Buxly Paints Limited (PSX: BUXL) was incorporated in Pakistan as private limited company in 1954 and then was converted into a public limited company in 1985. The company is engaged in the manufacturing of sale of pigments and paints, varnishes, protective surface coating and other related products. The company has a toll manufacturing agreement with Berger Paints Limited. Besides catering to the local market, the company also exports its products to Far East and Middle East.

Pattern of Shareholding

As of June30, 2023, BUXL has a total of 1.44 million shares outstanding which are held by 834 shareholders. Associated companies account for 56.64 percent shares of BUXL followed by local general public having 35.64 percent stake in the company. Mutual funds hold 3.28 percent of the company’s shares while foreign public hold 2.57 percent shares. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

Except for a year-on-year slide in 2019, the topline of BUXL has been growing during the period under consideration. The bottomline of BUXL which had been in the negative zone in 2018 and 2019 started posting profits thereafter. BUXL’s net profit, however, nosedived in 2023. The company’s margins which considerably plunged in 2019 registered noticeable improvement in 2020. In 2021, gross margin fell while operating and net margins rebounded. 2022 witnessed erosion in BUXL’s margins which recovered in the subsequent year with the exception of net margin which continued to plummet (see the graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.

In 2019, the company was able to record low off-take on the back of cutthroat competition in the industry. The company raised the prices of its products to compensate for the increase in cost of sales in line with the inflationary pressure. However, not only did the topline slide by 18.34 percent year-on-year, gross profit also slipped by 35.7 percent in 2019. This resulted in GP margin of 12.1 percent in 2019 versus 15.3 percent in 2018. The company kept a check on its operating expenses, yet couldn’t be successful in attaining an operating profit in 2019.Its operating loss stood at Rs.12.14 million in 2019, 440 percent higher than the operating loss posted by the company in the previous year. Other income grew by 9 percent year-on-year mainly on account of rental income which BUXL makes by renting its land and building to Berger Paints Pakistan Limited; however, the gain was largely offset by high finance cost on the back of increased discount rate and high short-term working capital finance obtained during the year. BUXL posted a net loss worth Rs. 15.7 million in 2019 as against the net loss of Rs. 5.4 million in the previous year. Loss per share stood at Rs.10.90 versus loss per share of Rs.3.75 posted by the company in 2018.

In 2020, the company registered topline growth of 7.23 percent year-on-year which was the combined effect of high sales volume and upward price revisions. Rigorous cost control measures enabled BUXL to cut down its cost of sales by 1.59 percent year-on-year which resulted in a year-on-year increase of 72 percent in BUXL’s gross profit with GP margin clocking in at 19.3 percent. Operating expenses grew in line with inflation, but the company was in a strong position to absorb them and post an operating profit of Rs 7.29 million versus operating losses in 2018 and 2019. OP margin stood at 2.7 percent in 2020. Finance cost grew by 19.94 percent as the discount rate was high for the first three quarters of 2020. Other income didn’t paint a good picture either mainly on the back of a massive drop in royalty income from Berger Paints Pakistan Limited, an associated entity of BUXL. This squeezed the bottom line growth, yet BUXL was able to post a net profit of Rs.0.05 million with EPS of Rs.0.04 and NP margin of 0.02 percent.

While topline grew with a greater magnitude i.e. 28.83 percent and 45.66 percent respectively in 2021 and 2022, high cost of sales resulted in a plunge in GP margins which stood at 16.3 percent and 13.1 percent in 2021 and 2022 respectively. This was despite 9.12 percent and 16.8 percent rise in gross profit in 2021 and 2022 respectively. OP margin touched its highest level of 3.5 percent in 2021 with 68.92 percent growth in its operating profit as the company cut back on its distribution expense; however, OP margin slid back to 2.5 percent in 2022 as distribution expense rose up on the back of higher payroll expense, advertising & promotion expense as well as travelling expense. In 2022, operating profit registered a marginal 6.13 percent rise. Finance cost increased by 9.91 percent in 2021 despite low discount rate as the company procured more short-term financing during the year. In 2022, while the discount rate was on the rise, the company was able to cut its finance cost by 32.56 percent year-on-year as it immensely reduced its short-term borrowings during the year. Net profit grew by 5217 percent in 2021 to clock in at Rs.2.76 million with EPS of Rs.1.92. In 2022, net profit grew by 52.33 percent to clock in at Rs.4.21 million with EPS of Rs.2.93. NP margin of both 2021 and 2022 was almost the same i.e. 0.8 percent.

In 2023, BUXL’s topline mounted by 11.73 percent. The company was able to attain a tremendous growth of 32.24 percent in its gross profit in 2023 on the back of upward price revisions and cost-control measures implemented during the year. Distribution expense hiked by 20.35 percent in 2023 on the back of a significant rise in carriage outward as well as travelling & conveyance charges. Administrative expense registered a massive 80.37 percent spike in 2023 on account of impairment loss on ECL. Operating profit mounted by 21.65 percent in 2023 with OP margin slightly rising up to stand at 2.8 percent. Finance cost escalated by 66.14 percent in 2023 on the back of high discount rate. This pushed the bottomline down by 35.5 percent to clock in at Rs.2.72 million with EPS of Rs.1.89. NP margin receded to clock in at 0.5 percent in 2023.

Recent Performance (1QFY24)

During 1QFY24, BUXL attained net sales of Rs.170.81 million, up 33.68 percent year-on-year. This was the result of increased market coverage and price optimization which coupled with effective cost control measures culminated into 116 percent bigger gross profit in 1QFY24 with GP margin of 16.5 percent versus 10.2 percent during the same period last year. Distribution and administrative expenses multiplied by 62.3 percent and 98.5 percent respectively during 1QFY24 as a result of inflation and increased operations. BUXL’s robust gross profit was able to absorb the operational expenses producing 683.7 percent higher operating profit in 1QFY24 with OP margin of 4.35 percent versus 0.74 percent during 1QFY23. Finance cost escalated by 56.3 percent during the period on account of higher discount rate. BUXL was able to post net profit of Rs.2.93 million in 1QFY24 versus net loss of Rs.1.598 million in 1QFY23. The company posted EPS of Rs.2.03 in 1QFY24 versus loss per share of Rs.1.11 during the same period last year. NP margin stood at Rs.1.71 percent.

Future Outlook

Sluggish real-estate activity as well as weak overall economic backdrop coupled with low purchasing power on the consumer end is expected to keep BUXL’s volumes under pressure in the coming times. The topline might see a price-led growth as the company is increasingly tapping avenues to optimize its sales mix, control cost as well as discover new opportunities in the paint industry. The company must also tap new product markets or enter new geographical markets. This will not only expand its margins and bottomline growth butwill also give it an edge in the industry.