laminates division faced problems with the loss of global sales and also uncertainties in the local markets. Still the company was able to manage an increase of 10% in sales revenue. Where as the cost of goods saw a decline of 12%, ie, Rs 4.896 billion (2008: Rs 4.371 billion). As a result, the gross profit of the company for the nine months was about Rs 973 million as compared to Rs 958 million in 2008, declaring a loss of only 2%.
The company managed to follow its policy of keeping the expenses under control, particularly decreasing its distribution expenses. But this effect was spoiled by the decrease of 73% in the other operating income of the company, resulting in operating profit of the company to stand at Rs 818 million as compared to Rs 931 million, showing a decrease of 12%. The interest rates along with increased long-term loans taken in FY08 caused the finance costs of the company to be much high as compared to last year's amount of Rs 23 million. The costs were of around Rs 165 million, an increase of 607%. The profit before taxation was Rs 601 million as compared to Rs 848 million (decrease of 29%). The net income of the company for the f nine months of FY09 was Rs 419 million, having a decline of 31% from last year's Q1 figure was Rs 605 million.
Even though the company's performance was not so well for the nine months under review, the company hopes to improve their sales in the next year. The signs that the company is looking forward to, increased sales in the engineering segment, particularly cars in the last quarter. The sales will certainly be much lower than last year, but still better than the first half of the current fiscal year. Also the expectations of a bumper wheat crop for this year mean that the demand of Grain Sacks will be enhanced. But the main issue remains to curtail negative cost pressure, particularly in the jute segment.
FINANCIAL PERFORMANCE FINANCIAL YEAR 2003- FINANCIAL YEAR 2008
The profitability of the company has been fairly consistent over the years, with later years showing a downward trend. In FY08, the profitability decreased by a significant volume, largely brought by the increase in costs of production. The gross profit margins have been more downward sloping than the net profit margins, showing that where the company has maintained good operations and management processes with low costs increases; its defect lies in the poor management of production costs, which severely affect the profits.
For the jute division, the sales rose due to increased demand for jute goods for the 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 are concerned, the sales turnover went up during the year by 2%, yet due to the high costs the division incurred a loss of Rs 819.2 million.
The papersack division also was not able to maintain profits after the growth in sales and sales revenue due to the presence of two strategic production sites have been the differentiator, empowering the company to serve the packaging requirement of the cement industry all over Pakistan more efficiently and economically, with shortest lead time. The rising costs of production again the reason. Both the total assets and the total equity of the company have been rising steadily over the years. In the last few years, the increase in assets can be mainly 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 of the company has increased largely due to an increase in the reserves of the company, which have shown a rising trend over the years, particularly 2006. Also in 2008, the rise in equity was due to the buying of Makro-Habib shares. Impressively, the company has maintained a commendable profit margin backed by a rise in assets and consequently, the return on assets has been fairly consistent through out the five years being discussed. However, the return on equity has been declining over the years as the sharp rise in equity over the years was not backed up by an equivalent or greater rise in the net profit of the company, hence exhibiting a declining return on equity. The sharp decline in returns on both assets and equity for FY08 was due to the impressive rise by the subsidizing obtained of Makro-Habib.
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 the year 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 were decreased during the year from Rs 865,478 to Rs 76,323.
This led to a significant rise in current liabilities while the current assets remained stable; causing the liquidity to fell to 2.10, still high in comparison with the industry. The asset management performance of the company has been showing an irregular trend over the years. The day sales outstanding, which initially were high, have 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 incurred both long term and short-term finances, mostly from Habib Metropolitan Bank, a related party, specifically for the purpose of buying the shares of Makro, which led to the high increases in both current and long term liabilities, hence raising 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.
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 of the company increased to around Rs 954.5 million. However, it again declined in FY07 due to higher finance 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 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 the reserves. In 2008, the book value again declined as a result of the increase in the company's equity due to the 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 OUTLOOK
The growth in the auto sector seems to have slowed down with the economy. It is likely that with 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 for its products.
The planned expansion in the indigenous cement industry has gradually been coming on line. The Government of Pakistan's planned PSDP (Public Sector Development Program) and construction work at home coupled with rebuilding efforts in the neighboring counties is expected to create higher demand for cement and thus for paper sacks. The growth in the cement sector is expected to yield higher capacity utilization 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 it s profitability, debt management and liquidity. It needs to, however, watch over its asset management as its operating cycle has risen over the years. The recent trends for 2008 has been abysmal due to the bold step 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 coming years.
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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 19.06 22.59 29.6 28.31 31.6 24.0
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