Tri-Pack Films Limited

Tri-Pack Films Limited (Tri-Pack) - a joint venture between Mitsubishi Corporation of Japan and Packages Limited of Pakistan - is involved in production of packaging films used by packaging companies. Incorporated in 1993, the Company commenced commercial production in 1995. Tri-Pack is listed on all the three bourses of the country, with a paid-up capital of Rs 300 million.
Packages Limited, an integrated packaging company, is a big buyer of the packaging films produced by Tri-Pack. The former also holds 33.3 percent equity in the latter. Tri-Pack is a fairly leveraged company and it enjoys long-term rating of "A+" and a short-term rating of "A1" by PACRA.
Tri-Pack produces two types of packaging films used in packaging for consumer goods. First type is the moisture-resistant 'biaxially oriented polypropylene' (BOPP) film. BOPP films are produced in four different grades - plain, composite, pearlised and metalised - and their thickness ranges from 12 to 50 microns. The total installed capacity for BOPP films stands at 29,000 tons per annum.
The second type of film is the high-gloss and low-haze 'cast polypropylene' (CPP) film. CPP films are also available in different grades and their thickness ranges from 20 to 150 microns. This film is particularly well-suited for coating, lamination, form fill seal and side welded bag manufacturing. Tri-Pack has CPP film manufacturing capacity of 7,000 tons per annum.
Financial performance
Sales As the penetration and consumption of fast-moving consumer goods are increasing, demand for packaged goods is also on the rise. Resultantly, sales' volume of packaging companies and in turn, those of their suppliers has also been increasing. This phenomenon has greatly benefited Tri-Pack's sales that crossed Rs 9 billion for the first time in CY10.
Tri-Pack's sales are heavily tilted towards domestic business; as only about 3 percent of total sales is generated through exports this year. In CY10, the Company's net sales grew by a magnificent 34 percent over CY09. Renewed focus on domestic sales through aggressive marketing and government actions against smuggling via Afghan transit trade and under-invoicing of BOPP films helped the company compete better in CY10.
Cost of Sales Growth in the cost of sales outstripped the increase in net sales during CY10. The 36 percent growth is primarily on account of higher utilisation of raw materials, especially polypropylene granules, to meet the surge in demand. Fluctuations in the price of crude oil, another major raw material, also exacerbated the Company's COGS. As percentage of net sales, cost of sales remained steady at 84 percent during the year.
Operating Expenditures Owing to higher freight costs, the distribution costs grew by 23 percent in CY10 and stayed the same as a percentage of net sales in CY10 and CY09. Administrative expenses also rose by 27 percent in CY10, when money spent on salaries and wages was more than what was spent during the preceding two years. The expenses ate up 2 percent of net sales in CY10, compared to 1 percent in CY09.
Other Income & Expenses During CY10, "other income" for the Company declined by 37 percent over the previous year owing to nil returns on placement of certificate of deposits at an associated investment bank. "Other expenses" increased by 33 percent over the preceding year on account of higher spending in workers' profit participation fund and workers' welfare fund.
Tri-Pack's finance costs declined by 7 percent in CY10, as the lower mark-up payments on long-term finances were more than to offset the higher mark-up payments on short-term finances.
Profitability & Margins While the Company's profitability has improved in absolute terms over the last three years, its profit margins have somewhat declined. For instance, the gross profit increased by 23 percent in CY10 over CY09, however, gross margin shed 140 bps over the period. During same period, the company's operating profits increased by 23 percent, yet the operating margins lost 115 bps.
Strong domestic sales, coupled with managed expenditures, led to a growth of 29 percent in pre-tax profits. It was higher taxation charges that reduced the net profits to Rs 494.8 million in CY10, as the bottom-line grew by 7 percent year-on-year. Net margins have, however, declined during the period under review to 6.49 percent.
Tri-Pack's earnings per share came in at Rs 16.49 in CY10, compared to Rs 15.47 in CY08 and Rs 16 in CY08. The company's stock has performed consistently over the last three calendar years, trading above Rs 100 and consistently offering a price-to-earnings ratio above 6.
Liquidity The Company's cash flows improved to Rs 54.3 million at the end of CY10, compared to a negative cash generation of Rs 376.5 million at the end of CY09. The Company's current ratio has also improved to 1.3, from 1.2, respectively, during the preceding two years. The Company seems set to achieve operational efficiency during the year, turning over its inventory 5 times in CY10, compared to 3.9 times in CY09 and 4.3 times in CY08.
Leverage Tri-Pack's leverage position is much better in CY10 than it was during the preceding two years. There is less debt accumulation in the company's capital structure. The debt-to-equity ratio dropped to 0.2 in CY10, from 0.4 in CY09 and 0.6 in CY08. Company's interest paying ability also seems to have improved as the financial charges dropped and operating profits increased in CY10.
Future Outlook To cater to increased demand of its BOPP films in the packaging industry, Tri-Pack decided this year to expand its production capabilities by setting-up a new BOPP plant with a capacity of 40,000 tons, at a budgeted cost of Rs 5.2 billion. The project is being financed with a mix of debt and internal cash generation and is targeted to be operational by 2HCY12.
Being part of the supply-chain of packaged goods industry, Tri-Pack stands to benefit from both, the rising demand of packaged goods and the zeal of Pakistani multinationals to increase their year-on-year volumes. However, the Company encounters challenges on the raw materials' front, as movements in the prices of crude oil and polypropylene granules directly impact the Company's cost of sales and resulting margins.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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