Pakistan Synthetics Limited (PSX: PSYL) was incorporate in Pakistan as a private limited company in 1984 and was converted into a public limited company in 1987. The company is engaged in the manufacturing and sale of plastic caps, crown caps, Preform, PET Resin and BOPET Resin.

Pattern of Shareholding

As of June 30, 2023, PSYL has a total of 138.699 million shares outstanding which are held by 1384 shareholders. Individuals have the highest stake of 91.53 percent in the company followed by mutual funds holding 2.94 percent shares of PSYL. NIT and ICP account for 2.81 percent of the outstanding shares of the company. The remaining ownership is distributed among other categories of shareholders.

Financial Performance (2018-23)

Barring year-on-year decline in 2020, PSYL’s topline has been ascending in all the years under consideration. Conversely, its bottomline which witnessed net profit in 2018 fell into net losses for the subsequent two years. In 2021, PSYL bottomline returned to profitability which further improved in 2022 followed by a dip in 2023. PSYL’s gross margin follow a downhill journey until 2020, however, its operating margin dwindled in 2019 and then rebounded in 2020. In 2021, PSYL’s margins tremendously recovered only to tumble thereafter (see the graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.

In 2019, PSYL’s net sales mounted by 34 percent year-on-year. This was on account of an encouraging rise in the sales volume of Resin. Moreover, the company had instigated PET Preform manufacturing plant in May 2018 and started the commercial sale of its output in 2019. The sales volume of plastic and crown caps slightly fell in 2019. Cost of sales hiked by 36 percent year-on-year due to 32 percent drop in the value of Pak Rupee. Since PSYL imports nearly all of its raw materials, declining value of local currency drastically inflated the company’s cost of doing business. Massive increase in gas prices also added to ado. Gross profit grew by 18 percent year-on-year in 2019, however GP margin slumped from 11 percent in 2018 to 9.6 percent in 2019. Operating expense escalated by 11 percent year-on-year in 2019 due to an increase in the payroll expense as the number of employees rose from 306 in 2018 to 325 in 2019. Higher freight & handling charges, depreciation and provision for ECL also contributed towards higher operating expense in 2019. Other expense surged by an immense 102 percent in 2019 on account of exchange loss. This pushed the operating profit down by 36 percent year-on-year in 2019 with OP margin dipping to 2.7 percent from 5.5 percent in 2018. Finance cost magnified by 60 percent year-on-year in 2019 on the back of higher discount rate and increased borrowings. As a consequence, PSYL’s posted net loss of Rs.123.90 million in 2019 as against net profit of Rs.116.96 million in 2018. The company recorded loss per share of Rs.2.18 in 2019 versus EPS of Rs.2.09 in 2018.

PSYL’s net sales slumped by 6 percent year-on-year in 2020 owing to outbreak of COVID-19 which considerably trimmed down the demand. There was a decline in the sales volume of Resin, crown caps and plastic caps during the year. Conversely, the sales volume of Preform enhanced in 2020. During 2020, the prices of PET Resin in the international market significantly fell, resulting in heavy inventory loss for the company. This also squeezed the gross margin of PSYL which clocked in at 7 percent in 2020. Operating expense spiked by 26 percent year-on-year in 2020 on account of a steep hike in freight and forwarding charges and elevated payroll expense as the number of employees rose to 335 in 2020. Other expense fell by 98 percent year-on-year in 2020 due to lower exchange loss. Other income rose by 22 percent year-on-year on account of gain on disposal of fixed assets in 2020. Operating profit multiplied by 55 percent in 2020 with OP margin picking up to 4.4 percent. Finance cost surged by 18 percent in 2020 due to higher discount rate for most part of the year. PSYL registered a net loss of Rs.99.04 million in 2020, down 20 percent year-on-year. Loss per share was recorded at Rs.1.39 in 2020.

PSYL’s net sales rebounded by 10 percent in 2021. While the sales volume of Resin significantly fell in 2021, the off-take of Preform, plastic caps and crown caps propelled PSYL’s topline. Cost of sales slid by 5 percent year-on-year in 2021 due to favorable movement of local currency and prices of imported raw materials. Gross profit significantly rose by 216 percent in 2021 with GP margin jumping up to 20 percent. Operating expense registered a 17 percent hike in 2021. Higher provisioning for WWF and WPPF also drove the other expense up by over 13 times in 2021. Higher other expense was, to a great extent, offset by 465 percent rise in other income on the back of exchange gain and net re-measurement gain on provision of GIDC. In 2021, PSYL recorded 325 percent bigger operating profit compared to the previous year with OP margin climbing up to 17 percent. Monetary easing contributed towards lessening the finance cost in 2021. The company posted a net profit of Rs.748.37 million in 2021 with NP margin of 10.3 percent and EPS of Rs.8.09, the highest among all the years under consideration.

In 2022, PSYL boasted the highest topline growth of 70 percent. This was on account of upward price revision and 25.5 percent growth in sales volume across categories. Radical depreciation of Pak Rupee, high energy prices as well as escalated commodity prices particularly feed stock squeezed the gross margin to 19 percent in 2021. Operating expense mounted by 62 percent in 2022 on account of higher sales volume which drove the freight and forwarding charges up. High fuel prices and fatter payroll expense as the number of employees went up to 431 in 2022 from 369 in 2021 also had a say in taller operating expense in 2022. Hefty exchange loss and profitability related provisions inflated the other expense by 246 percent in 2022. As a consequence, operating profit marched up by 44 percent in 2022, however, OP margin slipped down to 14.4 percent. Increased borrowings and monetary tightening measures undertaken by the central bank in 2022 translated into 31 percent higher finance cost in 2022. Nevertheless, net profit ascended by 32 percent in 2022 to clock in at Rs.986.21 million with NP margin of 8 percent. EPS dropped by 12 percent in 2022 to clock in at Rs.7.11 despite higher profitability. This was on account of issue of 1 bonus share for every 10 shares held which increased the number of outstanding shares from 84.06 million in 2021 to 92.47 million in 2022.

Recent Performance (2023)

PSYL’s net sales went up by 17 percent year-on-year in 2023. However, it was mainly driven by increase in prices during the year. Cost of sales hiked by 19 percent due to Pak Rupee depreciation and higher international commodity prices particularly fuel. Gross profit enhanced by 11 percent in 2023; however GP margin inched down to 18 percent. 50 percent higher operating expense was the effect of higher fuel prices which drove up the freight and forwarding charges. Sales promotion, maintenance and warranties expense also hiked in 2023. Higher exchange loss also pushed the other expense up by 20 percent year-on-year in 2023. Operating profit rose up by 1 percent year-on-year in 2023, however, OP margin ticked down to 12.4 percent. Finance cost escalated by 53 percent year-on-year due to high discount rate and increased borrowings. Net profit slid by 19 percent year-on-year in 2023 to clock in at Rs.797.68 million with EPS of Rs.5.75 and NP margin of 5.5 percent.

Future Outlook

Exorbitant energy prices, discount rate and general inflation have brought the industrial activity to a standstill, squeezing the demand of PSYL products. The economic and political headwinds circling the economy will continue to pose challenges to the company in the coming times, taking a toll on its margins and profitability.