Diamond Industries Limited (PSX: DIIL) was incorporated in Pakistan as a private limited company in 1989. The company is engaged in the manufacturing and sale of foam products and PVA products for domestic and industrial consumption.
Pattern of Shareholding
As of June 30, 2023, DIIL has a total of 9 million shares outstanding which are held by 281 shareholders. Associated companies, undertaking, and related parties have the majority stake of 40.79 percent in the company followed by the local general public holding 30.70 percent shares of DIIL. Directors, CEOs, their spouses, and minor children account for 19.0389 percent shares of the company while joint stock companies hold 9.45 percent shares. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-23)
From no turnover and a negative bottom line in 2019, DIIL’s topline and the bottom line took an upward flight until 2022. However, in 2023, the topline slid back and the bottom line entered the red zone yet again. DIIL’s margins boasted their optimum level in 2021 followed by a downright contraction. The detailed performance review of the period under consideration is given below.
In 2019, DIIL made no sales and incurred no cost as it rented out its manufacturing facility and machinery to its associated company Diamond Tyres Limited. Its administrative expense multiplied by 17.76 percent in 2019 due to higher payroll expenses as well as elevated legal & professional charges incurred during the year. Depreciation expenses dropped by 8.48 percent in 2019. Other income also registered a 25.82 percent year-on-year decline in 2019 as DIIL earned dividend income and disposed of its assets in the previous year. Operating loss mounted by 456.52 percent in 2019 to clock in at Rs.12.95 million. Finance cost shrank by 99.77 percent in 2019 as the company didn’t incur any exchange loss and made no mark-up payments during the year. Higher accumulated loss squeezed the company’s equity, resulting in a gearing ratio of 43 percent in 2019 versus 39 percent in 2018. The company settled its disputes with Allied Bank Limited (ABL) in 2018 and sought fresh financing facilities from financial institutions to resume operations. DIIL reported a net loss of Rs.28.326 million in 2019 versus a net profit of Rs.14.665 million in 2018. Loss per share stood at Rs.3.15 in 2019 versus EPS of Rs.1.63 in 2018.
While the company settled its liabilities in 2018 and was all set to resume its operating activities, due to the outbreak of COVID-19, the sharp depreciation of the Pak Rupee, and a spike in the price of raw materials, the company didn’t recommence in 2020. DIIL registered net sales of Rs.9.23 million in 2020 which was on account of the sale of raw materials. The cost of inventory sold stood at Rs.8.42 million in 2020, resulting in a gross profit of Rs.0.81 million and a GP margin of 8.82 percent. To keep its machinery running and to meet its operating expenses, the company rented out its plant & machinery to its allied company Diamond Tyres Limited. Administrative expenses grew by 73.97 percent in 2020 due to higher payroll expenses, increased provisioning for other receivables, and other miscellaneous charges incurred during the year. While rental income stayed intact at Rs.18 million in 2020, dividend income of Rs.13.84 million resulted in 76.86 percent higher other income in 2020. DIIL registered an operating profit of Rs.1.4 million in 2020 with an OP margin of 15.18 percent. Finance cost stood at Rs.0.99 million in 2020 which mainly comprised of finance cost on WPPF not paid in previous years. DIIL made a net profit of Rs.0.226 million in 2020 with EPS of Rs.0.03 and NP margin of 2.45 percent.
In 2021, the company terminated its lease arrangement with the mutual consent of the parties and restarted its core manufacturing operations. During the year, DIIL recorded net sales of Rs.163.26 million, up 1668.89 percent year-on-year. The cost of sales stood at Rs.146.58 million in 2021, resulting in a gross profit of Rs.16.69 million. GP margin was recorded at 10.22 percent in 2021. Administrative expenses contracted by 42.32 percent in 2021 as the company didn’t book any provision for other receivables, provision for loss allowance, provision for penalty, and other miscellaneous charges during the year. During the year, the company expanded its workforce from 7 employees in 2020 to 329 employees. DIIL also incurred a distribution expense of Rs.3.12 million in 2021 which primarily included freight & forwarding charges. The company also booked provisioning worth Rs. 2.2 million for WWF and WPPF in 2021. Other income grew by 5 percent in 2021 due to income from disposal of assets. DIIL recorded an operating profit of Rs.26.77 million in 2021, up 1811.40 percent year-on-year with an OP margin of 16.4 percent. Finance cost ticked by 12.12 percent in 2021, largely comprised of finance cost on WPPF not paid in earlier years. Net profit clocked in at Rs.33.515 million in 2021, up 14738.34 percent year-on-year with EPS of Rs.3.72 and NP margin of 20.53 percent.
DIIL’s net sales mounted by 993.66 percent in 2022 to clock in at Rs.1785.56 million. High inflation, elevated cost of raw materials, energy charges, and Pak Rupee depreciation resulted in a thinner GP margin of 9.86 percent in 2022. Gross profit enlarged by 954.74 percent in 2022. Administrative expenses posted an 80.26 percent year-on-year surge in 2022 due to higher payroll expenses as the company further expanded its workforce to 331 employees. Besides, higher legal & professional charges also pushed the administrative expenses up in 2022. Distribution expense escalated by 2305.32 percent in 2022 due to higher freight & forwarding charges incurred during the year. Increased provisioning for WWF and WPPF pushed up other expenses by 152.38 percent in 2022. Other income shrank by 85.82 percent in 2022 as the company didn’t receive rental income and income from the disposal of assets in 2022. Operating profit grew by 152.5 percent in 2022 to clock in at Rs.67.6 million; however, OP margin drastically fell to 3.79 percent. Finance cost slid by 98.61 percent in 2022 as the company didn’t pay the finance cost of WPPF. Net profit grew by 57.86 percent to clock in at Rs.52.907 million with EPS of Rs.5.88 and NP margin of 2.96 percent.
After two years of posting robust sales and a fat bottom line, DIIL’s net sales plunged by 46.24 percent in 2023. Due to adverse economic and political conditions in the country, the company suffered from lackluster demand during the year. Moreover, the thin foreign exchange reserves of the country resulted in import restrictions which led to the non-availability of raw materials to DIIL. The company suspended its operations in the latter half of the year. Cost of sales tumbled by 42.47 percent in 2023 due to low sales, resulting in an 80.7 percent thinner gross profit in 2023. GP margin stood at 3.54 percent in 2023. DIIL cut down its administrative expense by 36 percent in 2023 due to widespread downsizing, resulting in a workforce of only 20 employees in 2023, from 331 employees in the previous year. Legal & professional charges also considerably dropped in 2023. 43 percent thinner distribution expense incurred by DIIL in 2023 was due to lesser freight & forwarding charges owing to curtailed sales volume. The company didn’t book any profit-related provisioning in 2023. Other income also slumped by 35 percent in 2023 due to lower dividend income. The company registered an operating loss of Rs.26.47 million in 2023. Finance cost stood at Rs. 0.37 million in 2023, largely comprising of finance costs paid on WPPF. DIIL posted a net loss of Rs.43.65 million in 2023 with a loss per share of Rs.4.85.
Recent Performance (9MFY24)
Adverse politico-economic conditions in the country, high cost of production, and sluggish demand didn’t resume its operations in 2024. Consequently, no net sales were recorded during 9MFY24 versus net sales of Rs.969.79 million recorded during the same period last year. While DIIL didn’t incur any distribution expense during the period, administrative expense surged by 36.63 percent during 9MFY24, maybe due to legal & professional charges as the company has some matters under litigation with customs authorities, FBR, SECP, and stock exchanges. Other income also plummeted by 89.36 percent during 9MFY24. DIIL posted an operating loss of Rs.15.43 million in 9MFY24, up 43.38 percent year-on-year. No finance cost was paid during the year. Net loss stood at Rs.26.09 million in 9MFY24, down 25.81 percent year-on-year. Loss per share clocked in at Rs.2.9 in 9MFY24 versus a loss per share of Rs.3.91 during the same period last year.
Future Outlook
The resumption of DIIL’s operations is contingent on the recovery of the country’s macroeconomic conditions. The company aims to employ a market penetration strategy to enhance its presence and generate demand.