Rupali Polyester Limited (PSX: RUPL) as a public limited company in 1980 under the Companies Act, 1913. The company operates in the petrochemical industry, manufacturing Polyester Filament Yarn (PFY) and Polyester Staple Fiber (PSF). Its target market is the producers of cloth and fabric variants in the textile industry. Its market share dominance is in the knitting, weaving, bed sheets, sportswear and water jet users’ segments. Rupali Polyester has also ventured into coal power fired generation in order to become self -reliant and to ensure sustained energy provision.
More than 70 percent of the shares of the company are held in trusts; about 52 percent in Trustees Feerasta Senior Trust, and 26 percent in Trustees ALNU Trust. About 10 percent are held by individuals while directors, CEO, their spouses and minor children hold around 3 percent shares in the company. Of this, 2.8 percent is held by Mr. Yasseen M. Sayani, the chairman of the company. The remaining around 8 percent are held by National Bank of Pakistan; Trustee Deptt. and banks, DFIs, NBFIs, insurance companies, modarabas and mutual funds.
Historical operational performance
Since FY12 Rupali Polyester has faced a significant increase in its cost of production, taking a hit on profitability, which improved post FY16.
During FY15, sales declined by more than 18 percent, the highest decline in revenue seen in more than a decade. This was attributed to lower cotton prices, which shifted the consumer from consumption of PFY towards cotton. Secondly, the rupee gained against the US dollar which not only reduced export competitiveness but also incentivized the importers of PFY and PSF. With the availability of cheaper imported raw material, consumers of PFY and PSF shifted their demand from local manufacturers to imported material. Cost of production exceeded revenue, thus incurring a loss. Raw material expense is a major cost driver which has made more than 70 percent of the total cost. In addition, custom duty was increased on PTA, a significant raw material used in production of Polyester.
While sales in volumes registered a 22 percent incline in FY16, in terms of revenue there was only a 1 percent increase. This was due to a downward revision in prices in response to dumping of PSF and PFY in the country. The price at which imported PSF and PFY were available did not cover cost of raw material, packing and energy in local production, rendering local product highly uncompetitive. The company had approached the government to provide some protection; National Tariff Commission (NTC) did impose anti-dumping duty on PSF, however it was little while the PFY industry still suffered. However, owing to a slight decline in cost of production as a result of a decline in conversion cost of Polymer, the loss incurred has reduced.
Sales revenue grew by around a marginal 3 percent during FY17. The industry continued to be affected by the availability of cheaper imported products, which led the company to file an application to the NTC along with another company. Subsequently, the company also approached the FBR; the latter imposed regulatory by the end of FY17, which mean tits effect would reflect in the next year. The company also some relief in cost of production with the availability of RLNG. Although the company still incurred a loss during the year, it had halved in rupee terms.
The company witnessed some growth as sales revenue grew by more than 20 percent during FY18. As expected by the company, financial performance improved owing to the imposition of regulatory duty which helped to generate demand for the locally manufactured PFY. Seeing demand picking up, Rupali Polyester installed a new POY plant. Although cost of production, as a percentage of revenue has declined significantly when compared to previous years (albeit still above 90 percent mark) due to better availability of RLNG, the company expects cost of raw material to go up as a result of the significant currency devaluation. Nonetheless, the year ended with a positive profit figure after five consecutive loss-making years.
The company saw the highest growth in its revenue at nearly 50 percent in FY19. This was due to the effect of the industry protection measures taken. Prices and volumes, both improved. However, growth was stagnant during the second half of the year as traders and textile manufacturers went on a strike in opposition to the abolition of zero-rating. Since textile players are the target market for the company, it was indirectly impacted. There was a marginal incline in cost of production which impacted profit margins negligibly.
Quarterly results and future outlook
Revenue fell by nearly 18 percent during 9MFY20 year on year. Most of this decline was seen in the last quarter due to the effect of global pandemic and resultant lock down. Despite trying to maintain operations, the company’s business has been affected due to disruption in raw material supply chain in addition to subdued demand from downstream customers. There was a slight improvement in cost of production year on year, which also improved profit margins, however bottomline was adversely affected due to the escalation in finance costs, owing to high interest rates.
Although the government has tried to provide relief measures, the economy will take sufficient time to revive. With global trade at a halt and remaining subdued, and supply chains disrupted, the businesses will have to take initiatives in order to sustain themselves.