Packages Limited 1HCY12

The performance of the packaging giant has been sinking in the operational swamp for quite some time now. Rising cost of energy and prices of imported and local raw material have been chomping away the companys margins, not to mention the one-off unpleasant event that rocked the consumer products division back in the last quarter of CY12.
The effects of the fire that broke out damaged the stocks, tissue conversion equipment, table napkin machines, paper cup machine and related equipments, consequently overshadowing the plants capacity. Still recovering from the incident, Packages Limiteds operational performance for 1HCY12 has undoubtedly been rattled by the operational holdups and inherent industry and economic challenges.
Overall, the revenues for 1HCY12 have remained flat year-on-year with almost 47 percent contraction in export sales. Due to relatively flatter cost of sales during the period under review, Packages Limited was able to bag a growth of 17 percent YoY in gross profits and an improvement in gross margins.
A first sign of recovery is the ability in 2QCY12 to take the company out of the red zone vis-à-vis 2QCY11. Though the QoQ performance is not markedly impressive and the expectations of a full fledged restart on the companys behalf did not surface extravagantly, the company was able to move meekly compared to the turbulent similar period last year.
Where net profit turned green once again, operating and net margins also improved moderately during 1HCY12 versus 1HCY11.
If due to high cost of raw material and capital intensive nature of paper and board division, the company goes ahead with its plan to turn the same into a separate business entity; efficiency will climb up.
In the meantime, what is required immediately is efficiency optimisation to disentangle the packaging giant from the unproductive mesh. The weakening export sales are another opportunity for the company where it can tap into potential markets of the paper importing world.
The company also has plans to forestall its reliance from furnace oil, diesel and natural gas to alternate energy resources which will definitely bode well for the coming years.

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Packages Limited

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Rs (mn)                   1HCY12     1HCY11        Chg

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Net sales                10,132      9,937        2.0%

Cost of sales             9,631      9,508        1.3%

Gross profit                501        429       16.9%

Administrative exp          350        323        8.2%

Dist. & Mkt costs           263        286       -8.0%

Operating profit/(loss       72        (24)

Finance cost                718        695        3.3%

Investment income           675        702       -3.9%

Profit/(loss) after tax     272       (209)

EPS (Rs. per share)         3.23      -2.48

Gross margin                4.9%       4.3%

Operating margin            0.7%      -0.2%

Net margin                  2.7%      -2.1%

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