Tri-Pack Films

Introduction:

Tri-Pack Films Limited (PSX: TRIPF) was incorporated in 1993 as a joint venture between Mitsubishi of Japan and Packages Limited of Pakistan. The commercial operations of the company started in 1995. Head office of the company is situated in Karachi while its two plants are located in Port Qasim and Hattar (KPK).

Tri-Pack is primarily engaged in production of two types of packaging films which are Biaxially Oriented Polypropylene (BOPP) and Cast Polypropylene (CPP) film. The company initially started with production of BOPP films which are moisture resistant and produced in four different grades - plain, composite, cigarette and pearlized.

The plain BOPP film grade is used in lamination of cardboard, adhesive tape and general packaging. The composite film is used in packaging of confectionery, soap and food items. Cigarette films, as the name suggests, is used by the tobacco industry. The pearlized BOPP film is hot sealed on both sides and is used to pack tea, gift wrappers and ice bars.

The CPP film also has various grades which are used in different industries such as poultry and fast moving consumer goods.

Shareholding Pattern:

Tri-Pack majority shareholding is with its group companies which account for about 63 percent of the holding. Within this holding, Mitsubishi Corporation of Japan also holds about 39 percent. The biggest shareholder of the company is Packages Limited with 10 million shares. Similar holding structure can be seen in other Packages group companies as well.

Historical Performance:

Over the last five years, the financial performance of Tri-Pack Films has been volatile to say the least. Years 2013 and 2014 were particularly bad for the company. In 2014, the company posted loss per share of 5.9 rupees. In 2013, the earnings per share was 0.76 rupees compared to 15.05 rupees in 2012.

The management of the company in its report has cited various reasons for these turbulent years. Firstly, the import of illegal films through various channels has troubled the company since many years now. In 2015, the company estimated that 7 percent of all domestic BOPP demand was fulfilled with illegal imports. Secondly, the raw material cost kept on increasing because of energy tariffs.

However, the company took advantage of those difficult years and was able to still increase production and maintain efficiency throughout the organisation. The fruits of these steps can be seen in the current year when demand and raw material prices are in company's favour.

Recent Performance:

During the current financial year, Tri-Pack has improved its performance on account of upbeat economic conditions and strong demand from the consumer sector. During the first nine months of 2016, the company's earnings per share has gone up by 138 percent compared to same period last year. The jump in earnings has been contributed the increase in gross margins which went up by 4 percent.

The company was also able to control its distribution cost which went down by 13 percent. The main contribution towards the bottom line was due to a sharp drop in finance cost which went down by 43 percent. During the start of the year the company had issued a rights offer, the purpose of which was to reduce its bank borrowing.

The result of the rights issue is already reflecting on the income statement in a positive way.

Share Price Performance vs KSE-100:

The share price of Tri-Pack Films (PSX: TRIPF) has largely underperformed the benchmark index during the current year. During the first half of the year investors were still not sure about the company due its performance in previous years. After the issuance of right shares and earnings projection of next three years, the stock took momentum and a strong rally was witnessed from July to September.

Since Tri-Pack has direct exposure to the consumer sector, its stock is given a higher valuation compared to the market average. If the company is able to maintain its earnings growth, the valuation could further be re-rated towards the upside and the stock can rally further.

Future Outlook:

Tri-Pack's nature of business and its linkage to the domestic consumer demand story should keep the company on the growth track.

According to company's own estimate, the FMCG sector is expected to grow by 6 to 7 percent. However, the issue of imports through illegal channels still remain a concern.

The Chinese products are being flooded into the market and analysts believe that if the situation persists then it would be very difficult for Tri-Pack to maintain its market leadership.