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At-Tahur Limited (PSX: PREMA) was incorporated in Pakistan as a public limited company in 2007. The company is engaged in the production and processing of milk and dairy products.

Pattern of Shareholding

As of June 30, 2023, PREMA has a total of 218.639 million shares outstanding which are held by 1895 shareholders. Directors, CEO, their spouse and minor children are the major shareholders of the company with a stake of 72.57 percent followed by local general public holding 11.92 percent shares of PREMA. Modarabas and Mutual funds account for 10.52 percent shares of PREMA while joint stock companies and pension funds hold 2.73 percent and 1.30 percent shares of the company. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

The topline of PREMA has been riding an upward trajectory since 2019. Gain arising from initial recognition of milk at fair value less cost to sell at the time of milking also shows an ascending trend in all the year. Conversely, gain arising from changes in fair value less cost to sell dairy livestock posted a dip in 2020 and 2021. The bottomline only plunged in 2020 among all the years under consideration. PREMA’s margins which posted an uptick in 2019 drastically fell in 2020. In 2021, gross margin continued to inch down while operating and net margins considerably progressed. PREMA’s margins boasted their optimum high value in 2022 followed by a plunge in 2023. The detailed performance review of the period under consideration is given below.

In 2019, PREMA’s total revenue jumped up by 41.4 percent year-on-year with the gain to sell dairy livestock boasting the highest rise of 121 percent, however, its contribution in the total revenue basket stays under 20 percent in all the years under consideration. Revenue from contracts with customers increased by 26 percent year-on-year while gain arising from initial recognition of milk grew by 47 percent year-on-year during 2019. The company sold 12.29 million liters of milk in 2019 as against 9.49 million liters sold in 2018. The increased volume is attributable to the launch of new products during the year. Gross profit grew by 43.69 percent year-on-year in 2019. GP margin also jumped up from 28.8 percent in 2018 to 29.3 percent in 2019. Operating expenses increased in line with increased production and capacity utilization. During the year, PREMA inducted new employees to take the tally up to 475 employees from 354 employees in 2018. This particularly drove up the salaries expense. Vehicles’ running expense was another major contributor of elevated operating expenses in 2019. Other expense magnified by 20 percent in 2019 on account of loss on sale of dairy livestock, allowance for ECL and WPPF. Other income dropped by 36.55 percent in 2019 due to high base effect as PREMA wrote off credit balance in 2018 and also recorded amortization of deferred income on sale and lease back. Operating profit grew by 60 percent year-on-year in 2019. OP margin enlarged from 8.89 percent in 2018 to 10.06 percent in 2019. Finance cost grew by 144 percent in 2019 due to rise in discount rate coupled with increased borrowings during the year. However, with debt-to-equity ratio of 6 percent, finance cost isn’t an issue for the company. PREMA’s net profit grew by 52 percent year-on-year in 2019 to clock in at Rs. 270.10 million with NP margin of 10 percent versus 9.31 percent in 2018. EPS stood at Rs.1.69 in 2019 versus 1.62 in 2018.

In 2020, the total revenue of PREMA magnified by 15 percent year-on-year due to launch of new products and change in sales mix. Pak Rupee depreciation also increased the value of PREMA’s export sales. Due to 21 percent year-on-year rise in cost of sales, gross profit could only grow by 1 percent in 2020 which pushed the GP margin down to 25.7 percent in 2020. Admin and marketing expense didn’t show any respite due to rise in inflation. To meet the rising demand, the company also hired new resources which drove up its workforce to 505 employees in 2020. Other expense tremendously grew during 2020 due to death of dairy livestock and loss on the sale of dairy livestock. Other income didn’t compensated either due to lesser profit on bank deposits, lesser sale of scrap and no common facilities cost charged during the year. Operating profit contracted by 36.6 percent year-on-year in 2020 with OP margin standing at 5.54 percent. Finance cost grew by 138.83 percent year-on-year in 2020 due to increase in discount rate during the initial quarters of FY20 coupled with increase in borrowings particularly running finance. Debt-to-equity ratio slightly increased to 8 percent in 2020. PREMA’s net profit declined by 79.68 percent to clock in at Rs.54.89 million in 2020 with NP margin of 1.77 percent. EPS drastically dropped to Rs.0.34 in 2020.

In 2021, PREMA’s revenue again rebounded by 43.56 percent year-on-year on the heels of a splendid rise in revenue from contract with customers and gain arising from initial recognition of milk. Despite 45 percent year-on-year increase in cost of sales particularly on the back of raw milk and forage consumed during the year, gross profit multiplied by 39.29 percent year-on-year in 2021; however, GP margin couldn’t post any growth and ticked down to 24.98 percent. Administrative and selling expense grew in line with inflation and increase in operations. Except butter, the capacity utilization of all other segments – pasteurized milk, yoghurt, raita, chunky yoghurt and cream cheese significantly improved during the year. This required additional resources resulting in workforce expansion to 570 employees in 2021. Enhanced sales also resulted in hefty vehicle running expense incurred during the year. Other expense massively increased due to loss on sale of dairy livestock and death of dairy stock in 2021. WWF and WPPF also increased during the year due to high profitability. Other income grew by 12.19 percent in 2021 due to reversal of allowance on ECL, amortization of government grant and gain on termination of lease. Operating profit boasted a stunning growth of 144.72 percent year-on-year in 2021 with OP margin of 9.45 percent. Finance cost grew by 8.29 percent in 2021 despite drop in discount rate during the year. This was due to elevated long-term borrowings during the year. PREMA’s debt-to-equity ratio jumped up to 19 percent in 2021. The bottomline posted staggering growth of 377.85 percent year-on-year in 2021 to clock in at Rs.262.27 million with NP margin of 5.88 percent and EPS of Rs.1.32.

PREMA’s revenue continued to outshine the previous year’s mark in 2022 with a year-on-year growth of 47.19 percent. Gain from the sale of dairy livestock which had been dropping since 2020 posted an incredible growth of 223 percent in 2022 with its share in total revenue basket jumping up to 18 percent in 2022 from 8 percent in 2021 (see the graph of revenue mix). This is attributable to local currency depreciation as well as an increase in the prices of herd globally. Cost of sales grew by 37 percent year- on-year in 2022, yet healthy revenue growth provided impetus to gross profit which magnified by 77 percent in 2022 with GP margin of 30 percent. Administrative and selling expenses grew by 32.68 percent and 28.71 percent respectively in 2022 due to increased payroll and vehicle running expense. Number of employees grew to 695 in 2022 due to tremendous growth in capacity utilization across product categories. Other expense didn’t show any respite and grew by 52.69 percent in 2022 due to death of dairy livestock and loss on sale of dairy livestock. Gain on sale of fixed assets and amortization of government grant resulted in 145.85 percent rise in other income in 2022. Operating profit posted 143.59 percent year-on-year growth in 2022 with OP margin climbing up to 15.64 percent. Finance cost kept moving up as discount rate saw multiple upward revisions in 2022. PREMA’s short-term and long-term borrowings also heightened during the year driving up its debt-to-equity ratio to 21 percent in 2022. Net profit grew by 228.34 percent year-on-year in 2022 to clock in at Rs.861.14 million with NP margin of 13.11 percent, the highest mark among all the years under consideration. EPS jumped up to Rs.4.33 in 2022.

In 2023, PREMA’s topline registered staggering year-on-year growth of 55.2 percent on account of successful upward price revision, increased sales volume, product portfolio expansion, gain arising from sale of dairy livestock and gain arising on initial recognition of milk. High cost of raw and packaging material, Pak Rupee depreciation as elevated energy cost resulted in 59.82 percent higher cost of sales in 2023. While gross profit enhanced by 44.47 percent in 2023, GP margin ticked down to 27.98 percent. Administrative and selling expenses escalated by 20.48 percent and 54.15 percent respectively in 2023 on the back of high vehicle running expense as well as payroll expense. Number of employees mounted to 701 in 2023. 64.29 percent higher other expense incurred by PREMA in 2023 was the result of higher loss from death and sale of dairy livestock. Other income grew by 130.39 percent in 2023 on account of higher sale of scrap, sale of operating fixed assets and amortization of government grant. Operating profit posted 41.24 percent rise in 2023, however, OP margin ticked down to 14.23 percent. 97 percent higher finance cost registered by PREMA in 2023 was the consequence of unprecedented level of discount rate while debt-to-equity ratio plunged to 17 percent. PREMA’s net profit progressed by 44.90 percent in 2023 to clock in at Rs.1247.78 million with EPS of Rs.5.71 and NP margin of 12.24 percent.

Recent Performance (1HFY24)

During 1HFY24, PREMA recorded 9.07 percent year-on-year rise in its total revenue. There was stellar growth in farm milk production because of expansion of farm animals and ancillary infrastructure. Furthermore, the company also enhanced its product offerings comprising of value added downstream dairy products. Gain on initial recognition of milk also performed staggeringly during 1HFY24; however, there was a drastic decline in gain arising from the sale of dairy livestock during the period. High cost of raw and packaging materials and forage consumed coupled with increased energy and utility charges, and hefty livestock medication and supplies used during the period resulted in 15.4 percent higher cost of sales in 1HFY24. This squeezed gross profit by 7.97 percent in 1HFY24 with GP margin diving down to 22.87 percent versus 27.11 percent in 1HFY23. Administrative and marketing expenses escalated by 16.62 percent and 8.97 percent respectively during 1HFY24. This mainly comprised of higher payroll expense and vehicle running expense on account of increased operations and capacity utilization. Other expense inched up by 1.58 percent while other income magnified by 76.65 percent during 1HFY24. The detailed financial statements are awaited to comment on the underlying reasons of changes in other income and expense in 1HFY24. PREMA recorded 30.27 percent lower operating profit in 1HFY24 with OP margin of 6.74 percent versus OP margin of 10.55 percent in 1HFY23. Finance cost mounted by 46 percent in 1HFY24 on account of higher discount rate coupled with increased borrowings. This translated into 71.79 percent plummet in net profit which clocked in at Rs.105.28 million in 1HFY24 with EPS of Rs.0.48 versus EPS of Rs.1.71 in 1HFY23. NP margin also slumped from 8.04 percent in 1HFY23 to 2.08 percent in 1HFY24.

Future Outlook

The future of PREMA looks promising on the premise of high demand, constant innovation and renovation of its product portfolio and optimization of its value chain. Besides, increase in the global prices of cattle bode well for the sale of dairy livestock. Upward revision in the prices of milk as well as value-added dairy products is also a good omen for PREMA. However, loss arising from the death of dairy livestock, high inflation, elevated prices of raw and packaging material as well as forage and medication consumed are the factors which are squeezing the company’s margins of-late.

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