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, 2023, DAAG has a total of 4 million shares outstanding which are held by 2,122 shareholders. Individuals have a majority stake of 47.7 percent in the company followed by directors, CEO, their spouses, and minor children having a stake of 39.99 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 (2019-23)
Except for a marginal downtick in 2020, DAAG’s topline has been boasting reasonable growth in all the years under consideration. The bottom line also followed an upward trajectory except for a plunge in 2022. The margins depict an oscillating pattern over the years. In 2019, gross and operating margins posted a downtick while net margins picked up a bit. This was followed by a considerable rebound in all the margins in 2020. In 2021, gross margin fell while net and operating margins inched up. The subsequent two years they have marked significant augmentation in DAAG’s margins except for a downtick in net margin in 2022. All the margins attained their highest level in 2023. The detailed performance review of the period under consideration is given below.
In 2019, DAAG’s topline grew by 13.67 percent year-on-year. During the year, the company processed the seeds of cotton and wheat and produced hybrid corn. The revenue proceeds from seeds as well as delinting services posted a rise in 2019. Within seed sales, the major revenue was driven from hybrid corn seeds, followed by wheat seeds. Fuzzy and cotton seeds and the sale of paddy occupied the third and fourth spots in terms of revenue contribution. Third-party cultivation controlled DAAG’s cost which inched up by 13.97 percent year-on-year and culminated in 12.53 percent year-on-year growth in gross profit in 2019 while GP margin clocked 20.7 percent versus GP margin of 21 percent recorded in 2018. Higher payroll expenses due to inflation as well as fresh inductions and higher utility expenses pushed the administrative expenses up by 26 percent year-on-year in 2019. Distribution expense inched down by 2.45 percent year-on-year in 2019 as the company didn’t record any doubtful debts, write-offs, or commissions on sales in 2019. Operating profit posted a 5.97 percent year-on-year decline in 2019 with OP margin sliding down to 4.9 percent from 6 percent in 2018. Finance cost grew by 12.2 percent year-on-year in 2019, however, it mainly comprised WWF, WPPF, and stock exchange fees as the company had no bank loans on its books until 2019. While profit before taxation was down by 8.36 percent year-on-year in 2019, deferred taxation resulted in a 27.59 percent rise in the bottom line 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 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 a halt and exerted pressure on the demand for hybrid seeds. During 2020, the sales proceeds from fuzzy and cotton seeds, Okra, and micronutrients posted a massive decline. Sales of paddy, Lint, and Vanda also slightly tumbled. Conversely, the revenue from delinting increased during the year. Cost of sales dropped by 3.43 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 8.97 percent year-on-year in 2020 due to higher salaries and wages as well as provision for loss allowance during the year.
Conversely, distribution expenses dropped by 9 percent year-on-year due to lesser advertisement and sales promotion expenses incurred in 2020. Operating profit multiplied by 30.92 percent year-on-year in 2020 with OP margin improving to 6.5 percent. Finance cost grew by 11.62 percent year-on-year in 2020 due to higher WWF and WPPF. 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 30.47 percent year-on-year growth in its topline which came on the back of improved demand as well as prices. The 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 million tons of seeds. Third-party processed seeds, however, posted a 31 percent drop to clock in at 1910 million tons. Cost of sales grew by 34.19 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 17.7 percent year-on-year in 2021, however, GP margin slumped to 20.4 percent. Administrative expenses grew by only 3.73 percent year-on-year as the company considerably reduced the provision for loss allowance in 2021 which offset higher payroll expenses incurred during the year. Distribution expense grew by 11.14 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 inched up by a mere 1.26 percent in 2021 primarily on account of higher WWF and WPPF. All these factors culminated in a 37.78 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. EPS clocked in at Rs.2.01 in 2021.
In 2022, DAAG registered a 5.74 percent year-on-year improvement in its topline. While sales of services i.e. seed processing as well as cleaning and drying posted considerable growth of 42 percent during the year, sales of seeds grew by less than 1 percent in 2022. As of 2022, the sale of services had a 16 percent contribution to 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 1.43 percent year-on-year in 2022. Gross profit strengthened by 22.56 percent year-on-year translating into GP margin of 23.6 percent in 2022. Administrative expenses grew by 6.87 percent year-on-year in 2022 due to higher payroll expenses as well as write-offs of bad debts during the year. Distribution expense also posted a 20.65 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 49.2 percent year-on-year in 2022 and OP margin surged to 9.9 percent. Finance cost escalated by 25.79 percent year-on-year in 2022 due to higher WPPF. Profit before taxation grew by 51.39 percent year-on-year in 2022; however, the payment of deferred taxation resulted in 66.7 percent shrinkage in net profit which 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.
Monsoon rains ruined the agricultural infrastructure in the southern region of the country and significantly affected the purchasing power of farmers. However, demand recovery towards the end of the financial year enabled DAAG to post a 5.9 percent year-on-year rise in its net sales in 2023. The sale of hybrid corn seeds continued to be the star product of the company contributing over 47 percent to the overall sales mix in 2023. Third-party cultivation enabled the company to reduce its cost which grew by 5.34 percent in 2023. As a consequence, gross profit built up by 7.7 percent in 2023 with GP margin attaining its peak level of 24 percent. Administrative expense multiplied by 13.81 percent year-on-year in 2023 mainly on account of higher payroll expense due to inflationary pressure. Distribution expenses inched up by 2.77 percent in 2023 due to lower payroll expenses as well as curtailed vehicle running and advertisement expenses incurred during the year. 359.92 percent year-on-year growth in other income in 2023 was the effect of hefty cleaning & drying income. DAAG’s operating profit rose by 18.24 percent year-on-year in 2023 with OP margin climbing up to 11 percent. Finance costs surged by 414.38 percent in 2023 as the company acquired running finances to meet its working capital requirements during the year. Until last year, the company had no external borrowings on its books. While the company posted a 12.62 percent year-on-year decline in its profit before tax in 2023, deferred taxation resulted in a tax credit of Rs.0.58 million in 2023. As a consequence, net profit registered 582 percent year-on-year growth to clock in at Rs.16.82 million in 2023 with EPS of Rs.4.21 and NP margin of 7.8 percent.
Recent Performance (9MFY24)
Better farm economics and improved agricultural output enhanced the purchasing power of farmers during the year. This resulted in a 111.98 percent year-on-year improvement in the net sales of DAAG during 9MFY24. Robust net sales were the result of improved off-take of hybrid corn and other seeds during the period. Cost of sales grew by 104.16 percent during 9MFY24, resulting in a 135 percent escalation in gross profit with GP margin recorded at 28 percent versus 25.32 percent during the same period last year. Administrative expenses surged by 23.14 percent during 9MFY24 on account of higher payroll expenses in line with inflation. Distribution expenses also escalated by 6.77 percent during the period. 62 percent improvement in other income during the period is supposedly the result of improved cleaning & drying income.
DAAG posted 335.52 percent higher operating profit during 9MFY24 with an OP margin of 19.96 percent versus an OP margin of 9.72 percent during 9MFY23. Finance costs mounted by 3661.23 percent during 9MFY24 due to increased short-term loans obtained during the period coupled with higher discount rates. Net profit strengthened by 104.2 percent year-on-year to clock in at Rs.17.041 million in 9MFY24 with EPS of Rs.4.26 versus EPS of Rs.2.08 recorded during the same period last year. NP margin ticked down from 6.41 percent recorded during 9MFY23 to 6.17 percent during 9MFY24.
Future Outlook
DAAG has invested in new seed varieties of cotton and wheat, as well as tapping the vegetable seeds market. This will improve the core income of the company amid a vivid agricultural outlook. Furthermore, delinting and processing seeds for third parties will add to the company’s other income. Third-party seed cultivation will continue to keep the cost in check. All these factors signal robust financial performance in the future.