Century Paper & Board Mills Limited (CEBP) was incorporated in Pakistan as a public limited company in 1984 and began its commercial operations in 1990. The principal activity of the company is the manufacturing of paper, board and related products. The company is a part of Lakson Group of Companies. The company also entered into corrugated cartons manufacturing business in 2003.

Pattern of Shareholding

As of June 30 2023, CEPB has a total of 401.713 million shares outstanding which are held by 3537 shareholders. Associated companies, undertakings and related parties are the major shareholders of CEPB with a stake of 68.66 percent in the company followed by local general public holding 12.37 percent shares of CEPB. Around 5.4 percent of the company’s shares are held by Modarabas and Mutual Funds while Banks, DFIs and NBFIs account for 3.71 percent of the outstanding shares of CEPB. NIT &ICP hold 2.67 percent shares of the company while insurance companies have 2.45 percent stake. The remaining shares are held by other categories of shareholders.

Historical Performance (2019-23)

CEPB’s topline has been posting steady growth over the period under consideration; however, its bottom line posted growth only in 2020 and 2021. CEPB’s margins inched down in 2019 followed by a significant growth in 2020 and 2021. The margins took a downward course thereafter. The detailed performance overview of the period under consideration is given below:

In 2019, CEPB’s topline grew by 17.27 percent year-on-year which came on the back of improved prices, and better sales mix coupled with an increase in sales volume from 214,347 MT in 2018 to 216,771 MT in 2019. The company’s capacity utilization stood at 95 percent in 2019. The cost of sales grew by 18.95 percent year-on-year in 2019 on the back of Pak Rupee depreciation and fuel price hike. Gross profit ticked up by 6.25 percent year-on-year in 2019; however, GP margin dropped from 13.2 percent in 2018 to 11.97 percent in 2019. Administrative expenses grew by 11.43 percent year-on-year in 2019 due to an increase in payroll expense on account of inflation as well as an increase in employee headcount during the year. High freight also pushed up the selling and distribution expense by 18.76 percent year-on-year in 2019. Lower WPPF and legal and professional charges resulted in 6.63 percent year-on-year drop in other expenses. Other income grew by 22.53 percent year-on-year on account of higher proceeds from scrap sales. Operating profit grew by 5.79 percent year-on-year in 2019; however, OP margin slid from 9.97 percent in 2018 to 9 percent in 2019. The greatest dent to the bottom line came on the back of 65.56 percent year-on-year rise in finance costs. During the year, the company redeemed its preferred stock worth Rs. 901 million and replaced it with loans from sponsors. This drove up the debt-to-equity ratio from 38 percent in 2018 to 40 percent in 2019. Higher debt coupled with monetary tightening culminated into higher financial cost for the year and pushed down the bottom line by 10.86 percent year-on-year to clock in at Rs.884.154 million in 2019. NP margin shrank from 5.23 percent in 2018 to 3.98 percent in 2019. EPS also dropped from Rs. 6.25 in 2018 to Rs.5.80 in 2019.

In 2020, CEPB’s topline mustered a marginal 9.46 percent year-on-year growth. Sales volume tapered off to 215,648 MT, down by 0.5 percent year-on-year. The outbreak of COVID-19 in the last quarter of 2020 suppressed the consumer demand which posted improvement in the initial quarters of 2020. During 2020, the company tapped export markets in Afghanistan and Middle East which gave much support to its topline. Cost of sales grew by 4.24 percent year-on-year while gross profit posted an encouraging growth of 47.86 percent year-on-year on the back of improved sales mix and better prices. GP margin rose to 16.17 percent in 2020. Administrative and distribution expenses escalated by 13.3 percent and 11.59 percent year-on-year respectively in 2020. The major growth drivers were high payroll expense and higher outward freight in 2020. The payroll expense grew despite the fact that the number of employees dropped from 1652 in 2019 to 1640 in 2020. Higher WWF and WPPF translated into 49.68 percent year-on-year rise in other expense. Other income also multiplied by 11.76 percent year-on-year on the back of higher scrap sales. Operating profit magnified by 57 percent year-on-year in 2020 with OP margin jumping up to 12.9 percent. The company tried to rationalize its borrowing cost during 2020 by using FE-25 and offshore borrowings at low rate along with streamlining its short-term borrowings. As a consequence, its debt-to-equity ratio dropped to 28 percent in 2020. However, high interest rates for most of the year pushed the finance cost up by 29.5 percent year-on-year in 2020. The bottom line grew by 72.12 percent year-on-year in 2020 to clock in at Rs.1521.772 million with NP margin of 6.25 percent. EPS also grew to Rs.10.35 in 2020.

In 2021, CEPB’s net sales grew by 17.72 percent year-on-year on the back of 7.6 percent year-on-year rise in sales volume. CEPB’s sales volume stood at 232,051 MT in 2021 as consumers started focusing towards packaged products and online shopping after COVID-19 which increased the demand of packaging products in 2021. However, the demand of writing/printing papers significantly dropped in 2021 due to recurring lockdowns. CEPB’s export sales also almost doubled in 2021. Gross profit grew by 44.69 percent year-on-year in 2021 due to increased sales volume, operational efficiency, optimal sourcing of raw material and low fuel cost in 2021. GP margin also tremendously grew to attain its highest level of 19.9 percent in 2021. Administrative and distribution expenses rose by 11 percent and 22.91 percent respectively in 2021. The main drivers were elevated payroll expense and freight outward. Other expense staggeringly grew by 122.29 percent year-on-year in 2021 on account of higher WWF, WPPF and also because of provision booked for expected credit losses in 2021. Other income also posted a handsome 76.58 percent year-on-year growth from scrap sales proceeds and also because of gain on extinguishment of GIDC liability, gain on insurance claims, government grants as well as gain on sale of operating fixed assets in 2021. Operating profit grew by 48 percent year-on-year in 2021 with OP margin climbing up to 16.23 percent. Finance cost shrank by 58.87 percent year-on-year in 2021 on the back of low discount rate and lesser working capital related borrowings. CEPB’s bottom line posted a stunning 94.49 percent year-on-year growth in 2021 to clock in at Rs.2959.66 million with NP margin of 10.33 percent. EPS grew to Rs.14.59 in 2021.

CEPB registered 4.4 percent year-on-year growth in its sales volume in 2022 due to impressive growth posted by LSM which created demand for paper and paperboard products. This culminated into topline growth of 36 percent year-on-year in 2022. While local market performed exceptionally well in terms of sales, export sales dropped by 71 percent year-on-year in 2022 to clock in at just Rs. 41 million which included sales to Afghanistan. Commodity super cycle in the international market on the back of the Russia-Ukraine crisis coupled with Pak Rupee depreciation and indigenous inflation jacked the cost of sales up by 48.17 percent year-on-year in 2022. This trimmed down gross profit by 12.68 percent year-on-year in 2022 with GP margin sliding down to 12.75 percent in 2022. Administrative and distribution expenses posted 18.42 percent and 14.16 percent year-on-year growth respectively on the back of high inflation, induction of human resources to cater high demand and also because of higher outward freight. Other expense slipped by 32.96 percent year-on-year while other income posted a marginal 3 percent year-on-year growth in 2022. This trimmed down the operating profit by 15.46 percent year-on-year while OP margin ticked down to 10.1 percent in 2022. Finance cost posted a significant growth of 66.59 percent in 2022 due to high discount rate coupled with high working capital requirements which drove up the short-term borrowings. Due to supply chain shocks on the back of the Russia-Ukraine crisis, the company maintained excess stock of imported inventory which required excess funds. Moreover, the company also borrowed under TERF facility to finance its Balancing, Modernization & Replacement (BMR) projects. Net profit dropped by 25.26 percent year-on-year in 2022 to clock in at Rs.2211.921 million with NP margin of 5.67 percent. EPS also nosedived to Rs.10.9 in 2022.

In 2023, CEPB’s topline posted 22.21 percent year-on-year growth. Sales volume dropped by 14.4 percent year-on-year to clock in at 207,413 MT… To cope up with the supply side constraints on the back of import restrictions and also due to shutdown of machine to facilitate BMR projects, CEPB rationalized its sales mix to include the products with competitive prices to cope up with constant increase in cost of raw materials and fuel. Despite rigorous efforts, high cost of sales on the back of elevated raw material prices, Pak Rupee depreciation, high inflation and energy charges didn’t allow CEPB to sustain its gross profit which declined by 10.69 percent year-on-year in 2023. CEPB’s GP margin moved down to its lowest level of 9.32 percent in 2023. Administrative and distribution expense posted year-on-year growth of 22 percent and 16.81 percent respectively in 2023. This was on account of higher payroll expense and freight outward. Due to lower profitability, the company booked lesser provision for WWF and WPPF. This drove down other expense by 51.47 percent year-on-year in 2023. Other income grew by 46.75 percent in 2023 primarily on account scrap sales and amortization of government grant. Operating profit shriveled by 12.61 percent year-on-year in 2023 with OP margin diving down to 7.21 percent. Finance cost multiplied by a massive 198 percent in 2023 due to combined effect of higher discount rate, high working capital requirements and high long-term borrowings to finance BMR projects. The result was a bottom-line slide of 59 percent year-on-year in 2023. CEPB’s net profit clocked in at Rs.904.989 million in 2023 with NP margin of 1.90 percent and EPS of Rs.2.25.

Recent Performance (9MFY24)

During 9MFY24, CEPB registered a 14 percent year-on-year decline in its net sales. This was on account of sluggish demand, stiff competition from cheaper imported products and an unorganized sector as well as outsourcing of some raw materials for corrugated boxes. All these factors took a toll on the sales volume of CEPB during 9MFY24. BMR of paper & board machines, cogeneration machines, and related auxiliaries resulted in operational efficiency which coupled with a favorable sales mix allowed the company to record a GP margin of 9.99 percent in 9MFY24 versus 8.72 percent during the same period last year. This was despite a 1.47 percent year-on-year decline in gross profit in 9MFY24. Administrative and distribution expenses grew by 14.79 percent and 7.71 percent respectively during the period on the back of adjustments in salaries & wages, higher freight charges, and also because of elevated levels of inflation. Other expenses posted a marginal uptick of 0.66 percent in 9MFY24 due to higher provisioning for WWF and other miscellaneous expenses. Other income multiplied by 27.32 percent in 9MFY24. As per past trends, the key driver of other income is scrap sales. CEPB’s operating profit slid by 4.14 percent in 9MFY24; however, OP margin grew to 7.55 percent from 6.77 percent during the same period last year. Despite the high discount rate, CEPB was able to cut down its finance cost by 6.83 percent in 9MFY24. This was on account of lower outstanding borrowings during the period. CEPB’s net profit slumped by 9.42 percent year-on-year in 9MFY24 to clock in at Rs.668.536 million with EPS of Rs.1.66 versus EPS of Rs.1.84 recorded in 9MFY23. NP margin improved from 1.93 percent in 9MFY23 to 2.03 percent in 9MFY24.

Future Outlook

High inflation has restrained the purchasing power of consumers putting a dent in the demand for paper and paperboard products. Furthermore, the global recession has lowered the prices of similar products in the international market which is enticing local FMCG companies to import packaging material from the international market. Some FMCG companies are even shifting to cheaper local alternatives pertaining to the unorganized sector, further suppressing the demand of CEPB products. While local industrial activity is still slow and expected to slowly recover from the next fiscal year, the company is planning to tap export markets beyond Afghanistan to attain higher sales volumes. In the near term, the company also plans to modify its sales mix and focus more on high-yielding products to improve its margins and profitability.


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