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Treet Corporation Limited (PSX: TREET) was incorporated in Pakistan as a public listed company in 1977. The company is engaged in the manufacturing and sale of razors and razor blades along with other trading activities. The company has a product range of over 75 SKUs including shaving razors, body razors and feminine razors. The company, besides having a major share in the local market, sells its products to over 40 countries across the globe. Its production plant has the capacity to produce 2.15 billion units per year. TREET operates under the umbrella of Treet Group in Pakistan.

Pattern of Shareholding

As of June 30, 2022, TREET has an outstanding share capital of 178.721 million shares which are held by 9,642 diverse shareholders. TREET’s directors are its major shareholders having a stake of over 39 percent in the company. General public runs a close second with a share of 39 percent in the company. Joint stock companies account for 7.28 percent of TREET’s outstanding share capital. NIT and ICP hold 6.47 percent shares of the company. This is followed by Banks, DFIs and Insurance companies holding 3.6 percent of the company’s shares. Loads Limited, an associate company of TREET has a stake of 2.7 percent in the company. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

While the topline of TREET has been growing except for 2020, the company has been consistently posting net losses in all the years under consideration. High costs of production and distribution expenses largely squeeze the revenue earned by the company. Finance cost and other expenses add further insult to injury, escalating the net losses of the company.2021 and 2022 were the only years where the company was able to post operating profit as against the operating losses in the preceding years; however, this couldn’t trickle down into a positive bottomline.

TREET recorded the highest net loss margin of 21 percent in 2020 as against the net loss margin of 17.8 percent in the previous year. In 2020, the company’s factories were closed due to lockdown period resulting in a marked drop in the sales of soaps and blades, bikes, corrugated boxes. While pharmaceutical and battery sales registered a rise of 25 percent and 24 percent respectively, yet couldn’t sustain the topline which dropped by 7 percent year-on-year in 2020. The major hit came from the export sales because of restriction on the movement of people and products in the major export markets of TREET. While distribution expense dropped during the year due to lesser advertisement and marketing activities, however, proportionally, it stands at over 11 percent of the company’s revenue and hence a major culprit behind the company posting operating losses in most of the years. During the year, there was a marked increase in impairment allowance on expected credit loss of trade debts. Finance cost also grew during the year despite the discount rate cuts due to excessive borrowing by the company to meet is working capital requirements and continue its operations amidst slow business activity. Share of loss from associate companies also played its due role in suppressing the bottomline which recorded the Loss after tax amounting to Rs. 2,350 million.

After a dip in 2020, the topline of TREET gained momentum in 2021 and grew substantially by 28 percent year-on-year. The topline growth was backed by higher sales volume in blades, pharma and battery segments and is partially offset by lower volumes in soap business. Better sales volumes coupled with improved pricing and product mix resulted in the GP margin of 17.9 percent in 2021 as against 11.2 percent in the previous year. Despite growth in distribution and admin expense, the company was able to post operating profit in 2021 as against operating losses in the previous years. The company also shoved off its finance cost by paying a major portion of its bank loans during the year. Low discount rate also helped keeping the finance cost in check. Other income proved to be a major upbeat factor as it grew by over 12 times its value in 2020. This was the result of reversal of deficit on revaluation, export rebate and gain on short-term investments. The company recorded a profit before tax amounting to Rs. 524 million in 2021; however, after accounting for taxes, the company registered a net loss of Rs. 51 million.

2022 was the second year in a row where TREET posted an operating profit. This came on the back of year-on-year topline growth of 11 percent. The topline growth is supported by corrugation, battery and pharma business while the performance of soap business wasn’t satisfactory during the year. With better cost control measure and improved sales volume, the gross profit grew by 5 percent year-on-year with a marginal downtick of 100 bps in the GP margin. A meticulous check on the operating expense coupled with a plunge in the impairment allowance culminated in to an OP margin of 5 percent in 2022 as against 2.8 percent in the previous year. Finance cost registered a year-on-year growth of 7 percent owing to discount rate hike. The company’s debt-to-equity ratio stands at 34 percent despite the fact that the company has made significant reduction in its loan portfolio. The slender operating profit couldn’t put up with the finance cost and ended up posting net losses in 2022.

Recent Performance (1HFY23)

TREET has attained a year-on-year revenue growth of 44 percent in 1HFY23; however, with high cost of sales, the GP margin almost remained intact at 19 percent during the period. Sharp increase in administrative and distribution charges during 1HFY23 owing to inflationary pressure took its toll on the OP margin which dropped from 9.5 percent to 8.8 percent. Finance cost also didn’t prove to be kind and grew by 90 percent on the back of multiple hikes in the discount rate. Other income drastically dropped during the period and TREET also booked a share of loss of associate. All these factors translated into a bottomline drop of 94 percent year-on-year with an NP margin of 0.2 percent in 1HFY23 as against 4.4 percent in the same period of last year.

Future Outlook

With margins under severe pressure on the back of high cost of production, finance cost and distribution expense, the future doesn’t look promising for TREET. Although the company is making greater strides in improving its sales volume which is evident from its topline growth over the years, however, it can only translate into profits given the company undertake an overhaul of its capital structure to reduce its finance cost along with supply chain optimization to keep a check on its cost of sales.

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