Safe Mix Concrete Limited (PSX: SMCPL) was incorporated in Pakistan as a private limited company in 2005 and was ultimately converted into a public limited company in 2007. The company is engaged in the manufacturing and sale of ready mix concrete, building blocks as well as construction of factories, prefabricated buildings and other construction sites. SMCPL is a company of Arif Habib Group and is the supplier of ready mix concrete for the group’s mega project – Naya Nazimabad. Since, the commencement of Naya Nazimabad, SMCPL no longer depends on orders from other companies.

Pattern of Shareholding

As of June 30, 2022, SMCPL has a total of 25 million shares outstanding which are held by 805 shareholders. Mr. Abdus Samad Habib, the CEO of SMCPL holds 28.17 percent shares of the company; Mr. Arif Habib holds 20.69 percent shares while Arif Habib Limited holds 22.80 percent shares of SMCPL. Banks, DFIs and NBFIs have a stake of 2.69 percent in the company. Foreign general public accounts for 1 percent of the outstanding share capital of SMCPL. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

SMCPL’s topline tumbled in 2020 and 2021, however, posted robust growth in rest of the years under consideration. 2019 and 2020 appear to be dead loss for the company as it posted a negative bottomline. The bottomline turned into net profit in the subsequent years with the highest net profit registered in 2022. The margins which were also plunging until 2020 recovered in 2021 and reached their highest level in 2022. The detailed performance review of each of the years under consideration is given below.

In 2019, SMCPL’s topline grew by a massive 49 percent year-on-year despite an 11 percent year-on-year descend in its volumetric sales. SMCPL’s sales volume slipped to 143,359 cubic meters of concrete mix in 2019 as the construction activity in the country reduced by 7.6 percent during 2019 as against the growth of 9 percent in construction activity achieved in 2018. High cost of raw materials due to an increase in commodity prices, high fuel and energy charges as well as Pak Rupee depreciation pushed up the cost of sales by 57 percent year-on-year in 2019 resulting in a 64 percent year-on-year fall in gross profit. GP margin significantly plummeted from 6.5 percent in 2018 to 1.6 percent in 2019. The company made efficient utilization of company’s transit mixer fleet, however, impairment loss of financial assets culminated into a 453 percent surge in distribution expense in 2019. The company kept a strict check on its administrative expenses by curtailing its payroll expense, legal and professional fee as well as repair and maintenance charges. Yet it failed to post any operating profit in 2019. SMCPL posted an operating loss of Rs.25.23 million in 2019 as against the operating profit of Rs.15.70 in 2018. Finance cost grew by 23 percent year-on-year in 2019 on account of higher discount rate. Net loss for 2019 clocked in at Rs.29.77 with a loss per share of Rs.1.19 as against the net profit of Rs.2.42 million and an EPS of Rs.0.1 in 2018.

In 2020, SMCPL’s sales declined by 53 percent year-on-year as the company successfully completed a private sector project during the year and the major revenue from it was earned in the previous year. Furthermore, the slowdown of real-estate sector and the imposition of lockdown due to the outbreak of COVID-19 also resulted in reduced sales during the year. On account of low demand, the company utilized 4.5 percent of its available capacity and produced only 65.967 cubic meters in 2020 as against 9.7 percent capacity utilization in 2019. Lesser sales resulted in a 51 percent year-on-year drop in cost of sales, yet produced a gross loss of Rs.13 million in 2020. While SMCPL greatly reduced its advertising and sales promotion as well as sales commission related to Karachi Metropolitan Corporation, impairment loss of financial assets kept mounting, resulting in a 5 percent year-on-year drop in distribution expense in 2020. Administrative expenses ticked down by 16 percent year-on-year. Other income showed a 5 percent year-on-year improvement in 2020 due to an increase in pumping and grout charges during the year while the company also incurred other expense of Rs.3.53 million due to loss on sale of fixed assets in 2020. Besides, the company also recognized an impairment loss of Rs.45 million on its batching plant due to greater than anticipated wear and tear. Operating loss magnified by 285 percent year-on-year in 2020 to clock in at Rs.97.07 million. Finance cost inched down by 7 percent year-on-year as the company trimmed down its loan book in 2020 and also because of a drop in discount rate during the year. Despite all the cost control measures, SMCPL’s net loss grew by 232 percent year-on-year in 2020 to clock in at Rs.98.78 million with a loss per share of Rs.3.95. The accumulated loss of SMCPL reached Rs.174.37 million in 2020 as against Rs.76.58 in 2019. The constant accumulation of losses is narrowing down the company’s equity.

2020 was followed by another year of sales decline whereby SMCPL’s topline petered out by 46 percent year-on-year. During 2021, the company not only reduced its production capacity from 1.47 million cubic meters to 876,000 cubic meters but also utilized only 5.87 percent of the available capacity. Steps were being taken by the government for the promotion of housing sector in the country. While significant number of projects was launched in the northern wing of the country, the southern region still remained quiet. The cost of sales also reduced by 51 percent year-on-year mainly on account of the management’s focus on reducing its fixed overhead cost. This resulted in a gross profit of Rs.17.63 million in 2021 as against gross loss in the past two years. GP margin clocked in at 8 percent in 2021 as against 1.6 percent in 2019. The company didn’t incur any sales commission related to KMC in 2021. Impairment loss of financial assets also considerably reduced during the year resulting in a 99 percent year-on-year in distribution expense in 2021. Administrative expense also tumbled by 24 percent year-on-year in 2021 mainly on account of reduction in payroll expense. Other income dwindled by 42 percent year-on-year in 2021 due to lesser pumping and grout charges, deferred income and lesser profit on deposit accounts due to low discount rate. This resulted into an operating profit of Rs.8.22 million in 2021 with an OP margin of 3.7 percent. Although finance cost contracted by 26 percent year-on-year in 2021 due to monetary easing, the finance cost of Rs.9.6 million resulted in a loss before tax of Rs.1.39 million in 2021. However, deferred taxation pushed the bottomline into profit zone with a net profit of Rs.6.57 million in 2021. NP margin clocked in at 3 percent in 2021 while EPS stood at Rs.0.26.

After two years of lackluster sales, SMCPL’s topline posted a strong rebound of 134 percent on the back of higher sales as well as upward price revision. During the year, the company increased in capacity to 918,000 cubic meters and utilized 10.8 percent of its capacity owing to strong demand. High cost of raw materials, fuel and power charges as well as higher salaries due to induction of human resources during the year pushed the cost of sales by 104 percent in 2022. Yet gross profit multiplied by 480 percent in 2022 with GP margin clocking in at 19.7 percent. Higher sales commission as well as travel charges resulted in a 351 percent hike in distribution expense in 2022. Administrative expense also surged by 83 percent year-on-year in 2022 owing to high inflation. Other income massively increased by 245 percent year-on-year in 2022 on account of higher grouting income as well write-off of liabilities no longer payable. Operating profit posted a staggering growth of 988 percent in 2022 with an OP margin of 17.2 percent. Finance cost grew by 88 percent year-on-year in 2022 due to multiple rounds of monetary tightening during the year and also because the company incurred significant capital expenditure during the year to increase the transit mixers. The net profit hiked by 608 percent in 2022 to clock in at Rs.46.46 million with an NP margin of 9 percent. EPS climbed to Rs. 1.86 in 2022.

Recent Performance (9MFY23)

2023 was characterized by tamed construction activities in the country due to low PSDP spending, rise in construction cost and low purchasing power of consumers due to high inflation, unprecedented level of discount rate and sluggish economic activity. Despite all the odds, SMCPL’s topline posted a stunning year-on-year growth of 436 percent in 9MFY23. This was due to the fact the majority of SMCPL’s sales were made to its related parties which include Javedan Corporation Limited, Global Residency Reit, Rahat Residency Reit and Silk Islamic Development Reit. Cost of materials surged by 365 percent year-on-year in 9MFY23, however, high volumetric sales and prices resulted in a 997 percent year-on-year growth in gross profit with GP margin clocking in at 23 percent in 9MFY23 as against 11.2 percent during the same period last year. Operating expenses also grew by 117 percent year-on-year in 9MFY23 which mainly comprises of administrative expense. Other expense considerably grew by 1298 percent year-on-year during 9MFY23; however, it was offset by 182 percent growth in other income during the period. Operating profit grew by a massive 1556 percent year-on-year in 9MFY23 while OP margin took a steep flight to clock in at 20 percent versus 6.4 percent in 9MFY22. Finance cost also grew by 273 percent year-on-year in 9MFY23 due to high discount rate. Despite that, net profit substantially grew by 3090 percent in 9MFY23 to clock in at Rs.128.5 million in 9MFY23 with an NP margin of 12 percent vis-à-vis 2 percent during the same period last year. EPS climbed up to Rs.5.12 in 9MFY23 versus Rs.0.16 in 9MFY22. The accumulated losses of Rs.122.527 as of June 2022 also turned into a revenue reserve of Rs.5.52 million as of March 2023.

Future Outlook

Significant rise in construction cost due to inflation, Pak Rupee depreciation, commodity super cycle as well as import restriction will restrict the pace of construction activities in the country. However, with 47 percent year-on-year increase in PSDP allocation to Rs.1.15 trillion in federal budget FY24, the sector pins hope that upcoming rehabilitation and reconstruction activities in the areas affected by Monsoon flood will spur demand in the cement and concrete sector. Furthermore a tax relief of 10 percent or 5 million on the business income of builders for the next three years is also a step to boost construction activities. However, with the tight fiscal position, high PSDP budget seems like a far-fetched dream.