Data Agro Limited (PSX: DAAG) was incorporated in Pakistan as a private limited company in 1992 and was converted into a public limited company in 1994. The company is engaged in the production and processing of agro seeds. Another activity of the company is the delinting of cotton crops.

Pattern of Shareholding

As of June 30, 2022, DAAG has a total of 4 million shares outstanding which are held by 2,140 shareholders. General public is the major shareholder of the company and holds 50.033 percent shares. This is followed by directors, CEO, their spouse and minor children having a stake of 37.91 percent in the company. Data Enterprises (Private) Limited, an associated company of DAAG, accounts for 9.87 percent of its shares. Around 1 percent of the company’s shares are held by NIT and ICP. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

Except for a marginal downtick in 2020, DAAG’s topline has been boasting reasonable growth in all the years under consideration. The bottomline also follows an upward trajectory since 2018 except for a plunge in 2022. The margins depict a mixed pattern whereby gross margin shows an uptick only in 2020 and 2022 while OP margin is on the rise since 2020. NP margin started rising since 2019 but massively drops in 2022. The detailed performance review of each of the years under consideration is given below.

In 2019, DAAG’s topline grew by 14 percent year-on-year. During the year, the company processed the seeds of cotton and wheat and produced hybrid corn. During the year, the revenue proceeds from seeds as well as delinting services posted a rise. Within seeds sales, the major revenue is driven from hybrid corn seeds, followed by wheat seed. Fuzzy and cotton seeds and sale of paddy occupy the third and fourth spot in terms of revenue contribution. Third party cultivation controlled DAAG’s cost which inched up by 14 percent year-on-year and culminated into a 13 percent year-on-year growth in gross profit in 2019 while GP margin clocked in 20.7 percent – almost the same as recorded in 2018. The company kept a check on its operating expenses, however, higher payroll expense due to inflation as well as fresh inductions as well higher utility expenses pushed the administrative expenses up by 26 percent year-on-year in 2019. Distribution expense inched down by 2 percent year-on-year in 2019. The operating profit posted a 6 percent year-on-year decline in 2019 with OP margin sliding down to 4.9 percent versus 6 percent in 2018. Finance cost grew by 12 percent year-on-year in 2019, however, it mainly comprises of WWF, WPPF and stock exchange fee as the company had no bank loans on its books until 2019. While profit before taxation was down by 8 percent year-on-year in 2019, deferred taxation resulted in a 28 percent rise in the bottomline which clocked in at Rs.3.97 million in 2019 with an NP margin of 2.7 percent versus 2.4 percent in 2018. EPS grew up to Rs.0.99 in 2019 versus Rs.0.78 in the previous year.

In 2020, DAAG’s sales plunged by 1 percent year-on-year. The outburst of COVID-19 at the end of 2020 put economic activities at halt and put pressure on the demand of hybrid seeds. During 2020, the sales proceeds from fuzzy and cotton seeds, Okra and micronutrients posted a massive decline. Sale of paddy, Lint and Vanda also slightly tumbled. Conversely, the revenue from delinting increased during the year. Cost of sales dropped by 3 percent year-on-year in 2020, resulting in an 8 percent year-on-year rise in gross profit. GP margin also climbed up to 22.6 percent in 2020. Administrative expenses grew by 9 percent year-on-year in 2020 due to higher salaries and wages as well as provision for loss allowance during the year. Distribution expense dropped by 9 percent year-on-year due to lesser advertisement and sales promotion in 2020. Operating profit multiplied by 31 percent year-on-year in 2020 with OP margin improving to 6.5 percent. Finance cost grew by 12 percent year-on-year in 2020 due to higher WWF and WPPF. The net profit grew by 47 percent year-on-year in 2020 to clock in at Rs.5.84 million with an NP margin of 4 percent. EPS inched up to Rs.1.46 in 2020.

In 2021, DAAG posted a 30 percent year-on-year growth in its topline which came on the back of improved demand as well as prices. International seeds market also showed recovery in 2021. The company’s annual production increased by 84 percent year-on-year in 2021 to clock in at 1569 M Tons of seeds. Third party processed seeds, however, posted a 31 percent drop to clock in at 1910 M tons. Cost of sales grew by 34 percent year-on-year mainly on account of higher prices of seeds, chemicals as well as fuel and power. Research and development expenses also grew during 2021 as the company continuously strived to introduce new varieties of seeds to boost agricultural output within the country. Gross profit increased by 18 percent year-on-year in 2021, however, GP margin slumped to 20.4 percent. Administrative expenses grew by only 4 percent year-on-year as the company considerably reduced provision for loss allowance in 2021. Distribution expense grew by 11 percent year-on-year in 2021 due to higher payroll expense, repair and maintenance charges as well as freight and octroi. Operating profit grew by 40 percent year-on-year in 2021 and OP margin also grew to 7 percent. Finance cost grew by a mere 1 percent in 2021 primarily on account of higher WWF and WPPF. All these factors culminated into a 38 percent year-on-year rise in net profit which clocked in at Rs.8.04 million in 2021 with an NP margin of 4.2 percent – the highest among all the years under consideration. EPS clocked in at Rs.2.01 in 2021.

2022 mustered 6 percent year-on-year surge in the topline of DAAG. While sale of services i.e. seed processing as well as cleaning and drying posted a considerable growth of 42 percent during the year, while sale of seeds grew by less than 1 percent in 2022.As of 2022, sale of services had 16 percent contribution in the overall sales mix of DAAG. During 2022, DAAG produced 3679 M tons of seeds, up 5.7 percent year-on-year. The cost of sales grew by 1 percent year-on-year in 2022. Gross profit grew by 23 percent year-on-year translating into a GP margin of 23.6 percent in 2022 – the highest among all the years under consideration. Administrative expense grew by 7 percent year-on-year in 2022 due to higher payroll expense as well as write off of bad debts during the year. Distribution expense also posted a 21 percent year-on-year rise in 2022 due to higher vehicle running expenses as fuel charges profoundly increased during the year. Operating profit grew by 49 percent year-on-year in 2022 and OP margin surged to 10 percent – the highest since 2018. Finance cost grew by 26 percent year-on-year in 2022 due to higher WPPF. Profit before taxation grew by 51 percent year-on-year in 2022; however, the payment of deferred taxation resulted in 67 percent shrinkage in net profit. Net profit stood at Rs.2.68 million in 2022 with an NP margin of 1.3 percent – the lowest among all the years under consideration. EPS also dwindled to Rs.0.67 in 2022.

Recent Performance (9MFY23)

DAAG kicked off 2023 on a gloomy note as its topline slid by 9 percent year-on-year in 9MFY23. Monsoon rains ruined the agricultural infrastructure in the southern region of the country and significantly affected the purchasing power of farmers. High inflation and cost of borrowing added further to farmers’ misery resulting in reduced demand of hybrid seeds. Cost of sales also shrank by 11 percent year-on-year in 9MFY23 resulting in an uptick in GP margin from 23.5 percent in 9MFY22 to 25.3 percent in 9MFY23. Administrative and distribution expense surged by 18 percent and 40 percent year-on-year respectively during 9MFY23 which pushed the operating profit down by 16 percent year-on-year. OP margin also slumped from 10.5 percent in 9MFY22 to 9.7 percent during 9MFY23. Finance cost narrow down by 7 percent year-on-year in 9MFY23 which might be on account of lesser WWF and WPPF due to low profitability. The bottomline dived by 15 percent year-on-year in 9MFY23 to clock in at Rs.8.345 million with an NP margin of 6.4 percent versus 6.9 percent during the same period last year. EPS contracted to Rs.2.08 in 9MFY23 versus Rs.2.47 in 9MFY23.

Future Outlook

DAAG plans to invest in the new seed varieties of cotton and wheat besides tapping the vegetables seeds market. The incumbent government is planning to incentivize the agriculture sector by exempting duty on the import of seeds and abolishment of sales tax on plant saplings besides increasing the annual target of agricultural loans from Rs.1800 billion to Rs.2250 billion in the federal budget 2023-24. This might encourage farmers to invest in the hybrid seed varieties.