An affiliate of the multinational Ingredion Incorporated, Rafhan Maize Products Limited is Pakistan's leading corn refiner. The company boasts a whopping market capitalisation of around Rs 100 billion, making it one of the six food producers to have its symbol on the KSE100.
Rafhan Maize processes thousands of tons of maize each year to produce quality food and industrial products. Although it falls under the category of food producer, the firm produces a variety of starches and sweeteners that have applications in over 60 different types of industries, including textile, confectionery and bakery, paper and corrugation, food and beverages, pharmaceutical and chemical, poultry, livestock, aquaculture, and edible oils. The renowned brands under its name are Rafhan Maize Starch, Penetrose Modified Starch, Amisol, and Tex-o-Film Modified Starches and Coratex Blends. The company has received numerous awards and accolades for its outstanding performance, including FPCCI Export Trophy and Employer of the Year Award. Rafhan Maize has three manufacturing locations and warehouses in Faisalabad, Jaranwala, and Kotri, Jamshoro. The commercial and corporate office is in Karachi.
Prior Performance Rafhan Maize has seen non-stop top line growth, with sales almost doubling from 2010 to 2014. However, a look at the margins reveals that the company's performance has been deteriorating; gross profit margins have fallen from a glowing 25 percent in 2010 to 18 percent in 2014, while net margins fell from 13 percent to 10 percent over the same period. The main reasons cited for the pressure on margins is high energy cost with the usage of alternate fuels and the reduced or complete non-availability of power and gas. After corn, fuel and power is the company's biggest cost, amounting to 22 percent of cost of production.
Moreover, corn prices started escalating in 2010 and peaked in 2012, before gradually beginning a decline around mid-2013. This sustained rise in corn rates hurt the company's profitability over the years. Corn is the main raw material and forms around 63 percent of Rafhan Maize's cost of production.
A recurring theme in the company's annual reports has been the mention of pursuing new growth opportunities in export markets. To this end, Rafhan Maize has managed to grow exports by around 160 percent from FY10 to FY14. However, as a percentage of net sales, exports have shown little to no improvement. As mentioned earlier, Rafhan Maize's products are utilised in over 60 types of industries. This type of diversification gives the company hedges against a decline in any one industry. So, while some industrial segments could witness slow demand, others could report growth; corrugation, paper, home and personal care did well in FY14, whereas textile and paper and board performed poorly.
Recent Performance For the quarter ended March 2015, Rafhan Maize reported upbeat financials, posting an impressive 23 percent growth in income year-on-year despite a 2 percent decline in net sales. Gross and net margins improved by 300 bps and 200 bps year-on-year, respectively.
The company's top line declined owing to production bottlenecks in the form of gas shutdowns and depressed demand from most industrial sectors; textiles and confectionary - two major consumers - have been showing lacklustre demand. Moreover, competition from cheaper Indian starches also affected sales. Nevertheless, the company's profitability improved considerably. This came on the back of depressed fuel prices and lowered corn prices.
Together, these materials form around 86 percent of the company's costs, and fortunately, both have seen historic low throughout FY15. Moreover, the Rs 35 million drop in finance cost more than offset the increases in distribution, administrative, and other operating expenses. This also provided a significant cushion to the bottom line.
Outlook The business environment in Pakistan continues to face many challenges in the form of new taxes, loadshedding, and high cost of operations. With a presence in so many industries, Rafhan Maize is directly impacted by the happenings in those sectors. Textile in particular is highly damaged, and it happens to be one of Rafhan Maize's primary markets.
Regarding the food sector, the company faces challenges in the form of diminishing purchasing power of consumers, rising food inflation, and a ban by Punjab Food Authority on usage of Modified Food Grade Starches.
Nevertheless, Rafhan Maize looks good in the short term; fuel prices aren't going anywhere fast and corn prices are also down. The company continues to invest in the development of novel ingredients and applications, and is also investing in 12MW coal-fired co-generation power facilities at its Jaranwala plant to counter the energy shortage.

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Rafhan Maize Products Limited
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Rs  (million)              1QCY15      1QCY14         YoY
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Net Sales                   6,019       6,157         -2%
Cost of Sales               4,834       5,141         -6%
Gross Profit                1,185       1,016         17%
GP Margin                     20%         17%     300 bps
Distribution Expenses          66          56         18%
Administrative Expenses        95          90          6%
Other Income                   50          42         19%
Other Operating Expenses       78          66         18%
Finance Cost                    5          40        -88%
Taxation                      309         247         25%
Profit After Tax              682         559         22%
NP Margin                     11%          9%     200 bps
EPS                            74          61         22%
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