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coronavirus
Coronavirus
VERY HIGH
Source: covid.gov.pk
Pakistan Deaths
29,137
1524hr
Pakistan Cases
1,386,348
5,19624hr
Sindh
531,008
Punjab
467,698
Balochistan
34,032
Islamabad
120,813
KPK
186,537

Shabbir Tiles and Ceramics Limited (PSX: STCL) was set up as a public limited company in 1978 under the repealed Companies Act, 1913. The company manufactures and sells tiles and also trades allied building products. Its product offering includes feature wall tiles, floor tiles, bathroom tiles, kitchen tiles and outdoor tiles; it also has an exclusive emporium collection.

The company is a member of Karachi Chamber of Commerce and Industry, All Pakistan Ceramics Tiles Manufacturers Association and Landhi Association of Trade and Industry.

Shareholding pattern

As at June 30, 2020, nearly 55 percent shares of the company are owned by the foreign companies. The local general public owns over 30 percent shares while the directors, CEO, their spouses and minor children own close to 3 percent shares, with most of the shareholding concentrated with Mr. Rafiq Habib, the chairman of the company. Another 5 percent shares are held under the category of “others”; the remaining roughly 7 percent shares are with the rest of the shareholder categories.

Historical operational performance

Shabbir Tiles and Ceramics has seen a growing topline for a large part of the decade, except for in FY14 and FY15, and more recently in FY20. Profit margins followed a declining trend until FY17, improved until FY19 and declined again in FY20.

In FY17, topline grew by close to 9 percent, but profitability remained low with the company incurring a loss for the third consecutive year. The local tiles manufacturers faced intense competition from the cheaper Chinese tiles being dumped into the local market. As a result, prices of indigenous products had to be rationalized in order to compete with the cheaper imports. The preliminary anti-dumping duty that was imposed for four months by the National Tariff Commission (NTC) also expired towards the end of the year. Moreover, the gas tariff along with the costs related with BMR activities that was undertaken to expand the product offering, could not be covered with the revenue. Therefore, despite the increase in revenue, and little support from other income, net margin remained at a negative 3 percent- the lowest seen thus, far.

Revenue grew close to 15 percent in FY18, the highest the company had witnessed thus far. The company invested and focused on building brand equity, improving displays, opened design studios. The enhancement of regulatory duty and anti-dumping duty on imported cheap tiles also allowed for the company to sustain market share; however, to some degree smuggling across borders existed as currencies of regional countries depreciated. The company also worked towards improving its cash flows. This is reflected in the reduced share of finance expense in revenue. Production cost went down considerably to 78 percent of revenue, compared to last year’s 89 percent. Thus, profitability improved with net margin recorded at 3.36 percent for the year.

The company witnessed the highest growths in revenue at over 20 percent in FY19; topline stood at almost Rs 7 billion in value terms. This was possible due to the investments made in conducting BMR activities that aided in improvement of range and quality of products. The company also spent on marketing and promotions to encourage sales. Production cost continued to make a lower share in revenue, at 76.7 percent allowing gross margins to improve slightly to 23 percent. This also trickled down to the operating margin but net margin was impacted by a high tax expense, therefore remaining more or less flat at 3.38 percent; this was the highest net margin recorded in a decade. Some additional income was also brought in through gain on disposal of operating fixed assets and sale of scrap.

After rising consecutively for four years, topline contracted by 6.6 percent in FY20. This was due to a volumetric loss in the second half of the year when the Covid-19 pandemic entered the country, resulting in a lock down which meant an abrupt shut down of productions and markets. The first half of the year was impacted by increase in costs such as gas tariffs, freight costs, and the requirement for documentation that specifically impacted the small traders. Cumulatively, it resulted in a lower gross margin at 16.9 percent, compared to 23.2 percent seen in FY19. The increase in freight costs is reflected in distribution expense making a larger of share of revenue. Eventually, the company incurred the highest loss in a decade at Rs 326 million.

Quarterly results and future outlook

Revenue in the first quarter of FY21was higher by over 38 percent year on year as business activities resumed. It was also further encouraged by the announcement of the construction package that initiated demand. With cost curtailments also in place, net margin improved to 6.4 percent compared to the loss incurred in the same period last year.

Second quarter also saw higher revenue by over 24 percent year on year, driven by the increase in construction activity, and hence demand. In addition to cost reduction, profitability for the period was also supported by a significant other income of Rs 198 million. Thus, the company earned a net margin of 14.7 percent- the highest amongst the three quarters of FY21.

3QFY20 was significantly impacted by the outbreak of Covid-19. Therefore, the year-on-year increase in 3QFY21 stood at a considerable 40 percent. This also trickled down to the bottomline, with net margin recorded at over 9 percent for the period.

While the increase in construction activity is providing stimulus to the tiles industry, a major challenge for the latter is the energy expense that creates a dent in not only profitability but also cash flows.

© Copyright Business Recorder, 2021

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