Tariq Glass Industries Limited

Tariq Glass Industries Limited (PSX: TGL) was established in 1978 and was subsequently converted into a public limited company in 1980. It manufactures and sells glass containers, opal glass, tableware, and float glass; some of its brand names include Toyo Nasic, omroc and NOVA glassware.

While more than 90 percent of the sales are directed towards the local market, the company also sells in the international market; some of its export destinations include Afghanistan and Sri Lanka.

Shareholding pattern

A large part of the shareholding is held under the category of directors, CEO, their spouses, and minor children of which Mr. Omer Baig, the Managing Director and CEO of the company, holds majority of the shares at a little over 45 percent. The local general public holds 15 percent of the shares followed by 12 percent held in modarabas and mutual funds; close to 12 percent are also held by the associated companies within which M/s Omer Glass Industries Limited holds 10.5 percent. The remaining about 13 percent shares are with the rest of the categories of shareholders.

Historical operational performance

While the topline has been consistently rising over the years for the company, except for in FY20 when it decreased, profit margins have been fluctuating.

During FY16, sales revenue was nearly flat, increasing by less than 1 percent as one of the furnaces of the company remained closed for nearly half of FY16. Sales breakdown reveals that local sales picked up, while export sales declined significantly, nearly halving year on year. With cost of production maintained roughly at 79 percent, gross margins also only increased marginally while operating margin improved on the back of a notable reduction in distribution expenses; the effect of this also reflected in the net margin that increased to 6 percent.

Tariq Glass Industries Limited’s sales growth was commendable as it grew by 22.6 percent during FY17. This was mostly on account of volumetric growth as both the company’s furnaces remained operational throughout the year; both, local sales as well as export sales registered an increase. The economy in general also performed well as real GDP growth stood at 5.28 percent- the highest in a decade. The company continued to curtail its costs related with distribution that helped to improve operating margin as cost of production remained in range, not exceeding 79 percent; within the category of selling and distribution expenses, an expense head “distribution expense” was entirely eliminated for FY17 bringing it down to 3.5 percent of revenue, as opposed to near average of 6.5 percent. Net margin, at close to 8 percent, picked on the back of declining finance expense due to the company’s prepayment of its “Long Term Syndicated LTFF Loan”.

Country’s GDP growth further increased to 5.79 percent during FY18- the highest seen in 13 years, with strong performance seen in all the three sectors- agriculture, industry, and services. Tariq Glass also saw an impressive growth in its topline that grew by almost 23 percent. Commercial production from the Opal Glass furnace began towards the start of the last quarter of FY18 that contributed to sales volumes. With cost of production rising to 82 percent of revenue on account of energy costs, gross margin reduced to 17.5 percent. However, net margin increased to 9 percent due to continuously falling finance expense, while tax expense was also lower comparatively. This allowed net profit to cross the Rs 1 billion mark.

FY19 started off with general elections, with the new government facing issues such as external imbalances that led to currency devaluation and a tight monetary policy. Despite this, the company managed to grow its topline by a little over 18 percent; most of the incline was seen in local sales, while export sales only increased marginally. Cost of production was curtailed at 80 percent, improving gross margins to 19.6 percent while operating and net margin remained nearly flat with the latter at 9.2 percent. This was due to rising finance and tax expense in light of increasing interest rates.

In FY20 the company saw a declining topline by 5.6 percent, for the first time in a decade. This was attributed to a complete halt in sales during the last quarter of FY20, while production continued giving rise to accumulation of finished goods inventory. With inflation, high cost of power and fuel, labor, freight etc. cost of production increased to nearly 84 percent of revenue, bringing down gross margins to 16 percent. Net margin, down to 5.6 percent, was also impacted due to a continuous rise in finance expense- a function of increasing short term borrowings and interest rates.

Quarterly results and future outlook

The outbreak of coronavirus has had severe repercussions for the global economy, with disrupted supply chains, changes in spending patterns and high uncertainty. The first quarter of FY21 saw some resumption of activities reflected in the year on year increase in sales by close to 15 percent. The company had targeted completion of float glass plant unit 2 by March of 2020, however it had been delayed due to the pandemic and resultant restriction in movement of people as Chinese experts were to arrive for the commissioning and firing of furnace. Cost of production reduced year on year as a percentage of revenue, thereby improving gross margins whereas net margin improved further to 9.8 percent due to declining finance cost as the government reduced interest rates to provide relief to businesses during the pandemic.

With increasing competition in the industry, the company had also ventured into manufacturing bottle and containers. However, with rising number of cases and the onset of the second wave of Covid-19, uncertainty is at peak worsened by tensions in the political arena.