At-Tahur Limited (PSX: PREMA) was incorporated in Pakistan as a public limited company in 2007. The company is engaged in the production and processing of milk and dairy products.

Pattern of Shareholding

As of June 30, 2022, PREMA has a total of 198.763 million shares outstanding which are held by 1770 shareholders. Directors, CEO, their spouse and minor children are the major shareholders of the company with a stake of 72.57 percent. This category is followed by local general public holding 12.66 percent shares. Modarbas and Mutual funds account for 9.38 percent shares of PREMA. Joint stock companies and pension funds hold 2.30 percent and 1.70 percent shares of the company. The remaining shares are held by other categories of shareholders each having a stake of less than 1 percent in the company.

Performance Trail (2018-22)

The topline of PREMA has been riding an upward trajectory since 2018. Gain arising from initial recognition of milk at fair value less cost to sell at the time of milking also shows an ascending trend in all the year. Conversely, gain arising from changes in fair value less cost to sell dairy livestock posted a dip in 2020 and 2021. The bottomline only plunged in 2020 among all the years under consideration. The margins also shrank in 2020 and rebounded thereafter. Let’s delve into the details of the company’s journey over the course of five years.

In 2019, PREMA’s total revenue jumped up by 41 percent year-on-year with the gain to sell dairy livestock boasting the highest rise of 121 percent, however, its contribution in the total revenue basket stays under 20 percent in all the years under consideration. Revenue from contracts with customers increased by 26 percent year-on-year while gain arising from initial recognition of milk grew by 47 percent year-on-year during 2019. The company sold 12.29 million liters of milk in 2019 as against 9.49 million liters sold in 2018. The increased volume is attributable to the launch of new products during the year. GP margin jumped from 28.8 percent in 2018 to 29.3 percent in 2019. Operating expenses increased in line with growth in sales which particularly drove up the salaries expense and vehicles’ running expense. Operating profit grew by 60 percent year-on-year in 2019 while OP margin enlarged from 8.9 percent in 2018 to 10.1 percent in 2019. Finance cost grew by 144 percent in 2019 due to rise in discount rate coupled with increase in borrowings during the year. However, with a debt-to-equity ratio of 6 percent, finance cost isn’t an issue for the company. PREMA’s net profit grew by 52 percent year-on-year in 2019 to clock in at Rs. 270.10 million with an NP margin of 10 percent versus 9.3 percent in 2018. EPS stood at Rs.1.69 in 2019 versus 1.62 in 2018.

In 2020, the total revenue of PREMA magnified by 15 percent year-on-year while gain arising from the sale of livestock dipped by 13 percent year-on-year. Due to a 21 percent year-on-year rise in operating cost, gross profit could only grow by 1 percent in 2020 which pushed the GP margin down to 25.7 percent in 2020. Admin and marketing expense didn’t show any respite due to rise in inflation. Other expense tremendously grew during 2020 due to death of dairy livestock and loss on the sale of dairy livestock. Operating profit contracted by 37 percent year-on-year in 2020 with OP margin standing at 5.5 percent. Finance cost grew by 139 percent year-on-year due to increase in discount rate during the initial quarters of FY20 coupled with an increase in borrowings particularly running finance. Debt-to-equity ratio slightly increased to 8 percent in 2020. PREMA’s net profit declined by 80 percent to clock in at Rs.54.89 million in 2020 with an NP margin of 1.8 percent. EPS drastically dropped to Rs.0.34 in 2020.

In 2021, PREMA’s revenue again rebounded by 44 percent year-on-year coming on the heels of a splendid rise in revenue from contract with customers and gain arising from initial recognition of milk. Despite 45 percent year-on-year increase in operating cost particularly on the back of raw milk and forage consumed during the year, gross profit multiplied by 39 percent year-on-year in 2021; however, GP margin couldn’t post any growth and stood at 25 percent. While admin and selling expense grew in line with inflation and increase in operations, other expense massively increased due to loss on sale of dairy livestock and death of dairy stock in 2021. WWF and WPPF also increased during the year due to high profitability. Operating profit boasted a stunning growth of 145 percent year-on-year in 2021 with an OP margin of 9.4 percent. Finance cost only grew 8 percent despite drop in discount rate during the year. This was due to elevated long-term borrowings during the year. PREMA’s debt-to-equity ratio jumped up to 19 percent in 2021. The bottomline posted a staggering growth of 378 percent year-on-year in 2021 to clock in at Rs.262.27 million with an NP margin of 5.9 percent. EPS stood at Rs.1.32 in 2021.

PREMA’s revenue continued to outshine the previous year’s mark in 2022 with a year-on-year growth of 47 percent. Gain from the sale of dairy livestock which had been dropping since 2020 posted an incredible growth of 223 percent in 2022 with its share in total revenue basket jumping up to 18 percent in 2022 from 8 percent in 2021. This is attributable to local currency depreciation as well as an increase in the prices of herd globally. Operating cost grew by 37 percent year-on-year in 2022, yet healthy revenue growth provided impetus to gross profit which magnified by 77 percent in 2022 with a GP margin of 30 percent. Admin and selling expenses as well as other expense didn’t show any respite, yet operating profit posted a 144 percent year-on-year growth in 2022. Finance cost kept moving up as discount rate saw multiple upward revisions in 2022. PREMA’s short-term and long-term borrowings also heightened during the year driving up the debt-to-equity ratio to 21 percent in 2022. The net profit grew by 228 percent year-on-year in 2022 to clock in at Rs.861.14 million with NP margin of 13 percent, the highest mark among all the years under consideration. EPS jumped up to as high as Rs.4.33 in 2022.

Recent Performance (1HFY23)

During 1HFY23, the total revenue of PREMA grew by 55 percent year-on-year with a healthy rise in all the three categories i.e. revenue from contract with customers, gain arising from the initial recognition of milk and gain arising from the sale of dairy livestock. The drastic rise in inflation pushed the operating cost up by 64 percent during 1HFY23 which drove the GP margin down to 27 percent from 30.9 percent in 1HFY22. While admin expense grew due to rise in inflation, marketing expense and other expense massively grew by 70 percent and 111 percent respectively during 1HFY23. This took its toll on the operating profit which could only muster a 2 percent year-on-year growth in 1HFY23 with OP margin ticking down to 21.6 percent in 1HFY23 from 32.4 percent in 1HFY22. Finance cost bumped up by a whopping 121 percent in 1HFY23 which culminated into net profit inching down by 9 percent year-on-year to clock in at Rs.373.15 million with an NP margin of 16.5 percent down from 27.7 percent during the same period last year. EPS stood at Rs.1.71 in 1HFY23 versus Rs.1.88 during 1HFY22.

Future Outlook

The future of PREMA looks promising on the premise of high demand and upward revisions in prices. Besides, devaluation of local currency as well as increase in the global prices of cattle bode well for the sale of dairy livestock. However, loss arising from the death of dairy livestock is escalating the other expense account and suppressing the operating profit. Besides, increasing dependence on bank loans for working capital requirements and long-term investment is adding up to the finance cost amidst record high discount rate. Perhaps tweaking the capital structure by raising equity financing may help PREMA perk up its bottomline a little more.