Roshan Packages Limited

Roshan Packages Limited (PSX: RPL) was established as a private limited company in 2002 under the Companies Act, 2017. In 2016, it was converted into a public limited company and soon after was listed on the Pakistan Stock Exchange. The company manufactures and sells corrugation and flexible packaging materials.

Shareholding pattern

As at June 30, 2021, over 68 percent shares are owned by the directors, CEO, their spouses and minor children. Within this category, Mr. Tayyab Aijaz, the CEO of the company, is a major shareholder. The local general public owns 20 percent shares followed by over 5 percent held in modarabas and mutual funds. The remaining over 6 percent shares is with the rest of the shareholder categories.

Historical operational performance

The company has experienced a growing topline since FY16, with the exception of FY18 and FY20. Profit margins declined between FY16 and FY18 before rising until FY21.

In FY18, RPL’s topline contracted by 1.6 percent, while sales volumes were lower by 1.2 percent. Revenue fell by a greater proportion due to reduction in selling prices. But production cost escalated to nearly 94 percent that reduced gross margin drastically to 6.15 percent, compared to 13.5 percent in FY17. The escalation in costs was a result of economic and political uncertainty, currency depreciation, rising interest rates and energy prices. Although other income contributed significantly, it could not make up for lost revenue and unprecedented high costs. Thus, net margin stood at a negative 2.26 percent, while net loss was recorded at Rs 91 million.

Revenue for RPL recovered in FY19 as it registered an all-time high growth of close to 34 percent, crossing Rs 5 billion in value terms. Sales volumes were higher by 19 percent. However, production cost as a share in revenue was only marginally lower at 93 percent; therefore, gross margin also grew marginally at close to 7 percent. While operating margin was also only slightly better, net margin at a negative 0.5 percent was supported by a reversal in allowance on trade debtors of Rs 83 million, compared to an impairment seen last year. Thus, net loss reduced to Rs 27 million.

Topline of the company contracted again in FY20; by 3 percent whereas sales volumes were lower by 8.2 percent. Yet, due to a curtailment in costs that consumed 89.5 percent of revenue, gross margin increased to 10.45 percent for the year. This was due to a combination of less increase in input cost of material, and cost cutting initiatives. Other expenses reduced significantly that contributed to the bottomline, in addition to continued support from other income as well. Thus, net margin improved to 4.74 percent with a net profit at Rs 248 million.

In FY21, topline again registered considerable growth, at close to 34 percent to reach almost Rs 7 billion in value terms. Sales volumes were higher by almost 8 percent. With slight reduction in production cost as a share in revenue, gross margin improved to 12.6 percent that was the highest seen since FY18. However, net margin remained more or less flat at almost 5 percent due to reduction in other income and a higher tax expense that did not allow profitability to escalate on the back of considerably lower finance expense. The latter was reduced due to lower policy rate by the central bank. It consumed over 4 percent of revenue in the previous year that was down to 1.6 percent of revenue in FY21.

In FY22 the company’s topline a high double-digit growth of 26.7 percent with increase in volumetric growth of 12 percent year-on-year. Despite a growth in gross profits, the gross profit margins declined by 2.3 percent, mainly on account of increase in the cost of imported raw material, which is further aggravated by devaluation of the Pak Rupee. Moreover, the spike in fuel and energy rates resulted in an increase of 81 percent year-on-year in the fuel and power cost. The bottomline was also impacted by higher finance cost due to significant increase in policy rate by State Bank of Pakistan. As a result, the company’s earnings decreased by 23 percent year-on-year in FY22. RPL was able to increase in earnings in 1QFY23 significantly due to higher revenue growth as well as contained expenses.