Husein Industries Limited (PSX: HUSI) was incorporated in Pakistan as a public limited company by the name of Husein Textile Mills. In 2014, the company discontinued its textile business and entered into real-estate business, construction and allied businesses.
Pattern of Shareholding
As of June 30, 2023, HUSI has a total of 10.626 million shares outstanding which are held by 1013 shareholders. Directors have the majority stake of 33.95 percent in HUSI followed by Husein Ibrahim foundation holding 20.57 percent shares and individuals holding 16.34 percent shares. Investment companies hold 9.48 percent shares of HUSI while insurance companies account for 8.16 percent shares. Around 5.88 percent of HUSI’s shares are held by charitable institutions and 3.6 percent by trusts. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-23)
HUSI’s topline dropped in 2019 and 2023 while witnessed an upward trajectory in between. Its bottomline which had been the negative zone for eight years until 2018, registered net profit in 2019. HUSI’s net profit drastically declined in 2020 followed by a staggering rise in 2021. In the subsequent two years, HUSI’s bottomline began to shrink. The company’s margins considerably improved in 2019. In 2020, gross and net margins fell while operating margin tremendously strengthened. In 2021, gross margin continued to plunge while operating and net margins attained their highest levels. In 2022 and 2023, all the margins dived down (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.
In 2019, HUSI’s topline fell by 14.17 percent. The decline in net sales in 2019 was due to the fact that the company disposed off its textile stock worth Rs.75.858 million in 2018. In 2019, with no leftover inventory in hand, the company started afresh and made revenue from sale of plots and also made rental income. Cost of sales dropped by 88.64 percent in 2019 as there was no cost related to textile inventory. The only cost incurred by HUSI in 2019 was the cost of development property sold as well as expenses related to rented property. The company made gross profit of Rs.49.8 million in 2019 versus gross loss of Rs.49.16 million in 2018. GP margin stood at 78 percent in 2019. Administrative expense plummeted by 26.52 percent year-on-year in 2019 due to curtailed depreciation expense as well as payroll expense. Other charges narrowed down by 7.86 percent in 2019 as the company didn’t incur loss on sale of inventory as well as loss on de-recognition of building in 2019. Furthermore, there was no re-measurement loss on investment carried at FVTPL in 2019. On a gloomier note, other income contracted by a massive 97.69 percent in 2019 as HUSI sold the plot from which it earned rental income in 2018. The absence of rental income severely squeezed its other income. The company recorded operating profit of Rs.3.154 million in 2019 with OP margin of 4.9 percent versus operating loss of Rs.65.8 million in 2018. The company had acquired long-term loan and short-term loans from external creditors which were in the process of restructuring with overdue mark-up to be completely waived. HUSI recorded net profit of Rs.5.467 million in 2019 as against net loss of Rs.66.734 million in 2018. EPS stood at Rs.0.51 in 2019 versus loss per share of Rs.6.28 in 2018. NP margin clocked in at 8.6 percent in 2019.
In 2020, HUSI’s net sales multiplied by 69.73 percent. This was due to hefty lease income recorded during the year. Cost of sales mounted by 114.71 percent in 2020 due to elevated repair & maintenance expense, utility charges as well as commission paid. Gross profit grew by 57 percent in 2020, however, it translated into lower GP margin of 72.2 percent. Administrative expense nosedived by 12.16 percent in 2020 due to lower depreciation expense. Other charges dropped by 99.7 as no impairment loss on trade debts was recorded in 2020. Other income also slid by 98.23 percent in 2020 particularly because the gain on disposal of vehicles recorded in the previous year was missing in 2020. This translated into 1930 percent taller operating profit recorded by HUSI in 2020 with OP margin of 59.2 percent. HUSI recorded finance cost of Rs.60.5 million in 2020 versus Rs.5000 in the previous year. This represented mark-up on delayed payment of restructured loan, mark-up on directors’ loan as well as bank overdraft. HUSI also incurred commission on bank guarantees in 2020 which also drove up its finance cost. Higher finance cost resulted in 54.95 percent decline in net profit which clocked in at Rs.2.463 million in 2020 with EPS of Rs.0.23 and NP margin of 2.27 percent.
In 2021, HUSI registered 38.16 percent higher topline due to significant rise in sale of residential plots as well as robust lease income. Cost of sales surged by 95.72 percent in 2021 due to escalation in the cost of development property sold during the year, higher repair & maintenance charges as well as utility expense. Gross profit grew by 16 percent in 2021; however, it culminated into a lower GP margin of 60.6 percent. Administrative expense hiked by 38.11 percent in 2021 due to higher payroll expense despite the fact that the number of employees was intact at 10. In 2021, HUSI recorded exceptionally higher other income worth Rs.416.22 million primarily on account of waiver of long-term borrowings and mark-up. This resulted in 660.29 percent higher operating profit in 2021 with OP margin of 325.8 percent. Finance cost slipped by 54.92 percent in 2021 as the company didn’t have to pay mark-up on delayed payment of restructured loan and bank overdraft. Moreover, no commission was paid on bank guarantees in 2021. HUSI’s finance cost in 2021 only comprised on mark-up paid on directors’ and shareholders’ loan as well as bank charges. HUSI recorded 154.14 times greater net profit worth Rs.382.07 million in 2021 with EPS of Rs.35.96 and NP margin of 255.3 percent.
In 2022, HUSI’s topline expanded by 48.21 percent on account of sustained lease income and massive rise in sale of residential property during the year. The company earned from its main industrial property in Landhi and was constructing further buildings within its property to earn increased revenue. Cost of sales hiked by 52.78 percent in 2022 on the back of escalated repair & maintenance expenses. While gross profit grew by 45.24 percent in 2022, GP margin further tapered off to 59.4 percent. Administrative expense soared by 62.18 percent in 2022 due to increased payroll expenses (the number of employees stood constant at 10) as well as rent, rates and taxes incurred during the year. One-off event of waiver on long-term loan and mark-up received in 2021 had driven up HUSI’s other income. However, its absence led to 99.9 percent drop in other income which comprised of dividend income, gain on disposal of vehicles and other miscellaneous income which were further squeezed by re-measurement loss on investment carried at FVTPL. All these factors translated into 79.39 percent thinner operating profit recorded by the company in 2022 with OP margin radically falling down to 45.3 percent. Finance cost inched up by 3.33 percent in 2022 which comprised of mark-up on directors’ loan and bank charges. Net profit posted 84.3 percent year-on-year plunge to clock in at Rs.59.996 million in 2022 with EPS of Rs.5.65 and NP margin of 27 percent.
After three successive years of posting topline growth, HUSI recorded 27.61 percent year-on-year diminution in its net sales in 2023. This was the consequence of the decline in the sale proceeds from residential plots as well as curtailed lease income. Unprecedented level of discount rates clutched the purchasing power of consumers which coupled with economic and political uncertainty resulted in thin investment in property during the year. Cost of sales plummeted by 26.86 percent in 2023 due to the considerably lower cost of development property sold as well as significantly lesser repair & maintenance expense incurred during the year. Gross profit shrank by 28.12 percent in 2023 with GP margin falling down to its lowest level since 2019 i.e. 59 percent. The administrative expense also posted a paltry 7.21 percent uptick in 2023 on account of higher payroll expenses. Profit on Al-Meezan Investment gave a boost to HUSI’s other income in 2023 compared to the previous year, however, it still stood at Rs.1.22 million. Operating profit fell by 37.97 percent in 2023 with OP margin sinking to 38.8 percent. Finance cost increased by 59.7 percent in 2023 due to increased markup on directors’ loans. Net profit slid by 64.89 percent in 2023 to clock in at Rs.21.067 million with EPS of Rs.1.98 and NP margin of 13.1 percent.
Recent Performance (1HFY24)
With 170.68 percent year-on-year topline growth in 1HFY24, the ongoing year seems to have a silver lining for the company. Revenue growth was on account of higher sales of residential plots and elevated lease income. Cost of sales magnified by 384.44 percent in 1HFY24. While detailed financial statements are not yet published to identify the reason of the massive cost hike, past trend indicates that the main components of cost are cost of development projects as well as repair & maintenance. The company converted one of its properties into commercial cum residential projects during the year which also indicates towards elevated cost of development projects and higher repair & maintenance cost incurred during the year. Gross profit grew by 34.74 percent in 1HFY24, however, GP margin marched down from 61.13 percent in 1HFY23 to 30.43 percent in 1HFY24. Administrative expenses grew by 8.67 percent in 1HFY24 supposedly on account of higher payroll expenses. Other income stood at a skimpy Rs. 0.99 million in 1HFY24, up 722 percent year-on-year. HUSI posted 59.5 percent higher operating profit in 1HFY24, however, OP margin dipped from 34.10 percent in 1HFY23 to 20.10 percent in 1HFY24. Finance cost surged by 44.66 percent in 1HFY24 due to high discount rate. The company was able to register net profit of Rs.3.034 million in 1HFY24, up 337.71 percent year-on-year. EPS stood at Rs.0.29 in 1HFY24 versus EPS of Rs.0.07 in 1HFY23. NP margin improved from 1.13 percent in 1HFY23 to 1.82 percent in 1HFY24.
Future Outlook
As of December 31, 2023, HUSI had negative shareholders’ equity of Rs.103.708 million versus Rs.106.743 million of negative equity reported as of June 30, 2023. This was on account of accumulated losses of Rs.1061.869 million as of December 31, 2023 which stood at Rs.1072.619 million as of June 30, 2023. Its current liabilities also exceeded as its current assets by Rs.715.622 million as of December 31, 2023. This may cast significant doubts about the ability of the company to continue as a going concern. However, the management is confident that the launch of Jamal Garden residential/commercial projects will rake in reasonable revenue in the coming times and will enable the company to initiate more projects which will soon result in positive shareholders’ equity by squeezing the accumulated losses.
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