Ghani Glass Limited (PSX: GHGL) was incorporated in Pakistan as a limited liability company in 1992. GHGL is a company of Ghani Group which carries over 50 years of rich experience in the local and global markets. The company’s principal business is the manufacturing and sale of glass containers, float glass and value-added glass. GHGL caters to the needs of diverse industries such as pharmaceutical, food and beverages, R&D and other value-added industries. Besides catering to the needs of local market, GHGL exports to over 26 countries globally.
Pattern of Shareholding
As of June 30, 2023, the company has a total of 999.715 million shares outstanding which are held by 3692 shareholders. Directors, CEO, their spouse and minor children have the highest stake of 52.72 percent in the company followed by local general public holding 36.78 percent shares of GHGL. Joint stock companies account for 2.41 percent of GHGL’s outstanding shares. The remaining shares are held by other categories of shareholders, each having an ownership of less than 1 percent shares.
Historical Performance (2018-22)
Except for a marginal dip in 2020, the topline and bottomline of GHGL have been riding an upward trajectory in all the years under consideration. Margins which started contracting since 2019 bottomed out in 2020 followed by a significant rebound in 2022. In the subsequent year, while gross and operating margins receded, net margin continued its uphill ride. The detailed performance review of each of the years under consideration is given below.
In 2019, GHGL attained a 21.6 percent year-on-year growth in its revenues. However, high cost of production particularly raw materials consumed as well as fuel, gas and electricity took its toll on the GP margin which shrank to 25.4 percent in 2019 from 28.2 percent in the previous year. Operating expenses also grew in line with inflation and increase in operational activities during the year. The main contributors behind elevated operating expense were high payroll expense, charity & donations as well as sales promotion. Other income contracted by 27 percent year-on-year due to high-base effect as there was a surplus on the sale of fixed assets in the previous year. Due to surge in operating expense as well as contraction in other income, GHGL could post a meager 4.2 percent year-on-year rise in its operating profit in 2019 with OP margin slipping down from 21.2 percent in 2018 to18.2 percent in 2019. One striking fact about the company is that it is operating on a 0:100 debt-to-equity ratio. The company receives advances from its associated undertakings for the supply of goods and interest-free loans from the sponsor directors to meet the working capital requirements. Hence, finance cost of the company is very thin i.e. Rs.12.5 million in 2019 which mainly comprises of bank charges. During the year, the share of profit from an associate company grew by a tremendous 117 percent year-on-year, buttressing the bottomline which grew by 9.7 percent year-on-year to clock in at Rs.3143.52 million in 2019 with EPS of Rs.5.98 versus EPS of Rs.5.6 in 2018. NP margin nosedived to 18.2 percent in 2019 versus 20.2 percent in the previous year.
2020 was characterized by stunted economic activity – both locally and globally - on the back of COVID-19. GHGL also had to shut down its operations to comply with the lockdown requirements by the government. During the year, not only did the local market showed lackluster demand, exports were also disrupted due to restrictions on the movement of goods and people in many export markets of the company. This resulted in inventory buildup and higher fixed cost during the year. The sales of the company posted a meager 0.9 percent year-on-year dip in 2020; however, 12.6 higher cost of sales squeezed the gross profit by 40.5 percent year-on-year with GP margin sliding to 15.2 percent. The company kept a strict eye on its administrative and selling expenses which nosedived by 40.5 percent and 14.6 percent respectively in 2020. Provision on receivables from trade debts grew significantly from Rs.3.97 million in 2019 to Rs.113.75 million in 2020 due to static business activities on its customers’ front which reduced the chances of recovery. Other income also thinned down by 40.4 percent year-on-year on the back of low exchange gain as export sales remained lackluster during the year. Operating profit eroded by 53.8 percent in 2020 with OP margin slipping to 8.5 percent as against 18 percent in 2019. Finance cost grew by 171 percent in 2020 on account of unwinding of liability against the right of use asset. The much needed support to the bottomline was provided by share of profit of associate which grew by 79 percent year-on-year in 2020. Yet the bottomline couldn’t help but plunge by 51.9 percent year-on-year to clock in at Rs. 1513.08 million with EPS of Rs.2.02 and NP margin of 8.9 percent.
In the subsequent years post COVID-19, the company regained its lost growth momentum. The topline magnified by 25.6 percent and 43.6 percent year-on-year in 2021 and 2022 respectively with GP margin touching 22.4 percent and 29.2 percent respectively in 2021 and 2022. It is to be noted that the operating expenses which slid down in 2020 have started popping up in 2021 and 2022 particularly freight and forwarding charges, payroll expense as well as sales promotion expense. Other expenses also grew on account of WWF and WPFF on the back of high profits. The company, however, made net exchange losses during the years. Other income did exceptionally well in both 2021 and 2022 mainly on the back of profit on Islamic saving accounts and scrap sales. While the company booked reversal for credit loss against trade debts in 2021, it again booked provision worth Rs. 96.53 million in 2022 which mainly accounts for expected credit loss charged on balance due from Ghani Value Glass limited, a related party of GHGL. The share of profit from its associate company RAK Ghani also dropped in both the years. Finance cost of GHGL amplified in 2021 by over 300 percent year-on-year and then dropped by 13 percent year-on-year in 2022. The hefty increase in finance cost in 2021 was due to unwinding effect of GIDC payable to SNGPL. The bottomline of GHCL grew by a stunning 107 percent and 93 percent year-on-year to clock in at Rs.3.2 billion and Rs.6.04 billion respectively in 2021 and 2022. EPS clocked in at Rs.3.83 in 2021 and Rs.6.05 in 2022. NP margin also staggeringly spiraled to clock in at 14.6 percent and 19.6 percent in 2021 and 2022 respectively.
In 2023, GHGL posted 32.1 percent year-on-year rise in its topline on the back of higher local as well as export sales. During the year, the company faced various challenges owing to political and economic upheaval in the country. The devastating floods at the onset of the year added to ado, creating immense supply chain disruptions for the company as it mostly sources its raw materials locally. GHGL couldn’t pass on the impact of high indigenous inflation and high fuel and power charges on to its consumers, resulting in GP margin ticking down to 27.7 percent in 2023, despite 25.1 percent rise in gross profit. Administrative expense surged by 22 percent in 2023 due to expansion of GHGL’s workforce from 2480 employees in 2022 to 2962 employees in 2023 which drove up the payroll expense. The company also engaged in bigger CSR initiatives and donated generously. Distribution expense magnified by 21.3 percent in 2023 on the back of elevated freight & forwarding charges, payroll expense as well as sales promotion. Higher profit related provisioning drove up other expense by 30.8 percent in 2023. The company made hefty exchange gain on its export sales in 2023 due to Pak Rupee depreciation. Lower scrap sales and profit on saving accounts culminated into 5.1 percent thinner other income recorded by the company in 2023. Operating profit multiplied by 27.4 percent in 2023, however, OP margin leveled down to 19.8 percent. Lower unwinding effect of GIDC resulted in 4.2 percent lower finance cost incurred by GHGL in 2023. Furthermore, share of profit from an associated company, RAK Ghani Glass LLC magnified by 2758 percent in 2023. This resulted in 33.9 percent escalation in GHGL’s net profit which clocked in at Rs.8096.95 million in 2023 with EPS of Rs.8.1 and NP margin of 19.9 percent.
Recent Performance (1QFY24)
During 1QFY24, GHGL’s topline posted a staggering 49 percent year-on-year growth on account of increased volume. However, high inflation, energy cost and cost of raw materials resulted in GP margin of 22.1 percent in 1QFY24 versus 25.1 percent during the same period last year. Gross profit improved by 31 percent during the period. Administrative and selling expenses hiked by 34 percent and 41 percent respectively in 1QFY24 on the back of a spike in inflation, increased operational activity compared to last year which apparently drove up the payroll expense, utility cost, freight & forwarding charges and sales promotion expense during the period. Higher profitability meant escalation in profit related provisioning. This drove up other expense by 36 percent in 1QFY24. Other income declined by 51 percent in 1QFY24 and exchange loss magnified by 290 percent during the period. All these factors translated into 21 percent bigger operating profit registered by the company in 1QFY24, yet OP margin slipped from 15.5 percent in 1QFY23 to 12.5 percent in 1QFY24. Finance cost mounted by 101 percent on the back of higher discount rate, however, it still stood at less than 1 percent of GHGL’s topline. By recording year-on-year growth of 1044 percent, share of profit from an associate company gave a considerable boost to GHGL’s bottomline during 1QFY24. Net profit rebounded by 21 percent year-on-year in 1QFY24 to clock in at Rs.1400.25 million with EPS of Rs.1.40 versus EPS of Rs.1.15 during the same period last year. NP margin marched down from 14.6 percent in 1QFY23 to 11.8 percent in 1QFY24.
Future Outlook
GHGL’s diversification into tableware project is receiving traction. This will fuel the sales growth in the coming times. While high cost of production and operating expenses will continue to suppress the margins of the company, there are other avenues which could counteract the same to buttress the bottomline. Firstly, the company needs to be more focused on expanding its export portfolio. Secondly, the company must park its excess liquidity in saving accounts to boost its “other income” as upward revision in discount rate has made this avenue very lucrative. Investment in associate companies to increase its share of profit from associates is another opportunity area for the company.
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