Buxly Paints Limited (PSX: BUXL) was established back in 1993, before the partition of the subcontinent. In 1948, the first paint factory was set up in Pakistan, while it was registered as a private limited company in 1954 under the Companies Act, 1913. It was later converted into a public limited company in 1985.
Buxly Paints Limited caters to both the local as well as the international market, with its major export markets in Far East and the Middle East. Some of its clients include Fauji Fertilizers, Pakistan Petroleum, auto part vendors and motorcycle manufacturers.
Its product portfolio includes a range within the following categories: decorative and drying paints, protective coating, heat resisting paints and thinner and paint remover.
Shareholding pattern
As of June 30, 2019, the associated companies that include Berger Paints Pakistan Limited and Slotrapid Limited together hold nearly 57 percent of the shares in the company. This is followed by the local general public that collectively holds almost 29 percent of the shares, whereas 11 percent is held in modarabas and mutual funds. The directors, CEO, their spouses, and minor children hold less than 1 percent of the shares in the company.
Historical financial performance
Over the span of last decade, Buxly Paints, has seen positive growth in its topline, with the exception of FY11 and more recently in FY19. Profit margins, on the other hand, dipped once in FY11, increased the next year and remained relatively stable, before sliding down again FY17 and onwards, seeing another dip in FY19.
During FY16, the company saw an impressive - near 24 percent growth in its topline. This was attributed to a number of factors. The low rate of inflation helped to reduce the cost of production that that made up 78 percent of the topline, as compared to previous year’s 81.5 percent. Combined with higher sales, this allowed to raise gross margins. Declining oil prices and a better situation of law and order also helped the general business environment in the country. In addition, other income increased to make up 2 percent of the revenue. This was sourced primarily from royalty income. The effect of this was reflected in the net margin that increased to 2.5 percent for the year.
Topline continued to grow in FY17, this time by an even higher 28 percent. Cost of production fell again, to almost 76 percent of the revenue. Together both factors resulted in a rise in gross margins to 24 percent. Although there was macroeconomic stability within the country, the political instability owing to it being a year prior to general elections and uncertainty for the future prevailed during the year that had an overall impact on the business environment. Yet the company managed to perform well.
Distribution and administration costs continued to make a large part of the revenue in FY17, distribution expense more so at over 16 percent of revenue. This was due to the salary expense. However, despite the rise, operating and net margins climbed year on year since the increase in revenue offset the increase in expense. Although there was a noteworthy incline in finance cost as well, it made a small part of the total revenue, thereby having negligible effect on the bottomline.
Buxly Paints maintained its topline growth momentum during FY18, as revenues grew by a near 17 percent year on year. However, this was accompanied by a significant rise in cost of production, that rose to make up almost 85 percent of the revenue. This was due to a rise in cost of raw materials as is evidenced by an almost 31 percent increase in purchase expense of raw materials; the latter makes up 90 percent of the total cost of production. This brought down the gross margins to 15 percent. Profit margins were further squeezed due to 3 times rise in finance cost owing to high markup expense on short term borrowing. This led the company to eventually post a loss of Rs5.4 million- first time in the last eight years.
The company witnessed an 18 percent fall in revenue during FY19. The year began with general elections and the resultant instability and uncertainty. The year was also noted by rupee devaluation and high inflation as well as interest rates. This was reflected in the continuous rise in cost of production that consumed 88 percent of the revenue for the year.
The general inflationary pressure led to a rise in cost of raw materials, whereas competition did not allow for the higher cost to be passed on to consumers. Thus, gross margin declined to an all-time low of 12 percent, whereas finance cost further increased, both in value terms as well as a percentage of revenue, further squeezing the profit margins. Although other income also increased during the year, it was not sufficient to offset the increase in expense, causing losses to elevate to Rs15.7 million.
Recent results and future outlook
The 7 percent rise in revenue during FY20 was largely brought in the first half of the year as the last two quarters have witnessed a decline in the topline. Cost of production also reduced to almost 81 percent of the revenue, down from last year’s 88 percent. This, along with an increase in revenue allowed gross margins to improve during the year. With other costs remaining similar, the improvement was also seen in net margin that increased to less than 1 percent, up from last year’s negative 6 percent. Although finance cost’s shares in revenue increased during FY20, it had a relatively larger share in the revenue of last quarter’s topline i.e.4QFY20. However, this was only due to a decline in topline due to the outbreak of Covid-19 and the resultant lockdown.
Although uncertainty is prevalent throughout the economy, and worldwide, the company hopes to expand customer base and increase selling price to “rationalize the burden of increased raw material and manufacturing cost”.