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Matco Foods Limited (PSX: MFL) was established in 1964, as a private limited company under the repealed Companies Ordinance, 1984. It is primarily in the business of processing and exporting rice, rice glucose, rice protein. It also trades biscuits, pink salt, bran oil, masala, and kheer.

Three years after inception, in 1967 it set up its first rice processing plant in Larkana, Sindh. Since then it has added to its production capacity and product portfolio. By 1999, it had developed its own brand name “Falak” under which it sold its products. Today the company has five processing plants and apart from catering to the domestic markets, Matco Foods also exports to USA, Netherlands, Italy, Greece, Middle East, Australia, and South Africa among many others.

Shareholding pattern

Matco Foods Limited is largely owned by its directors, CEO, their spouses, and minor children; together they hold 60 percent of the shares of the company. Within this category, Dr. Tariq Ghori, Mr. Khalid Sarfaraz Ghori and Mr. Jawed Ali Ghori own the highest number of shares- almost 20 percent each. About 11 percent is distributed with the local general public while 15 percent is held by the foreign shareholders. The latter solely includes International Finance Corporation. It first became an investor in the company fairly recently in 2012. The remaining about 14 percent of the shares of Matco Foods is with the rest of the categories.

Historical operational performance

Matco Foods has seen four consecutive years of positive topline growth with growth rate also on a rise. This was subsequent to a period of negative growth rate between FY14 to FY16. However, despite the positive topline growth seen in the last four years, profitability has not followed suit. Rather, it has declined owing to a consistently rising cost of production that has remained above 80 percent and crossed the 90 percent in FY20.

Looking at the results of the last two years specifically, in FY18 when the company went public, the company saw a nearly 10 percent incline in its topline. This was due to a combination of factors; favourable export prices in the international rice market, exchange gain on export sales and tax benefit due to installation of Rice Glucose Plant (Phase 1) in addition to company listing. During the year, the company also exported its first rice glucose container.

Moreover, it focused on high margin basmati rice which was essentially responsible for a value terms growth of almost 22 percent in export sales. In quantitative terms there was a 16 percent decline due to “absence of tender business” and decline in IRRI export; the quantity of which was deliberately cut due to low margins.

Despite the higher revenue from sales as well as exchange gain, profit margins were comparatively low due to high costs. Main cost driver for the company was the rice consumed that made 90 percent of the total cost. Cost of production as a percentage of revenue rose to 87 percent keeping profit margins lower than the previous year.

In FY19, topline registered a near 17 percent incline. This was due to focusing on high margin basmati rice. Pakistan’s overall rice exports also saw an improvement as they increased by almost 10 percent. Despite the increase in revenue, gross margins reduced further year on year due to a gradual rise in costs of production, mainly driven by rice consumed. The company collectively earned Rs 260 million from a net exchange gain and other income. The latter rose as a result of gain on sale of property, plant, and equipment. This allowed net margin to improve marginally.

Risks

The company sells more in the international market than it does in the domestic market. Some of the risks the company faces as an industry player are increased input costs arising due to inflation, competition and entrants of new competitors, risks associated with fluctuating exchange rate, production and harvesting of rice crop, interest rate risk and government regulations.

Recent results and future outlook

Matco Foods saw the highest jump in sales revenue in FY20 at 44 percent. A major chunk of this, about 40 percent of the revenue was earned in the last quarter of FY20. During the year, Pakistan’s overall rice exports also crossed the $ 2.1 billion mark. News reports suggest that due to the outbreak of Covid-19, a lot of the sectors saw exports and orders faltering, similar situation was faced by the rice sector. However, when India, another major rice exporter in the region went under a strict lock down, a lot of the orders, majorly from the Middle East were directed towards Pakistan, that allowed latter’s rice exports to pick up.

Matco Foods has been consistently expanding its product portfolio, adding varieties of salt, gur shakkar, and various kinds of kheer in addition to focusing on brand development that may give way for better profits in the future.

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