Tri-Pack Films Limited (PSX: TRIPF) was established as a Public limited company in 1993. The company is a joint venture between Mitsubishi Corporation of Japan and Packages Limited of Pakistan. The company is engaged in the manufacturing and sale of Biaxially Orientated Polypropylene (BOPP) films and Cast Polypropylene (CPP) films in Pakistan.

Pattern of Shareholding

As of December 31, 2022, TRIPF has an outstanding share capital of 38.8 million shares which are held by 1663 shareholders. Associated companies, undertakings, and related parties hold 79.58 percent of TRIPF’s shares. Within this category, M/S Packages Limited leads with 26.87 million (or 69.25 percent) shares. The local general public forms the next biggest category of shareholders accounting for 12.23 percent of TRIPF’s shares. Directors, CEOs, their spouses, and minor children own 2.26 percent of the company’s shares followed by Insurance companies holding 1.76 percent shares. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-2023)

TRIPF’s topline has been expanding unabatedly over the period under consideration. Conversely, its bottom line slid twice during the period i.e. in 2019 and 2022 with net loss in the former year. TRIPF’s margins, which slightly ticked down in 2019 rebounded with great momentum for the subsequent two years. In 2022, margins slightly dipped which were maintained in 2023. The detailed performance review of the period under consideration is given below.

In 2019, TRIPF’s topline registered year-on-year growth of 11 percent which was the effect of improved prices, better sales mix, increased export volumes, and new products commercialized during the year. The company sold 48,198 M tons of products, down 1 percent year-on-year in 2019. While export sales multiplied by 462 percent to clock in at 4050 million tons, local sales took an 8 percent slide due to the general slowdown of the economy in 2019. High cost of sales due to Pak Rupee depreciation, high inflation, soaring international commodity prices, and elevated energy sector tariff slightly reduced the company’s GP margin from 10.41 percent in 2018 to 10.15 percent in 2019. Gross profit increased by 8 percent in 2019. TRIPF’s operating expense grew by 15 percent year-on-year in 2019 primarily due to higher fuel rates resulting in towering outward freight charges. Other income increased by 76 percent year-on-year in 2019 due to higher scrap sales and liabilities written back during the year. Other expenses slumped by 94 percent year-on-year in 2019 due to no profit-related provisioning made during the year. Therefore, operating profit grew by 10 percent year-on-year in 2019; however, OP margin slightly ticked down from 5.5 percent in 2018 to 5.45 percent in 2019. Finance costs escalated by 61 percent year-on-year in 2019 due to higher discount rates as well as exchange loss. Higher finance costs coupled with increased taxation due to minimum tax on the import of raw plastic materials resulted in a net loss of Rs.309.81 million in 2019 as against a net profit of Rs.157.36 million in 2018. TRIPF posted a loss per share of Rs.8 in 2019 versus EPS of Rs.4.1 in 2018.

During 2020, COVID-19 affected all sectors of the economy – locally as well as globally. Yet, TRIPF was able to achieve a sales volume of 47,972 metric tons, down by a paltry 0.5 percent year-on-year. Local sales volume slightly improved by 1 percent in 2020, however, export sales plunged by 16 percent year-on-year due to restrictions on the movement of goods and people in many export destinations (see the graph of Sales volume). Gross profit multiplied by 64 percent year-on-year in 2020 with GP margin clocking in at 16.18 percent owing to operational effectiveness, better export margins, and reorganizing of product portfolio. During 2020, Admin and distribution costs expanded in line with high fuel costs and certain one-off expenses such as provision for bad debts and legal expenditures. Other income increased by 65 percent year-on-year in 2020 due to a one-time gain on the re-measurement of GIDC in accordance with the reporting standards. Other charges grew exorbitantly from Rs.1 million to Rs.135 million owing to statutory charges and loss on trade receivables. Operating profit strengthened by 98 percent year-on-year in 2020 with OP margin climbing up to 10.5 percent. The company was able to reduce its finance costs by only 1 percent year-on-year despite a reduction in the discount rate because of the huge exchange loss during the year. Besides the low discount rate, the company has reduced its debt-to-equity ratio from 60:40 in 2019 to 54:46 in 2020.TRIPF was able to post a net profit of Rs.614.09 million in 2020 with an NP margin of 4.07 percent. EPS stood at Rs.15.8 in 2020.

2021 touted an impressive topline growth of 26 percent year-on-year despite a 2 percent lower sales volume. In 2021, while many economies were showing signs of recovery post-COVID-19, the company faced supply chain disruptions on account of shipping line issues and container shortages which affected the timely supply of raw materials. Local sales volume plunged to 42,810 metric tons (down 4 percent year-on-year) while export sales showed a recovery of 17 percent year-on-year to clock in at 3985 metric tons. The growth in topline and GP margin of 16.83 percent was the result of higher prices and better margins on export sales. Operating expenses grew by 8 percent year-on-year in 2021 on account of inflation. Other expenses and other income dropped due to one-time bookings in the last year. Finance costs increased despite discount rate cuts owing to exchange loss which grew by 12 percent year-on-year coupled with a loss on re-measurement of provision for GIDC. Besides, the company increased its debt-to-equity ratio to 65:35 on account of greater working capital needs and capital investment in the new BOPP line project. TRIPF was able to increase its net profit by 70 percent year-on-year in 2021 to clock in at Rs.1041.86 million with an NP margin of 5.47 percent and EPS of Rs.26.85 – the highest level since 2017.

In 2022, the company was able to maintain its topline growth trajectory. In fact, in 2022, the topline growth of 27 percent year-on-year, was the highest growth ever achieved by TRIPF. However, this could not trickle down into healthy bottom-line growth. High sales growth was the result of the 41 percent higher export sales volume as well as the 1 percent higher local sales volume attained by the company during the year coupled with soaring prices. Overall, sales volume went up by 4 percent year-on-year in 2022 (see the graph of sales volume). Due to the ongoing energy crisis in China, the company tapped new markets for specialized films that were not available before, hence providing impetus to its export sales. In 2022, SSGC switched the company’s gas supply to RLNG which is three times as expensive as normal gas. This increased the cost of sales of TRIPF resulting in a lower GP margin of 15.78 percent in 2022. Thirty percent higher administrative and sales expenses came on the back of higher outward freight charges owing to improved export sales with inflationary pressure and elevated fuel prices also playing their due role. Other income surged by 49 percent year-on-year in 2022 primarily due to higher sales of scrap materials. However, improved other income was absorbed by a 45 percent increase in other expenses on the back of loss allowance booked on trade receivable in 2022 versus reversals in the previous year. Operating profit grew by 14 percent year-on-year in 2022, however, OP margin slipped to 10.59 percent. Finance costs escalated by 42 percent year-on-year on the back of multiple hikes in the discount rate coupled with the company’s highly leveraged capital structure. This coupled with the imposition of super tax squeezed the bottom line by 17 percent year-on-year in 2022 to clock in at Rs.863.51 million with NP margin dropping to 3.6 percent and EPS clocking in at Rs.22.26.

Recent Performance (2023)

In 2023, TRIPF’s topline attained a paltry 3 percent year-on-year rise. While detailed financial statements are not yet published by the company to comment on the sales volume, the stability of gross margin despite the hiking cost of sales validates the role of upward price revisions in topline growth. 9MCY23 statement also approves of the fact, whereby the company registered a 17 percent lower off-take on the back of import restrictions and muted economic activity. Operating expenses mounted by 14 percent year-on-year in 2023 on the back of inflation and exorbitant fuel prices. Other income grew by 50 percent year-on-year in 2023 while other expenses slid by 30 percent. All these factors culminated into a 3 percent bigger operating profit posted by TRIPF in 2023 with OP margin clocking in at 10.54 percent slightly lower than the OP margin of 10.59 percent recorded by the company in 2022. Finance costs dropped by 22 percent in 2023. This may be due to better working capital management and lower exchange losses as the Pak Rupee gained stability in 4QCY23. Net profit multiplied by 13 percent year-on-year in 2023 to clock in at Rs.979.118 million with EPS of Rs.25.24 and NP margin of 3.94 percent.

Outlook

Export sales of the company are expected to grow on the back of newly identified export destinations. However, local demand is likely to remain sluggish due to lackluster economic activity. The high cost of production on the back of costly raw materials coupled with expensive RNLG will continue to take its toll on the margins. High finance is another Achilles heel for TRIPF due to its geared capital structure. Financing requirements will further escalate as the company invests in a new BOPP line project. This coupled with the imposition of super tax will continue to dilute TRIPF’s profitability.