Roshan Packages Limited

Roshan Packages Limited (PSX: RPL) was set up in 2002 as a private limited company under the Companies Act, 2017. In 2016 it was converted into a public company and listed on the Pakistan Stock Exchange.

The company began its journey with the launch of Urdu Digest. The volume-based export demand meant that there was a need for an in-house packaging unit that gave rise to Roshan Packages Limited in 2002. The company currently manufactures and sells corrugation and flexible packaging materials. Expanding within the packaging industry, Roshan Packages invested in a European Flexible plant that caters to the FMCG sector.

Shareholding pattern

As of June 30, 2020, over 68 percent of shares are held by the directors, CEO, their spouses, and minor children. The majority of the shares within this category are owned by Mr. Tayyab Aijaz, followed by Mr. Khalid Eijaz Qureshi. The local general public holds about 25 percent shares; about 3.5 percent shares are held in local companies/others. The remaining roughly 4 percent shares are with the rest of the shareholder categories.

Historical operational performance

Since FY16, Roshan Packages Limited has seen a growing topline in the first two years; it contracted in FY18, and then again in FY20. Profit margins fell in FY18 before rising again.

In FY17 revenue grew by over 13 percent, crossing Rs 4 billion. This increase was mostly driven by volumes that grew by 17 percent. But revenue growth was limited to 13 percent due to reduced prices. However, the higher topline could not translate into higher profitability due to a rise in production cost, at 86.5 percent of revenue. This was a result of a higher depreciation charge due to the installation of a new plant and machinery. Therefore, the gross margin was reduced to 13.5 percent. The drop in operating margin was somewhat contained by other income that was sourced from profit on bank deposits and gain in the disposal of operating fixed assets, but net margin reduced to 6 percent due to a high finance expense. The latter was due to a high mark-up on long-term loans.

In FY18 the company witnessed a 1.6 percent contraction in revenue, while volumetrically, sales registered a 1.2 percent decline. The difference was due to reduced sales prices. However, the decline in profit margins was more pronounced due to a considerable rise in production cost that was recorded at nearly 94 percent of revenue. This was due to economic and political uncertainty, currency depreciation, rising interest rates, and energy prices. As a result, there was little room for absorption of more costs, despite the support coming from other income. During the period, there was also an additional cost of impairment allowance on trade debtors. Thus, the company incurred a loss, for the first time, of Rs 91 million.

At nearly 34 percent, Roshan Packages saw the highest growth in revenue in FY19, crossing Rs 5 billion; volumetric sales growth stood at almost 19 percent. but with a negligible change in production cost, at around 93 percent of revenue, gross margin remained flat, hovering close to 7 percent. Operating expenses were offset by other income thus keeping operating margin largely unchanged, reversal of allowance on trade debtors also allowed for some profitability. But with the higher tax expense, the company eventually incurred a loss, although lower than that seen last year, of Rs 27 million.

FY20 saw revenue contraction by 3 percent; sales volumes were lower as well, at 8.2 percent. Despite this, the company was able to raise profitability due to a reduction in production cost, at 89.5 percent of revenue, compared to over 93 percent of revenue in FY19. This was because of a low increase in the input cost of material, in addition to cost-cutting initiatives. Therefore, gross margin was recorded at 10.4 percent; this also trickled down to the bottomline despite the rise in operating and finance expenses. The latter was due to a rise in interest rates. With a positive taxation figure, the company posted a net margin of 4.7 percent for the year.

Quarterly results and future outlook

Revenue in the first quarter of FY21 rose by almost 57 percent year on year as the company attempted to expand its market share. In addition to this, undertaking cost-cutting initiatives, production cost also reduced to over 87 percent of revenue, compared to over 90 percent seen in 1QFY20. Therefore, profitability was significantly better year on year. The second quarter also saw similar trends with revenue increasing by over 22 percent, and the cost of production consuming a lower share in the revenue. But the rise in administrative and distribution expenses could not be offset by the fall in finance expense, therefore, the net margin was lower at 3,8 percent in 2QFY21, compared to 10.6 percent in 2QFY20.

The third quarter also saw higher revenue by over 24 percent year on year, as the company continued to expand its market share. With lower production costs and a decline in finance expenses due to the State Bank of Pakistan (SBP) lowering the interest rate, the company saw better profitability in 3QFY21.

Roshan Packages worked towards having an uninterrupted supply chain while the world grappled with the Covid-19 pandemic. With some economic recovery and stability in interest rates, the company has a positive outlook for the future.