Sitara Peroxide Limited

Sitara Peroxide Limited (PSX: SPL) was established as a public limited company in 2004 under the Companies Ordinance, 1984. The company manufactures and sells hydrogen peroxide. Its manufacturing facility is located at Sheikhupura Road, Faisalabad.

Shareholding pattern

As at June 30, 2021, over 37 percent shares are held by the directors, CEO, their spouses and minor children. Within this, close to 32 percent shares are owned by Mr. Imran Ghafoor, the CEO of the company. The local general public owns 49 percent shares followed by over 7 percent held in joint stock companies. The remaining roughly 6 percent shares are with the rest of the shareholder categories.

Historical operational performance

In the last few years, Sitara Peroxide Limited has seen a fluctuating topline, while profit margins grew between FY17 and FY19, before declining in the following two years- FY20 and FY21.

After declining for the last three consecutive years, revenue in FY18 registered a growth of almost 25 percent, to reach Rs 1.3 billion. This was primarily attributed to an increase in the selling price of Hydrogen Peroxide, with majority of the price increase happening in the second half of the year. As a result, gross margin improved significantly to 11.5 percent from last year’s 4.3 percent. This also trickled to the operating margin that was recorded at almost 3 percent, compared to an operating loss witnessed in the previous year. During FY18, the company also earned Rs 28 million in other income sourced from sale of catalyst that also provided some support to the operating margin. The year ended with a lower net loss of Rs 65 million.

In FY19, the company witnessed the largest growth in revenue since FY12, at 54 percent, taking topline to cross Rs 2 billion in value terms. There was an improvement in volumes by 18 percent, while selling price of Hydrogen Peroxide continued to climb upwards. This is also reflected in the higher capacity utilization for the year at 84 percent compared to 70 percent seen for the last two years. Thus, gross margin reached a high of 26 percent that was not seen since FY12. Additionally, with expenses also consuming a lower share in revenue, Sitara Peroxide Limited posted a net margin of 10 percent.

Revenue shrunk again in FY20 by over 14 percent to reach Rs 1.7 billion, after experiencing some recovery in the last two years. While the selling prices remained largely stable, the decline in revenue was attributed to a reduction in volumes. Moreover, capacity utilization also decreased to 78 percent after reaching a high of 84.4 percent in FY19. This was a result of strict lockdowns due to the outbreak of the Covid-19 pandemic that impacted global business, supply chains and economy. The textile sector of the country was no exception to this. The latter also impacted the business if Sitara Peroxide. Therefore, in order to make up for the reduced demand there, the company introduced a new product – Sitara Safe that was a surface disinfectant and sterilization. However, the loss in revenue could not be entirely compensated for, thus gross margin reduced considerably to 18.5 percent. This also trickled to the bottomline with a net margin of 4.2 percent.

Revenue saw some recovery in FY21 as it grew by almost 7 percent to reach Rs 1.8 billion. Prices were claimed to be relatively stable. While capacity utilization was lower at 73 percent, production volumes were also lower year on year by 6.6 percent. Despite the growth in revenue, gross margin fell to 10.24 percent, due to a rise in cost of production at almost 90 percent of revenue. Prices for raw material increased significantly as noted by it making almost 18 percent of the total cost of production, compared to 8.5 percent in the previous year. The economy had also witnessed a sharp currency devaluation, inflation and rising interest rates during the year that impacted business environment. The lower gross margin also trickled to the bottomline that further reduced to Rs 35 million, versus Rs 74 million in FY20.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was lower by 21 percent year on year attributed to a decline in sales volumes. Moreover, cost of production exceeded revenue, causing the company to incur a gross loss of Rs 24 million compared to a gross profit of Rs 133 million. This is largely attributed to the rising tariff of RLNG. The company utilizes latter as feedstock for its manufacturing as well as for its captive power house. With further expenses incurred, the loss escalated to Rs 99 million for the quarter versus a net profit of Rs 51 million in the same period last year.

The second quarter of FY22 saw some improvement in revenue as it registered a growth rate of 19.5 percent. Cost of production was slightly better than that in the previous quarter allowing for some profitability at a net margin of 1 percent. However, compared to 9.2 percent seen in 2QFY21, it was significantly lower. The lower profitability is due to rising cost of production coupled with falling prices of the product. Therefore, cumulatively too, 1HFY22 saw lower profit margins than 1HFY21. Despite this, there is a positive expectation about the future due to rising exports from the textile sector.