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Thal Limited (PSX: THALL) was established as a public limited company in 1966 under the Companies Act, 1913, (now, Companies Ordinance, 1984). The company operates under the House of Habib group. Its several lines of businesses include engineering products, jute products, laminate sheets and paper sacks.

Although the company also makes some export sales, a large part of revenue is generated through local sales.

Shareholding pattern

Thal Limited’s shares are distributed between numerous categories of which almost 40 percent shares are held by the foreign investors. Within this, Mustafa Limited holds the largest number of shares. Some 23 percent shares are held by individuals and close to 17 percent by banks, DFIs, and NBFIs. The directors, CEO, their spouses, and minor children hold a little over 6 percent shares in the company. Of this, Mr. Mohammedali R. Habib, a non-executive director, holds the majority of the shares closely followed by Mr. Rafiq Habib, the chairman of the company.

Historical operational performance

Thal Limited has seen topline fluctuating at various rates while profit margins have followed a declining trend over the years, with profit margins peaking in FY17 owing to a high income generated from other sources.

During FY16, the company saw its revenue reducing marginally by near 2 percent. However, this was accompanied by a fall in cost of production that allowed profit margins to improve. The cost of production as a percentage of revenue declined to 78 percent, down from previous year’s 81 percent, allowing gross margin to improve to its highest level of 22 percent. Although net margin also increased largely on the back of other income, the change was marginal- lesser than that seen in gross margin. This was due to the higher revenue being offset by notable increases in operating and other expenses as a percentage of revenue coming from higher salaries expense and settlement with Makro Habib Pakistan Limited (MHPL) and impairment on investment in MHPL.

Pakistan’s economy fared well in terms of achieving its highest GDP growth of over 5 percent during FY17. The effect of economic growth was also reflected in the businesses as Thal Limited’s topline grew by 12 percent. This seems to have primarily come from the engineering segment that registered an 8.4 percent growth. The latter was the result of a new model launched by one of the clients and a general improvement within the commercial vehicle segment customer. The engineering segment of the company manufactures parts for the auto industry. The increase in revenue however was accompanied by a marginal increase on cost of production- to nearly 79 percent of revenue; this reduced gross margins marginally. Net margin, on the other hand, peaked at 23 percent. This was primarily a result of an abnormal increase in other income that made up 18 percent of the revenue. The rise in other income came from gain on disposal of investment in associate- MHCCP that contributed Rs 1.8 billion.

The country’s GDP reached yet another high by growing by nearly 5.8 percent in FY18. This was driven by the service and industry sectors. The company’s topline grew by close to 13 percent. This was again contributed by the engineering segment that grew by almost 11 percent. The local auto industry registered a volumetric growth of more than 21 percent for cars and light commercial vehicles that drove the revenue for Thal Limited. However, cost of production rose to 81 percent of revenue bringing gross margins down to nearly 19 percent. Compared to the previous year, operating and net margin were drastically low, but they actually kept in line with historic trend of 14 percent for net margin as other income returned to normal levels.

With the new government undertaking monetary tightening and imposing stricter policies to contain the current account deficit, the country’s GDP clocked in at 3.3 percent during FY19. Despite stricter policies and higher interest rates, the company managed to increase its topline by an impressive almost 16 percent. With the engineering segment growing by more than 18 percent, it was the biggest contributor to the company’s growth in revenue. Thal Limited also managed to keep its cost of production in check that only increased very marginally keeping gross margins flat while net margins improved, but again only slightly, due to a reduction in administrative expense. The latter was due to a lower salary expense that seems to have come from a reduction in number of employees during the year.

Recent result and future outlook

When the country was on its path to recovery in FY20, the world was hit by a pandemic that heavily and adversely impacted the country. Although the government took several measures to support business and economy, the blow was severe and unexpected. This is reflected in the company’s topline contraction by 26.5 percent. Sales in the engineering segment slashed to nearly half owing partly to the pandemic and the other reason being the currency devaluation and imposition of additional taxes that increased car prices, hence reducing demand for automotive. With costs remaining almost at the same level, with a shrinking revenue, they made a large part of the revenue at 86 percent. This reduced gross margin to its lowest at 14 percent. This was also reflected in the net margin that reduced to 11 percent.

With a major impact on the purchasing power of the consumer, auto sector is expected to face challenges. However, the company expects recovery and opportunities in the local market. With the possibility of a second wave of Coronavirus, recovery may take time.

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