Pakistan Synthetics Limited (PSX: PSYL) was established in 1984 as a private limited company. Three years later, in 1987 it converted into a public limited company.
The company is in the business of manufacturing and selling plastic and crown caps and Polyester Staple Fibre. In the recent past the company decided to convert the polyester staple fibre manufacturing plant into a PET resin manufacturing plant, due to depressed market situation of the former.
As per the pattern of shareholding stated in the report for June 30, 2019, individuals own 89 percent of the shares in the company. Another close to 7 percent is with the mutual funds. However, upon looking at the distribution of shares, the directors, CEO, their spouses and minor children own roughly 24 percent of the shares, while close to 66 percent is shown under the category of ‘individuals’. About 3 percent is held under each, NIT & ICP and public sector companies and corporations, while the remaining is distributed with the rest of the categories.
Historical operational performance
After dipping suddenly in FY14, the company has gradually grown its topline. Profit margins, on the other hand, have been rather decreasing due to high percentage of cost of production.
During FY15, the company grew its sales revenue by a little over 4 percent. Due to an adverse market situation present in the polyester staple fibre industry, the company had decided to shut down its plant. The industry was marred by the dumping of Chinese fibre. Hence the sales revenue reflects revenue coming from only sale of crowns and plastic caps. Cost of production as a percentage of revenue has reduced. Despite this, the year ended with a loss due to appropriation for loss from discontinued operations. The sales revenue from the polyester staple fibre segment fell from Rs 3 million in FY14 to less than a million in FY15, while costs were not entirely eliminated.
In FY16, Pakistan Synthetics grew its topline by close to 8 percent year on year. The company managed to increase production from 14 percent, and managed to sell nearly 100 percent. Its evident from the capacity utilization standing at 80 percent. Cost of production further fell down to 72 percent of revenue, with the largest decline seen in raw and packing materials expense. As a result, with a gross margin of 27 percent and net margin of 12 percent, the company was able to record its highest profit margins seen in seven years.
Production of PET Resin began at the new manufacturing plant in the second quarter of FY17. This, together with the production of the already existing crowns and plastic caps led revenue to increase by 75 percent. However, this caused cost to increase by a greater extent, making up beyond 90 percent of the revenue, leaving little room for absorption of other costs. Although, as a percentage of revenue, other factors of the financials reduced, in absolute terms there was incline, with finance cost making up more than 89 percent of the operating profit. Thus, profit margins reduced.
Sales revenue nearly doubled in FY18 year on year. This was contributed by both higher production as well as sales for both the products, PET Resin as well as plastic and crown caps. Cost of production reduced only marginally, however, this was offset by a sudden escalation in other expenses due to net exchange loss, along with the consistently rising finance cost. thus the unprecedented increase in revenue did not translate into magnanimous profits for the company, although in absolute terms net profit more than doubled.
Growth in revenue at nearly 34 percent was a little subdued in FY19 in comparison to that seen in the previous two years. There was a slight decline in volume of production of both, PET Resin and cartons of plastic and crown caps, while cost of production maintained its level at 90 percent of the revenue. Net exchange loss was again quite exorbitant, further crippling profits. With rising interest rates and short-term borrowings, finance cost increased to make up nearly 5 percent of the revenue, eventually leading the company to incur a loss.
Quarterly results and future outlook
Sales revenue reduced during 9MFY20 year on year by almost 6 percent, with production volumes slightly lower than previous year. Profits in the corresponding period last year were adversely affected by a net exchange loss which was absent in the current period, allowing room for absorption of higher finance cost. Since the previous period ended with a loss, in the absence of high next exchange loss, the company posted a positive profit figure in 9MFY20.
The world economy is slumped due to the pandemic, with depressed business activities and trade. Lockdowns have been imposed in several cities and areas of the country which has affected the company alike. Although, business is and will be difficult in the future, and will need time to recover, the company remains hopeful to explore options and opportunities.