MACPAC Films Limited (PSX: MACFL) was set up as a limited liability company in 1993 under the repealed Companies Ordinance, 1984 (now Companies Act, 2017). The company manufactures, produces, buys and sells plastic packaging. It has two plants for BOPP and CPP, both located in Eastern Industrial Zone, Port Qasim.
Shareholding pattern
As at June 30, 2021, over 46 percent shares are with the directors, CEO, their spouses and minor children. Of this close to 15 percent shares are held by each of the following: Mr. Shariq Maqbool, a non-executive director, Mr. Ehtesham Maqbool Elahi, the managing director, and Mr. Naeem Ali Mohammad Munshi, the chairman of the company. Over 25 percent shares are with the local general public, followed by another 15 percent under the “Executives” category. The remaining 13 percent shares are with the rest of the shareholder categories.
Historical operational performance
MACPAC Films has witnessed a growing topline for the most part, with revenue declining thrice since FY11. Profit margins, on the other hand, have been following a declining trajectory between FY16 and FY19, before increasing again in after FY19 until FY21.
During FY17, revenue posted a growth of 15.7 percent, with an increase in production as well. The latter led capacity utilization to increase to over 58 percent, up from last year’s 51 percent. But cost of production increased, although marginally, to over 83 percent, that led gross margin to reduce to 16.7 percent. With changes in other factors of the financial statements nullifying each other’s affect, the decline in profitability also reflected in the net margin that decreased to 5 percent.
In FY18, the company witnessed the highest growth in revenue at 40 percent, with topline crossing Rs 2 billion. But this came with a significant increase in cost. Cost of production consumed 89.5 percent of revenue that reduced gross margin to 10.5 percent. The increase in costs is attributed to an increase in petrochemical cost. While distribution and administrative expense reduced as a share in revenue, it was made up by an increase in other expenses. Thus, net margin was also recorded at a lower 2.6 percent, compared to 5 percent in the previous year.
Revenue growth was subdued in FY19 as topline increased by 13.6 percent. But this was accompanied by a crise in cost of production that grew to consume over 95 percent of revenue, thereby leaving little room for absorption of other costs. While other factors remained unchanged, the escalation in finance expense and other expenses due to rising interest rates and exchange loss, led the company to eventually post a net loss for the first time since FY11, of Rs 234 million for the year.
Revenue in FY20 contracted by over 10 percent. This was attributed to the choice of product mix. Additionally, the second half of the year was impacted by the outbreak of the Covid-19 pandemic. As a result, cost of production consumed over 97 percent of revenue, causing gross margin to shrink to 2.6 percent. This was further worsened by a hike in other expenses due to gas infrastructure development cess. Thus, the company saw another year of net loss of Rs 63 million. But this was lower than that seen in the last year due to some support brought in from other income that was sourced through a one-time event of gain on sale of operating fixed assets.
In FY21 revenue posted a growth of nearly 40 percent, with topline crossing Rs 3 billion. The company also entered the international market with exports amounting to Rs 52 million. Sales volumes grew from 9,682 metric tons to 14,600 metric tons leading to an increase in market share. With the rise in revenue and volumes, fixed costs were distributed over a larger number, therefore, cost of production reduced to nearly 85 percent of revenue, significantly lower than over 97 percent seen in the last year. Thus, gross margin increased to over 15 percent. With an overall curtailment of costs as a share in revenue, the higher revenue also translated into higher profitability as is evident net margin recorded at 6.2 percent for the year, versus two consecutive periods of losses.
Quarterly results and future outlook
Revenue in the first quarter of FY22 was higher by over 29 percent year on year. Sales volumes were also higher by 15 percent. However, the increased revenue did not result in improved profitability as cost of production was higher in 1QFY22 at 86.5 percent, compared to over 84 percent in 1QFY21. Thus, gross margin was also lower year on year at 13.5 percent. With minor changes in other factors, this also resulted in a lower net margin at 3 percent, versus 5.7 percent in 1QFY21.
With increasing sales volumes, and entering the export market, the company has its topline growing. However, costs continue to remain a threat to profitability as is evident from the last four years where costs consumed more than 85 percent of revenue. Moreover, supply chain disruptions, currency devaluation and rising interest rates also pose a challenge.