GOC (Pak) Limited (PSX: GOC) was incorporated in Pakistan as a private limited company in 1964 and was converted into a public limited company in 1986. The principal activity of the company is the manufacturing and sale of cricket balls, hockey sticks and other quality sports goods.

Pattern of Shareholding

As of June 30, 2022, GOCC has a total of 7.349 million shares outstanding which are held by 330 shareholders. Anwar Khwaja Industries (Private) limited which is the holding company of GOC holds 47.59 percent shares of the company. This is followed by Directors, CEO, their spouse and minor children having a stake of 27.70 percent in GOC. Local general public accounts for 17.57 percent shares of the company. NIT and ICP hold 4.30 percent shares of GOC while Banks, DFIs and NBFIs hold 2.20 percent shares. Other local companies also have a stake of 0.65 percent in GOC.

Performance Trail (2018-22)

The topline and bottomline of GOC shows an asymmetrical pattern during the years under consideration. While both topline and bottomline show a tremendous growth in 2019 and 2022, the years in between appear to be lackluster where not only the revenue and net profit terribly dropped but margins also hit the rock bottom in 2021. A detailed overview of the financial statements will provide a gist of the ups and downs in the financial performance of GOC.

In 2019, GOC’s topline grew by 28 percent year-on-year which is the combination of better off-take and devaluation of Pak Rupee which made the export sales dearer. While the export volumes of wooden hockey sticks, composite hockey sticks and accessories increased during the year, cricket balls posted a volumetric drop. Local sales also plunged during the year. Rise in the cost of raw materials coupled with high fuel and power charges, market induced salaries and wages as well as processing charges drove the cost of sales up by 22 percent year-on-year in 2019. However, handsome volumes and favorable currency movement induced a year-on-year growth of 38 percent in gross profit with a GP margin of 36.8 percent in 2019 versus 34 percent in 2018. Operating expenses jumped on the back of inflation coupled with better branding and distribution strategies undertaken during the year. Other expense rose by 73 percent year-on-year on account of WPFF and donations. A significant support to the bottomline was provided by other income which multiplied by over 30 times in 2019 as the company wrote back its credit balances worth Rs.17.56 million and also because of stunning exchange gain. The result was a striking year-on-year rise of 140 percent in the operating profit while OP margin also jumped from 13.3 percent in 2018 to 25 percent in 2019. GOC doesn’t have any bank loans on its balance sheet and is an entirely equity backed company. Finance cost only comprises of bank charges which increased by 26 percent year-on-year during 2019. The share of loss from Grays Leasing Limited, an associated company of GOC also dropped during the year. The bottomline posted an impressive growth of 172 percent in 2019 to clock in at Rs.71.53 million in 2019 with an EPS of Rs.9.73 versus Rs.3.58 in 2018. NP margin also grew from 11 percent in 2018 to 23.4 percent in 2019.

The subsequent two years were sluggish as GOC’s topline plummeted by 16 percent and 20 percent year-on-year in 2020 and 2021 respectively due to a drastic drop in sales volumes owing to the outspread of COVID-19. GP margin also shrank to 33.4 percent and 30.4 percent respectively in 2020 and 2021. Distribution expense and other expense also declined in both the years owing to lesser clearing and forwarding charges, low advertisement budget, lesser provisioning for WPFF and lesser donations. It is to be noted that administrative expense significantly increased by 31 percent in 2020 and then plunged by 21 percent in 2021. The increase in administrative expense was the result of disbursement of bonus of Rs. 14.091 million in 2020. Other income didn’t prove to be encouraging in both the years. In 2020, other income fell by 73 percent year-on-year as the credit balances written back in 2019 had provided a high-base effect and also because of lesser net exchange gain due to massive drop in export volumes. In 2021, other income further slipped by 52 percent year-on-year as the company made net exchange loss during the year. Operating profit slid by 69 percent and 57 percent respectively in 2020 and 2021 with an OP margin of 9.2 percent in 2020 which further nosedived to 5 percent in 2021. The share of loss from associate company expanded in 2020 and then turned to profit in 2021. The bottomline narrowed down by 74 percent and 70 percent respectively in 2020 and 2021. In 2020, the net profit stood at Rs.18.88 million with an EPS of Rs.2.57 and an NP margin of 7.3 percent. This further thinned down to a net profit of Rs.5.72 million and an EPS of Rs.0.78 in 2021. NP margin stood at a meager 2.8 percent in 2021, the lowest among all the years under consideration.

In 2022, the topline made a comeback with a growth of 16 percent year-on-year as international sports got back on track after COVID-19. Gross profit also improved by 30 percent year-on-year as not only did the sales volume grow but exchange rate movement also played its part in boosting the revenue. GP margin burgeoned to 34 percent in 2022. Operating expenses grew on the back of rising inflation which drove up the salaries and wages and also because of higher clearing and forwarding charges on export sales. Other expenses mushroomed by 266 percent on account of higher provisioning for WPPF. Other income escalated by over 31 times in 2022 as GOC made gain on the disposal of its fixed assets during the year. This provided tremendous growth impetus to operating profit which jumped by over 900 percent in 2022. The OP margin of 43.3 percent achieved by the company in 2022 is not only higher than its GP margin but also the highest mark ever seen by the company. Share of profit from associate company dropped during the year, however, the bottomline magnified by 1599 percent year-on-year to clock in at Rs.97.36 million in 2022 with an EPS of Rs.13.25. NP margin stood at 41 percent in 2022.

Recent Performance (1HFY23)

In 1HFY23, the topline didn’t fail to impress as it attained a lofty year-on-year growth of 260 percent. However, record high inflation and currency depreciation drove up the cost of sales and GP margin moved up from 31 percent in 1HFY22 to 32.6 percent in 1HFY23. While operating expense and other expense significantly grew during the year, the company was able to post an operating profit of Rs.41.06 million in 1HFY23 as against an operating loss of Rs.3.61 million during the same period last year. Other income provided considerable support as it grew by 419 percent year-on-year which might be the result of exchange gain as Pak Rupee saw sharp decline during the period. Share of profit from associate company also went up by 227 percent during 1HFY23. The company was able to post a net profit of Rs.37.6 million in 1HFY23 as against the net loss of Rs.0.72 million in 1HFY22. EPS stood at Rs.5.12 in 1HFY23 as against a loss per share of Rs.0.72 in 1HFY22.

Future Outlook

With the rise in demand and devaluation of Pak Rupee, the topline of GOC is expected to fly high. Moreover, an equity based capital structure will keep the GOC’s bottomline immune from sharp increase in the discount rate. However, unabated growth in inflation is expected to capthe margins. The company is actively working on diversifying its product base and has started producing a wide range of composite sticks which may boost the profitability in the coming times.