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Gillette Pakistan Limited (PSX: GLPL) was incorporated in Pakistan as a public limited company in 1986. GLPL is a subsidiary of The Series Acquisition B.V. Netherlands, which is a wholly owned subsidiary of the P&G Company, USA. The company is engaged in the manufacturing and selling of blades and razors.

Pattern of Shareholding

As of June 30, 2023, GLPL has a total of 31.87 million shares outstanding which are held by 1040 shareholders. The Series Acquisition B.V. has the major stake of 91.72 percent in the company. It is followed by individuals holding 3.8 percent shares of the company. Joint stock companies account for 3.6 percent of the outstanding shares of GLPL. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

GLPL’s topline has been riding an upward trajectory since 2019. Conversely, its bottomline drastically fell in 2021 and 2022 whereby in the latter year, the company registered net loss. GLPL rebounded from net loss in 2023. Its margins mounted until 2020 followed by a steep plunge in 2021. In 2022, while gross margin ticked up, operating and net margins plummeted. In 2023, GLPL’s significantly improved (see the graph of profitability ratios). The detailed performance review of all the years under consideration is given below.

In 2019, GLPL’s topline inched up by 7 percent year-on-year. 2019 was a challenging year for the company amid 23 percent depreciation in the value of Pak Rupee, heavy duties on imports, elevated freight charges and high inflation. The company was able to pass on some of the impact of cost hike to its consumers. This is evident from 10 percent year-on-year increase in gross profit and an uptick in GP margin from 32.55 percent in 2018 to 33.22 percent in 2019. Distribution expense slid by 2 percent year-on-year in 2019 as the company rationalized on trade discounts and squeezed its advertising and promotion expense in 2019. Conversely, administrative expense hiked by a massive 57 percent year-on-year primarily due to increase in legal and professional charges. This included the salaries of tax consultants and legal advisors due to legal and tax related queries raised during the year. Other income posted a tremendous 939 percent rise in 2019 due to higher interest income on term deposits and savings deposits. Although Pak Rupee depreciated during the year which warranted bigger exchange loss, however, revaluation adjustment in the intercompany payables resulted in lesser exchange loss in 2019. This coupled with lesser stocks written off during the year resulted in 61 percent lesser other expense incurred during the year. As a consequence, operating profit magnified by 112 percent in 2019 with OP margin climbing up from 6.86 percent in 2018 to 13.56 percent in 2019. Finance cost dropped by 15 percent year-on-year in 2019 despite discount rate hike during the year. This was because the company had no outstanding short-term borrowings on its books as of June 2019 as against the short-term borrowings of Rs.144.774 million in 2018. This coupled with lower tax under FTR on commercial imports translated into 3704 percent bigger net profit registered by the company in 2019. GLPL’s net profit stood at Rs.164.39 million in 2019 with EPS of Rs.8.56 versus Rs.0.23 in 2018. NP margin also climbed up from 0.24 percent in 2018 to 8.38 percent in 2019.

In 2020, GLPL’s topline posted a marginal 0.4 percent year-on-year on account of COVID-19 related restrictions on the movement of goods across borders, global lockdowns of businesses as well as lesser demand owing to high inflation and crestfallen purchasing power. Cost of sales ticked up by 0.2 percent in 2020, resulting in 1 percent year-on-year growth in gross profit. GP margin slightly improved to clock in at 33.4 percent in 2020. Distribution expense declined by 13 percent year-on-year in 2020 on account of lesser advertising and promotion budget in 2020 and also because of operational efficiency achieved in supply chain. Administrative expense rose by 3 percent year-on-year in 2020 on account of higher legal and professional charges incurred during the year. Other income magnified by 98 percent year-on-year in 2020 due to higher interest income. Lesser volatility in exchange rate during the year and revaluation adjustment in the intercompany payable resulted in 37 percent lesser other expense incurred in 2020. Consequently, operating profit widened by 34 percent year-on-year in 2020 with OP margin reaching 18.13 percent. Finance cost further nosedived by 25 percent year-on-year in 2020. Net profit expanded by 35 percent year-on-year in 2020 to clock in at Rs.222.12 million with EPS of Rs.11.57 and NP margin of 11.27 percent.

In 2021, GLPL posted a reasonable 10 percent year-on-year growth in its topline despite higher inflation, freight charges, and import cost and commodity prices. However, it couldn’t trickle down to produce a bigger bottomline as the company sustained 31 percent hike in cost of sales due to higher import cost, freight charges and elevated commodity prices. This squeezed GLPL’s gross profit by 33 percent year-on-year in 2021. GP margin drastically fell to 20.24 percent in 2021. In line with the trend witnessed in the previous years, distribution expense continued to slide down in 2021. This was on account of negotiating supplier prices to make them more competitive. Conversely, administrative expense hiked by 26 percent year-on-year in 2021 on account of higher payroll expense as well as higher legal and professional charges for the issuance of right shares. Escalated cost of sales and administrative expense drove operating profit down by 56 percent year-on-year in 2021 with a thin OP margin of 7.23 percent. Finance cost contracted by 52 percent year-on-year in 2021 due to monetary easing. GLPL’s net profit lessened by 83 percent year-on-year in 2021 to clock in at Rs.38.38 million with EPS of Rs.1.64 and NP margin of 1.77 percent.

2022 was commendable in terms of revenue growth, yet unpleasant in terms of bottomline. In 2022, GLPL’s topline grew by 13 percent year-on-year. This was on account of better volumes as well as upward price revisions. This is obvious from 41 percent year-on-year rise in gross profit in 2022 with GP margin jumping up to 25.22 percent. In 2022, distribution expense multiplied by 16 percent year-on-year as the company focused on new market segments, improved advertising and promotion budget with consumer centric focus. Administrative expense also surged by 30 percent year-on-year in 2022 on account of higher salaries and benefits due to higher inflation and increase in the number of employees from 6 in 2021 to 9 in 2022. Higher operating expense coupled with a massive decline in other income and hike in other expense resulted in a diminished growth of 1 percent in operating profit in 2022. OP margin also slipped to 6.41 percent in 2022. Finance cost escalated by 191 percent in 2022 due to higher discount rate and also because GLPL obtained short-term loan from P&G Pakistan (Private) limited, an associated company of GLPL. This coupled with the imposition of super tax during the year resulted in net loss of Rs.22.16 million and loss per share of Rs.0.70 in 2022.

2023 was a year of recovery for GLPL with 23 percent in its topline. Despite higher import cost, freight charges and hike in commodity prices coupled with Pak Rupee depreciation, however, GLPL was able to drive down its cost of sales by 22 percent year-on-year by undertaking cost optimization measures. One such measure was the capitalization of its production plant during the year. Consequently, gross profit rebounded by 157 percent year-on-year in 2023 with GP margin staggeringly rising up to 52.57 percent. Distribution expense enhanced by 32 percent year-on-year in 2023 on account of higher advertising and promotion expense. Administrative expense plunged by 31 percent year-on-year in 2023. Tremendous rise in interest income in 2023 pushed other income up by 1285 percent. However, it was nullified by 821 percent hike in other expense during the year. Despite this, GLPL was able to attain 170 percent year-on-year rise in its operating profit in 2023 with OP margin reaching 14.03 percent. Finance cost mounted by 1881 percent in 2023 due to unprecedented level of discount rate and massive rise in short-term borrowings from P&G Pakistan (Private) Limited. This significantly diluted net profit during the year. Nevertheless, GLPL was able to register net profit of Rs.113.90 million in 2023 with EPS of Rs.3.57 and NP margin of 3.77 percent.

Recent Performance (1QFY24)

After witnessing splendid performance in 2023, GLPL saw 46 percent decline in its net sales in 1QFY24. Cost of sales also declined, however with a lower magnitude of 39 percent owing to high inflation, Pak Rupee depreciation and mounting commodity prices. Gross profit dwindled by 60 percent year-on-year in 1QFY24 with GP margin tapering off to 24.77 percent versus 33 percent during the same period last year. Distribution expense eroded by 67 percent year-on-year in 1QFY24. While the company hasn’t published the detailed accounts to comment on the primary drivers of distribution expense during the period, lower advertisement and promotion expense could be one of the core reasons of thinner distribution expense in 1QFY24. Administrative expense amplified by 185 percent in 1QFY24, however, it was largely offset by robust other income earned during the period. Other expense also considerably shrank in 1QFY24. GLPL’s operating profit in 1QFY24 was 41 percent smaller when compared to that of 1QFY23, however, on the positive front; the company was able to drive up its OP margin from 10.94 percent in 1QFY23 to 12.01 percent in 1QFY24. Finance cost also nosedived by 52 percent year-on-year in 1QFY24. This translated into 22 percent year-on-year rise in GLPL’s net profit in 1QFY24 to clock in at Rs.10.10 million with EPS of Rs.0.32 versus EPS of Rs.0.26 in 1QFY23. NP margin also significantly improved from 0.98 percent in 1QFY23 to 2.23 percent in 1QFY24.

Future Outlook

With dwindling purchasing power of consumers on account of inflation, the volume might not see any commendable recovery in the coming times. Shrunken pockets of consumers don’t allow GLPL to pass on the impact of cost hike to its consumers which might also compress its gross margin. However, operational efficiency, meticulous checks on advertisement and promotional expense and interest expense as well as superior other income may continue to keep its bottomline afloat in the coming times.

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