Thal Limited (PSX: THALL) was set up in 1966 as a public limited company under the Companies Act, 1913 (now Companies Ordinance, 1984). The company manufactures jute goods, engineering goods, papersack and laminate sheets. The company operates under the House of Habib.
As at June 30, 2021, close to 40 percent shares are held by foreign investors, followed by over 24 percent under “individuals”. The directors, CEO, their spouses and minor children hold a little over 6 percent, of which Mr. Mohamed Ali R. Habib, a nonexecutive director is a major shareholder. Nearly 15 percent shares are held in banks, DFIs, NBFIs, etc., while the remaining about 14 percent shares is with the rest of the shareholder categories.
Historical operational performance
The company has mostly seen a growing topline, while profit margins have been largely stable since FY18.
In FY17, revenue posted a growth of about 12 percent, crossing Rs 17 billion in value terms. The engineering segment registered an increase of 8.4 percent. This was due to a new model launched by one of the clients as well as a general improvement within the commercial vehicle segment customer. The company manufactures parts for the auto industry and thus feels the spillover effects of the latter. While gross margin was marginally impacted due to a slight rise in cost of production, operating and net margin reached a peak at nearly 32 percent and 23 percent respectively, due to a significant rise in other income. This came from a one-time event of gain on disposal of investment in associate.
In FY18, revenue grew by over 12 percent. This was attributed to the engineering segment that witnessed a growth of almost 11 percent. The local auto industry saw a volumetric growth of 21 percent for cars and light commercial vehicles that had appositive effect on the company’s revenue. But this could not be translated into a higher profitability as cost of production consumed 81 percent of revenue, compared to nearly 79 percent in the previous year. However, net margin hovered around 14 percent for the year, as per its historic trend, due to decline in other expenses. Year on year comparison, on the other hand, reveals a drastic drop in profitability as the company saw abnormal levels of other income.
Revenue crossed Rs 22 billion in FY19 as it posted a growth of nearly 16 percent. The engineering segment which is the biggest contributor to the total revenue saw a growth of more than 18 percent. In addition, cost of production also remained flat at consuming 81 percent of revenue, therefore, gross margin also remained stable. Net margin, however, improved slightly to over 14 percent, due to a reduction in administrative expenses. The latter was due to a lower salary expense which may have been a result of a reduction in the number of employees’ figure.
After growing for three consecutive years, revenue in FY20 fell by nearly 26 percent due to the outbreak of the Covid-19 pandemic. This is one of the reasons. The fall is also attributed to the currency devaluation and imposition of additional taxes that led car prices to incline and thus shrink demand. As a result, gross margin fell to an all-time low of 15.4 percent. This also trickled down to the bottomline, with net margin recorded at a lower 11.25 percent.
Revenue in FY21 recorded an unprecedented rise of over 64 percent, with topline crossing Rs 27 billion in value terms. Sales from the engineering segment doubled year on year from Rs 8.1 billion last year to Rs 16.2 billion in FY21. The auto industry itself witnessed a growth of 56.7 percent in passenger car sales as demand picked up encouraged by low interest rates and reduced taxes under the new auto policy. However, gross margin was only marginally higher at 17 percent as cost of production hovered above the 80 percent mark as a share in revenue. This also trickled to the bottomline with net margin recorded at 12.75 percent, compared to 11.25 percent in FY20.
Quarterly results and future outlook
Revenue in the first quarter of FY22 was higher by over 50 percent year on year. The engineering segment recorded the highest ever sales for the period at Rs 5.06 billion, growing by 64 percent. The double-digit growth is attributed to the growth in demand from the auto industry. The company expects the demand to persist in the future. But with cost of production undeterred at close to 82 percent, gross margin was marginally lower at 17.4 percent. The decrease in net margin, at over 12 percent versus 14 percent in 1QFY21, was more pronounced due to an increase in distribution expense.
While demand, particularly in the auto industry and hence the engineering segment of the company is expected to remain stable, the higher cost of inputs and currency fluctuation can hamper profitability.