Tri-Pack Films Limited (PSX: TRIPF) was established in 1993 as a public limited company under the repealed Companies Ordinance, 1984. It manufactures and sells Biaxially Oriented Polypropylene (BOPP) film and Cast Polypropylene (CPP) film. In addition to catering to the local market, the company also exports to countries such as Bangladesh, Middle East, Kenya, South Africa, etc.

Shareholding pattern

As at December 31, 2021, nearly 80 percent shares are held under associated companies, undertakings and related parties. Within this category, M/S. Packages Limited is a major shareholder. The local general public owns close to 12 percent shares while the directors, CEO, their spouses and minor children own over 2 percent shares. The remaining 6.5 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has largely seen a growing topline with the exception of CY15 and CY16. Profit margins in the last six years, on the other hand, declined between CY16 and CY19 before improving again till CY21.

Revenue in CY18 grew by almost 8 percent to cross Rs 13 billion in value terms. While this attributed to an increase in demand, it did not result in an increase in profitability as despite a consistent supply, prices of raw material increased to consume over 89 percent of revenue. Thus, gross margin decreased to 10.4 percent from last year’s 14.4 percent. This also trickled to the net margin that was also lower at 1.2 percent compared to 4.7 percent seen in CY17, due to a rise in finance expense that consumed almost 4 percent of revenue. The latter was attributed to a rise in policy rates.

In CY19, topline grew by 11 percent with revenue reaching almost Rs 14.7 billion in value terms. However, production volumes have been lower due to inflationary pressures that also caused production cost to near 90 percent of revenue. While gross margin and operating margin were more or less flat, net margin fell to a negative 2 percent as finance expense escalated as a result of a rise in policy rates and considerable exchange loss. In addition, tax expense stood at Rs 291 million versus Rs 63 million in the previous year. Thus, the company incurred the highest net loss of Rs 310 million during the period.

With sales volumes remaining more or less similar year on year, topline growth in CY20 stood at 2.8 percent. While the first half of the year was adversely impacted by the outbreak of the Covid-19 pandemic that resulted in strict lockdowns, the second half of the year saw some recovery as lock downs eased and demand gradually picked up. Owing to a combination of timely raw material procurement, product portfolio reorganization and better margins earned on exports that was due to favourable exchange rate movement, gross margin elevated to 16 percent. This also reflected in the net margin that improved to 4 percent.

Topline in CY21 grew by over 26 percent to reach an all-time high of Rs 19 billion. While the first half of the year saw an increase in demand as economic growth picked up and export margins also improved, but the second half saw lower volumes as exchange rate fluctuation and increase in interest rates had a negative impact on business sentiments. While gross margin remained nearly flat at close to 16 percent, net margin improved to 5.47 percent operating expenses and finance expense declined as a share in revenue. As a result, bottomline stood at its highest seen in more than a decade at Rs 1 billion.

Quarterly results and future outlook

Revenue in the first quarter of CY22 was higher by nearly 18 percent year on year with sales volumes growing only marginally by over 1 percent reaching 12,589 metric tonnes from 12,432 metric tonnes in 1QCY21. Majority of the growth in revenue, therefore, was attributed to the rise in prices that in turn was a result of an increase in feedstock cost. However, the increase in revenue did not translate into an increase in profitability as cost of production grew to consume over 86 percent of revenue, compared to over 81 percent. This can be attributed to inflationary pressures and a general increase in commodity prices internationally. Thus, gross margin fell to 13.8 percent versus 18.8 percent in the same period last year.

However, the decrease in operating and net margin was less pronounced as net margin was recorded at 4.4 percent compared to 7.7 percent, sinceoperating expenses decreased as a share in revenue. Although finance expense escalated to consume nearly 4 percent of revenue of 1QCY22 due to high policy rate as well as high debt utilization due to working capital requirements, it was partially offset by the decrease in operating expenses. While demand is expected to be unhindered, however, challenges such as political turmoil internally as well externally, coupled with high interest rates, inflation and exchange rate fluctuation can create uncertainty for future profitability.