Buxly Paints Limited (PSX: BUXL) was incorporated in Pakistan as private limited company in 1954 and then converted into a public limited company in 1985. The company is engaged in the manufacturing of sale of pigments and paints, vanishes, protective surface coating and other related products. The company has a toll manufacturing agreement with Berger Paints Limited. Besides catering to the local market, the company also exports its products to Far East and Middle East.

Pattern of Shareholding

As of June 30, 2021, BUXL has a total of 1.44 million shares outstanding which are held by 591 shareholders. Sponsors, Directors, CEO and their children hold 37.67 percent shares of the company to qualify as the largest shareholder. This is followed by local general public holding 27 percent shares of BUXL. Associated company i.e. Berger Paints Pakistan Limited has a stake of 19 percent in BUXL while Mutual Funds hold 8 percent shares of the company. Foreign general public own 1.8 percent of BUXL’s shares. The remaining shares are held by other categories of shareholders holding less than 1 percent shares of BUXL.

Historical Performance (2018-22)

Except for a slide in 2019, the topline of BUXL has been growing since 2020 with bottomline following the similar pattern. The bottomline of BUXL which had been in the negative zone in 2018 and 2019, started posting profits thereafter.

In 2019, the company was able to reach a low off-take on the back of cutthroat competition in the industry. The company raised the prices of its products to compensate for the increase in cost of production in line with the inflationary pressure, however, failed to achieve any topline growth. Not only did the topline slid by 18 percent year-on-year, the GP margin also dipped to 12 percent in 2019 versus 15 percent in 2018. The company kept a check on its operating expenses, yet couldn’t be successful in attaining an operating profit in 2019. BUXL achieved an operating loss margin of 4.7 percent versus 0.7 percent in the previous year. Other income grew by 9 percent year-on-year mainly on account of rental income which the company makes by renting its land and building to Berger Paints Pakistan Limited, however, the gain was largely offset by high finance cost on the back of increased discount rate and high short-term working capital finance obtained during the year. BUXL posted a net loss worth Rs. 15.7 million in 2019 as against the net loss of Rs. 5.4 million in the previous year.

In 2020, the company made a topline growth of 7 percent year-on-year in 2020 which was a combination of both volumetric sales and price increase. Rigorous cost control measures enabled BUXL to cut down its cost of production by 2 percent year-on-year which resulted in a year-on-year increase of 72 percent in the gross profit with GP margin clocking in at 19 percent. Operating expenses grew in line with inflation, but the company was in a strong position to absorb them and post an operating profit of Rs 7.29 million versus operating losses in the past years. OP margin stood at 2.7 percent in 2020. Finance cost grew as discount rate was high for the first three quarters of 2020. Other income didn’t paint a good picture either mainly on the back of a massive drop in royalty income from Berger Paints Pakistan Limited, an associated entity of BUXL. This squeezed the bottomline which culminated into an NP margin of a meager 0.02 percent.

In the subsequent years, while topline grew with a greater magnitude i.e. 29 percent and 46 percent respectively in 2021 and 2022, high cost of production resulted in a plunge in GP margins which stood at 16 percent and 13 percent in 2021 and 2022 respectively. OP margin touched its highest level of 3.5 percent in 2021 as the company cut back on its distribution expense; however, it slid back to 2.5 percent in 2022 as distribution expense showed an uptick. Finance cost increased in 2021 despite low discount rate as the company procured more short-term financing during the year. In 2022, while the discount rate was on the rise, the company was able to cut its finance cost by 33 percent year-on-year as it immensely reduced its short-term borrowings during the year. The NP margin of both 2021 and 2022 were almost the same i.e. 0.8 percent.

Recent Performance (1HFY23)

During 1HFY23, a year-on-year growth of 33 percent in topline is mainly attributable to price increase owing to high inflationary pressure. Cost of sales also increased by 33 percent year-on-year which kept the GP margin almost intact at 13.8 percent. Operating expenses also grew in line with inflation. OP margin clocked in at almost the same mark as it was in 1HFY22 i.e. 2.2 percent. 60 percent year-on-year growth in finance cost due to multiple hikes in the discount rate took its toll on the bottomline which plunged by 54 percent year-on-year culminating into an NP margin of 0.2 percent in 1HFY23 versus 0.5 percent during 1HFY22.

Future Outlook

Sluggish real-estate activity as well as weak overall economic backdrop coupled with low purchasing power on the consumer end is expected to keep BUXL’s volumes under pressure in the coming times. The topline might see a price-led growth. However, this may not trickle down into a healthy bottomline as high cost of production as well as elevated operating expense and finance cost will erode the gains and constrict the margins. The company must look into the avenues of increasing in volumes either by tapping new product markets or entering new geographical markets which will not only expand its margins and bottomline growth but will also give it an edge in the industry.