Al Shaheer Corporation Limited (PSX: ASC) was set up in 2012 and was soon after listed on the Pakistan Stock Exchange. It is in the business of trading different kinds of meat- goat, cow, fish. Although it is present in the local market, majority of its revenue is generated through the export sales. Some of the major export destinations are concentrated in the Middle East including Dubai, Saudi Arabia, Oman, Kuwait, Bahrain and Qatar, whereas in the local market, the company is present in the three big cities of Karachi, Lahore and Islamabad.
The company sells through its own retail stores, but it also has stores within supermarkets as well.
Its slaughterhouse is located at Gadap Town in Karachi, while its poultry plant is set up in Raiwind, Lahore. However, the latter is yet to be operational.
A key shareholder of the company are the directors, CEO, their spouses, and minor children, with close to 27 percent shares under this category. Of this, the CEO, Mr. Kamran Ahmed Khalili holds 24 percent of the shares. Some 48 percent of the shares are distributed among the local general public while almost 11 percent shares are held under mutual funds. The remaining about 14 percent shares are with the rest of the categories.
Historical operational performance
While the company’s topline has been contracting consecutively for the last four years, the profit margin is following an upward trend on account of declining cost of production.
During FY17, ASC’s revenue saw a 7 percent contraction. Majority of the company’s production is sold in the export markets. In FY17, a major decline in export sales was seen which was attributed to pricing tactics adopted by the international players. Moreover, the decline in sales was not a phenomenon unique to the ASC’s sales alone, as the country’s overall meat exports registered a notable 39 percent decline in the nine months of FY17. This was attributed to the inability to gain from the currency devaluation. However, lower cost of production as a percentage of revenue allowed for better gross margin. But net margin was squeezed to a negative less than 1 percent as a result of an escalation in administrative and distribution expenses that were driven by increase in rent and taxes and salaries.
The company’s topline continued to decline in FY18, rather the negative growth rate worsened to a negative 16 percent. Despite the currency devaluation that could have made exports competitive, export sales still suffered a 25 percent decline. This was due to cheaper exports to the same markets by India, Brazil, and Australia. There were also supply related issues that hampered production and hence sales. Although there was a decline in value terms, distribution and administration made up more than 24 percent of revenue (FY17: 23%); despite the rise in other income, that came from a net exchange gain, net margin continued to decline- a negative nearly 1 percent.
ASC saw yet another year of a contracting revenue in FY19, that reduced by 22 percent. Of that export sales witnessed a 7 percent decline. The export industry of the country overall had been facing declining volumes due to macroeconomic factors. FY19 was also the first year after the general elections. Despite the smooth transition between the government, uncertainty prevailed in the economy.
The institutional sales also faced pressure as it saw competition coming from the unorganized sector. The company had also been facing cash flow problems which could possibly be the reason why cost of livestock purchases reduced by 30 percent. In addition, the company also had to let go off employees as revealed by “number of employees” in order to streamline costs. Thus, profit margins improved on the basis of cost reduction rather than topline growth.
Recent results and future outlook
In FY20, the company saw a contracting topline for the fourth time consecutively, although the decline rate was lower than that seen in the previous years at 6.6 percent. The first two quarters of FY20 saw lower sales due to lower demand as a result of Eid-ul-Azha. There was an improvement in sales in the third quarter which was a result of a rights share issue that was held in February. This generated cash flow for the company that helped to generate sales.
The last quarter earned 33 percent of the total annual sales. This was partly due to rights issue as well as the demand for clean and safe meat products due to the onset of the Covid-19 pandemic. This helped to raise the gross profit margin, while net margin remained flat at 4.4 percent due to an escalation in finance costs. This was primarily due to profit on financing.
The company had already been working towards e-commerce. However, work on it had to be fast-tracked due to the Coronavirus and the resultant lockdown. The general way of doing business had been transformed due to the pandemic giving rise to the need for e-commerce. In addition, cash flow position had improved post-rights share issue therefore the company hopes to return to normal levels of business operations by the end of June 2021.