Tri-Pack Films Limited (Tri-Pack) - a joint venture between Mitsubishi Corporation of Japan and Packages Limited of Pakistan - is the leading manufacturer of packaging films used in fast moving consumer goods and other products. Tri-Pack was incorporated in 1993, commenced its commercial production in 1995, and is now listed on all the three bourses of the country, with a paid up capital of Rs 300 million.
Tri-Pack produces two types of packaging films used in packaging for consumer goods. First is the moisture-resistant 'biaxially oriented polypropylene' (BOPP) film. BOPP films are produced in four different grades - plain, composite, pearlised and metalised - and their thickness ranges from 12 to 50 microns. The total installed capacity for BOPP films stands at 29,000 tons per annum.
The second type of film is the high-gloss and low-haze 'cast polypropylene' (CPP) film. CPP films are also available in different grades and their thickness ranges from 20 to 150 micron. This film is particularly well-suited for coating, lamination, form fill seal and side weld bag manufacture. Tri-Pack has CPP film manufacturing capacity of 7,000 tons per annum.
Packages Limited, an integrated packaging company, is a major buyer of the packaging films produced by Tri-Pack. The former also holds 33.3 percent equity in the latter. Tri-Pack is a fairly leveraged company, and enjoys long-term rating of "A+" and a short-term rating of "A1".
Financial performance
Sales
The penetration and consumption of packaged fast-moving consumer goods are increasing in the country, as witnessed in the lavish top-lines of the makers of such goods. Since Tri-pack is a major supplier to this industry, it is benefiting from the rising demand of packaged goods, buoyed by the growth momentum of the multinationals and some local businesses in the FMCG business.
Owing to this phenomenon, Tri-Pack's sales crossed Rs 12 billion for the first time in CY11. Heavily tilted towards domestic market, less than three percent of sales originate from overseas demand. During CY11, the Company's net sales grew by a stellar 31.35 over CY10. Aggressive sales & marketing efforts, coupled with the government's continued crackdown against smuggling through the Afghan transit trade and under-invoicing of BOPP films, have been identified by the management as the key drivers to the top line growth.
Cost of Sales The fluctuations in the international prices of crude oil and polypropylene granules - two major raw materials in the packaging films' production - have a direct impact on the Company's cost of sales. During CY11, the cost of sales grew by 28.94 percent, mostly on account of higher purchases and consumption of the raw materials. The cost of sales, however, came down as percentage of revenue to 82.45 percent in CY11, compared to 84 percent in CY10.
Operating Expenditures The operating performance is somewhat marred by tremendous growth in the firm's distribution and administrative expenses. The two expenditure heads together exhausted roughly four percent of net sales in CY11, compared to 3.46 percent in CY10. The distribution costs swelled by 42.64 percent owing to rising outward freight charges. The administrative expenses rose by a whopping 61.2 percent on account of rising expenditures on salaries, wages & benefits, legal & professional expenses and advertisement.
However, owing to relatively smaller outlays on these expenses, the overall operating expenditures remained under control.
Other Income & Expenses The operating gains have been further consolidated with a 91.69 percent growth in 'other income', mainly due to growth in income from financial and non-financial assets and exchange gains. The Company also saw its finance costs decline during CY11 by a healthy 40.38 percent, owing to lower payment of mark-ups on both short-term and long-term finances. The head of 'other expenses', however, increased to Rs 90 million, showing a growth of 64.13 percent, due to the Company's larger contribution to the workers' profit participation and welfare funds.
Profitability & Margins The packaging films' manufacturer's CY11 performance had been a mix of healthy top-line growth and controlled operating expenses. An all-round performance helped Tri-Pack's bottom-line to grow by a whopping 58.15 percent to reach Rs 782.6 million during the period under review. Thereby, net margins improved by 132 bps to stand at 7.82 percent. A net loss of Rs 52.533 million, on account of cash flow hedging, however, brought the Company's comprehensive income down to Rs 730 million in CY11.
Tri-Pack's earnings per share came in at Rs 26.09 in CY11, compared to Rs 16.49 in CY10, Rs 15.47 in CY09 and Rs 16 in CY08. The company's stock has performed consistently over past several years, trading above Rs 100 and offering the price-to-earnings ratios of above six.
Liquidity The company's cash generation capacity somewhat deteriorated during CY11, mostly due to fixed capital expenditures and purchase of held-for-trading financial assets. The net cash flow from operating activities declined to Rs 1.02 billion in CY11 from Rs 1.3 billion in CY10. The current ratio dropped from 1.3 in CY10 to 1.1 in CY11, owing to a rise in trade debts and short-term borrowings. The firm's operational efficiency was also slightly down in CY11 as the inventory was turned over 4.43 times, compared to 4.96 times in CY10.
Leverage Tri-Pack's leverage position greatly improved during CY11. There is less debt accumulation in the firm's capital structure. The debt-to-equity ratio dropped to 0.1 in CY11 from 0.2 in CY10. The Company's interest paying ability was also strengthened, on the heels of declining financial costs and growing operating profits during CY11.
Future Outlook Tri-Pack has had a good ride in CY11. Going forward, growth in demand of packaged goods, and the international prices of key raw materials would determine the growth in margins. Moreover, the expansion in BOPP films' production capacity by another 40,000 MT, which is expected to be operational by the end of CY12, would allow for future growth in the top-line, including exports as well.