Matco Foods Limited

Matco Foods Limited (PSX: MFL) was established in 1964 as a private limited company under the repealed Companies Ordinance, 1984. In 1967, it set up its first processing plant in Larkana, Sindh. Presently, Matco Foods has five processing plants where it processes and exports rice, rice glucose, rice protein. It also trades biscuits, pink salt, bran oil, masala, kheer, etc. The company also sells in the global market. Some of its export destinations include Netherlands, USA, Middle East, Italy, Greece, South Africa, Australia, etc.

Shareholding pattern

As at June 30, 2021, close to 61 percent shares are held with the directors, CEO, their spouses and minor children. Within this category, Mr. Jawed Ali Ghori, Mr. Khalid Safaraz Ghori and Mr. Tariq Ghori are major shareholders, each owning close to 20 percent shares. The local general public owns almost 16 percent shares followed by another 15 percent shares held in associated companies, undertakings and related parties. The remaining about 8 percent shares is with the rest of the shareholder categories.

Historical operational performance

Topline has been growing consistently between FY17 and FY20, while profit margins have been declining since FY18.

Topline in FY18 registered a growth of 9.6 percent as a result of favourable prices in the international rice market for basmati from US$ 849.83 in the previous year to US$ 1,119.68 in the current period, exchange gain on export sales due to currency devaluation and the tax benefit resulting from the installation of Rice Glucose Plant (Phase 1), in addition to company listing. During the year, the company also exported its first rice glucose container. Due to better prices, the company focused on exports of basmati rice, and reducing the same for IRRI as the latter fetched lower margins. However, cost of production that grew to 87 percent of revenue, kept gross margins in check at 12.8 percent. Net margin at a marginally higher 4.6 percent, on the other hand, was supported by a net exchange gain of Rs 73 million.

Topline growth in FY19 stood at nearly 17 percent due to exports of basmati rice that earned higher profit margins. Volumetrically, exports grew by 2.45 percent. While cost of production at over 88 percent reduced gross margin to 11.6 percent, net margin was improved at 5.27 percent due to gain on sale of land and building that increased other income to Rs 107 million. Moreover, net exchange gain also grew to Rs 153 million while the installation of RiceGlucose Plant (Phase 2) provided tax benefit. Thus, bottomline at Rs 414 million was recorded at an all-time high.

Revenue growth in FY20 escalated to over 43 percent to reach a high of Rs 11.3 billion. A big part of the revenue was earned in the last quarter of FY20 as a major rice exporter of the region, India, went under lockdown, causing international orders, particularly from the Middle East, to be redirected to Pakistan. But the pandemic also caused significant supply chain disruptions that resulted in cost of production rising to 91 percent of revenue. With other income and net exchange gain also reverting to normal levels that had provided unusual support to the bottomline in the previous year, net margin for the year stood at 1.35 percent.

In FY21, revenue contracted by 6.5 percent to fall to Rs 10.5 billion. With the rise on Covid-19 cases and resultant lockdowns, the company’s revenue was significantly impacted in the last quarter. Moreover, with inflationary pressures, cost of production increased to nearly 94 percent of revenue. Gas supply to the company was also affected in the winter months, in addition to increase in electricity/gas rates. Thus, the company incurred a loss for the first time of Rs 61 million.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was lower by 43 percent year on year. This was attributed to higher freight rates that forces customers to delay orders thus increasing storage and handling costs for the company. Export sales volumes fell from 11,447 metric tons in 1QFY21 to 5,971 metric tons in 1QFY22. However, with production cost reducing to 90.6 percent of revenue, compared to 94 percent, in addition to a positive net exchange gain figure in 1QFY22, the net loss reduced from Rs 82.8 million to Rs 29.7 million.

In the second quarter, revenue increased by almost 28 percent year on year. This can be attributed to non-basmati rice exports to the Middle East that saw lower supply chain disruptions compared to US, UK and Australia. The comparatively lower cost of production at almost 88 percent of revenue allowed net margin to improve to 2.7 percent versus 1.7 percent in 2QFY21.

In 3QFY22, revenue was higher by almost 43 percent year on year. This was attributed to export of rice glucose that grew by 34 percent volumetrically while basmati rice exports were adversely impacted by supply chain disruptions in the western export destinations. The higher revenue also translated into higher bottomline as net margin stood at marginally higher 2.2 percent compared to 2 percent in 3QFY21. While the company has maintained its topline growth by diversifying its product portfolio and also exporting to more destinations, economic and political instability in addition to Ukraine-Russia war and its repercussions continue to pose a challenge.