MACPAC Films Limited (PSX: MACFL) was established in 1993 as a limited company under the repealed Companies Ordinance, 1984 (now Companies Act, 2017). It manufactures, produces, buys and sells plastic packaging. The company has two plants for BOPP and CPP that are both located in Eastern Industrial Zone, Port Qasim.

Shareholding pattern

As at June 30, 2021, the directors, CEO, their spouses and minor children hold over 46 percent shares. Within this category, 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. The local general public owns over 25 percent shares, while over 15 percent shares are held under the category of ‘executives”. The remaining 13 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has mostly seen a growing topline with the exception of a few years. Profit margins, on the other hand, have declined between FY16 and FY19 before rising again FY20 and onwards.

Revenue in FY18 posted an all-time high growth of over 40 percent with topline crossing Rs 2 billion in value terms. However, this came with a more than corresponding rise in production that increased from consuming 83.3 percent of revenue to 89.5 percent of revenue. This was attributed to an increase in petrochemical cost. Thus, gross margin fell from 16.7 percent in FY17 to 10.5 percent. This also trickled to the net margin that was lower at 2.6 percent compared to over 5 percent in the previous year.

Revenue in FY19 stood at 13.6 percent to reach a high of Rs 2.4 billion in value terms. However, cost of production consumed a whopping almost 96 percent of revenue, leaving little capacity to cover further expenses. With an escalation in other expenses due to exchange loss and an increase in finance expense due to high interest rates, the company incurred the highest loss seen in almost a decade at Rs 234 million.

In FY20, topline contracted by over 10 percent. While the decrease in the first half of the year was attributed to product mix, the second half was impacted by the outbreak of the Covid-19 pandemic and the resultant lockdowns. Cost of production increased further to consume over 97 percent of revenue, shrinking gross margin to 2.6 percent. Additionally, gas infrastructure development cess caused other expenses to escalate to consume almost 7 percent of revenue. While the company did incur a loss for the year at Rs 63 million, it was relatively contained due to support from other income sourced from one-time event of gain on sale of operating fixed assets.

Revenue recovered in FY21 as it stood at almost 40 percent to reach an all-time high of Rs 3 billion in value terms. Sales in terms of volumes grew from 9,682 metric tons to 14,600 metric tons resulting in an increase in market share. This translated into a higher gross margin at over 15 percent, as cost of production reduced to consume close to 85 percent of revenue. Net margin also followed as it was recorded at 6.2 percent for the year- the highest seen in the last four years.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by more than 29 percent year on year as sales volumes posted a growth of 15 percent. But the increase in cost of production to 86.5 percent in the current period, from 84 percent in the same period last year caused profitability to be lower as seen by a lower net margin of 3 percent versus 5.7 percent recorded in 1QFY21.

In the second quarter of FY22, revenue was higher by close to 37 percent year on year. Sales volumes were also higher by a similar extent. However, production cost was considerably higher year on year at over 85 percent, compared to 81.4 percent in the same period last year. The impact of this also reflected in the bottomline that was slightly higher year on year in value terms, but net margin was lower at 5.7 percent, compared to 7 percent in 2QFY21.

In the third quarter of FY22, revenue was again higher year on year, by over 37 percent. Majority of this growth was concentrated with the local sales, while export sales declined by almost 41 percent. On the other hand, production cost was also slightly higher at 84.5 percent compared to 83.6 percent of revenue in 3QFY21. Thus, gross margin for the period was also lower at 15.4 percent. However, net margin was more or less flat at 8 percent due to support from other income that offset the increase in production cost. While demand is expected to sustain that will drive the topline, challenges such as inflationary pressures, high interest rates and freight costs and global supply chain disruptions, will hinder future profitability.