Safe Mix Concrete Limited (PSX: SMCPL) was incorporated in Pakistan as a private limited company in 2005 and was ultimately converted into a public limited company in 2007. The company is engaged in the manufacturing and sale of ready-mix concrete, and building blocks as well as the construction of factories, prefabricated buildings, and other construction sites. SMCPL is a company of Arif Habib Group and is the supplier of ready-mix concrete for the group’s mega project – Naya Nazimabad.
Pattern of Shareholding
As of June 30, 2024, SMCPL has a total of 25 million shares outstanding which are held by 727 shareholders. Mr. Abdus Samad Habib, the CEO of SMCPL holds 35.84 percent shares of the company followed by Arif Habib Limited holding 22.80 percent shares of the company. The local general public accounts for 18.23 percent of shares of SMCPL. Around 9.6 percent of the company’s shares are held by Arif Habib Corporation and 1.75 percent by the foreign general public. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-24)
Over the period under consideration, SMCPL’s topline tumbled in 2020, 2021, and 2024, however, it posted robust growth in the rest of the years. In 2019 and 2020, the company posted a negative bottom line. SMCPL posted net profit in the subsequent years with the highest net profit registered in 2023. The margins which were also plunging until 2020 recovered in 2021 and reached their highest level in 2023. In 2024, SMCPL’s margins ticked down (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.
In 2019, SMCPL’s topline grew by a massive 49 percent year-on-year to clock in at Rs.879.31 million. This was despite an 11 percent year-on-year descent in its volumetric sales. SMCPL’s sales volume slipped to 143,359 cubic meters of concrete mix in 2019 as the construction activity in the country tapered off by 7.6 percent as against the growth of 9 percent in construction activity achieved in 2018. The high cost of raw materials due to an increase in commodity prices, high fuel and energy charges, as well as Pak Rupee depreciation, pushed up the cost of sales by 56.89 percent year-on-year in 2019. This resulted in a 64.11 percent year-on-year fall in gross profit. GP margin significantly plummeted from 6.5 percent in 2018 to 1.57 percent in 2019. The company made efficient utilization of its transit mixer fleet, however, impairment loss of financial assets culminated in a 452.79 percent surge in distribution expense in 2019. The company kept a strict check on its administrative expenses by curtailing its payroll expenses, legal and professional fees as well as repair and maintenance charges. Yet, it failed to post any operating profit in 2019. SMCPL posted an operating loss of Rs.25.23 million in 2019 as against the operating profit of Rs.15.70 million registered in 2018. Finance costs grew by 23.47 percent year-on-year in 2019 on account of higher discount rates. Net loss for 2019 clocked in at Rs.29.77 with loss per share of Rs.1.19 as against net profit of Rs.2.42 million and EPS of Rs.0.1 recorded in 2018.
In 2020, SMCPL’s net sales declined by 53.44 percent year-on-year to clock in at Rs.409.45 million. This was because the company successfully completed a private sector project during the year and the major revenue from it was earned in the previous year. Furthermore, the slowdown of the real-estate sector and the imposition of lockdown due to the outbreak of COVID-19 also resulted in reduced sales during the year. On account of low demand, the company utilized 4.5 percent of its available capacity and produced only 65.967 cubic meters in 2020 as against 9.7 percent capacity utilization in 2019. Lesser sales resulted in a 51.19 percent year-on-year drop in the cost of sales. SMCPL recorded a gross loss of Rs.13 million in 2020. While SMCPL greatly reduced its advertising and sales promotion as well as sales commission related to Karachi Metropolitan Corporation, impairment loss of financial assets kept mounting, resulting in a 4.54 percent year-on-year uptick recorded in distribution expense in 2020. Administrative expenses ticked down by 16.27 percent year-on-year. Other income showed a 5.42 percent year-on-year improvement in 2020 due to an increase in pumping and grout charges received during the year. The company also incurred other expenses of Rs.3.53 million due to a loss on the sale of fixed assets in 2020. Besides, the company also recognized an impairment loss of Rs.45 million on its batching plant due to greater than anticipated wear and tear. Operating loss magnified by 284.79 percent year-on-year in 2020 to clock in at Rs.97.07 million. Finance costs inched down by 6.98 percent year-on-year as the company trimmed down its loan book in 2020 and also because of a drop in discount rate during the year. Despite all the cost control measures, SMCPL’s net loss grew by 231.80 percent year-on-year in 2020 to clock in at Rs.98.78 million with a loss per share of Rs.3.95. The accumulated loss of SMCPL reached Rs.174.37 million in 2020 as against Rs.76.58 in 2019. The constant accumulation of losses narrowed down the company’s equity.
2020 was followed by another year of sales decline whereby SMCPL’s topline petered out by 45.97 percent year-on-year to clock in at Rs.221.23 million. During 2021, the company not only reduced its production capacity from 1.47 million cubic meters to 0.876 million cubic meters but also utilized only 5.87 percent of the available capacity. Steps were being taken by the government for the promotion of the housing sector in the country. While a significant number of projects were launched in the northern wing of the country, the southern region still remained quiet. Cost of sales also shrank by 51.8 percent year-on-year in 2021 mainly on account of the management’s focus on reducing its fixed overhead cost. This resulted in a gross profit of Rs.17.63 million in 2021 as against the gross loss recorded in the past year. GP margin clocked in at 7.97 percent in 2021. The company didn’t incur any sales commission related to KMC in 2021. Impairment loss of financial assets also considerably tumbled during the year resulting in a 99 percent year-on-year drop in distribution expense in 2021. Administrative expenses tumbled by 23.78 percent year-on-year in 2021 mainly on account of a reduction in payroll expense. Other income dwindled by 42 percent year-on-year in 2021 due to lesser pumping and grout charges, curtailed deferred income, and lesser profit on deposit accounts due to the low discount rate. This resulted in an operating profit of Rs.8.22 million in 2021 with an OP margin of 3.71 percent. Although finance costs contracted by 25.88 percent year-on-year in 2021 due to monetary easing, however, it didn’t allow the positive operating profit to cascade down resulting in a loss before tax of Rs.1.39 million in 2021. However, deferred taxation pushed the bottom line into the profit zone. SMCPL recorded a net profit of Rs.6.57 million in 2021. NP margin clocked in at 2.97 percent while EPS stood at Rs.0.26 in 2021.
After two years of lackluster sales, SMCPL’s topline posted a strong rebound of 139.44 percent in 2022 to clock in at Rs. 529.72 million. This was on the back of higher sales volume as well as upward price revision. During the year, the company increased in capacity to 918,000 cubic meters and utilized 10.8 percent of its capacity owing to strong demand. The high cost of raw materials, fuel and power charges, and Pak Rupee depreciation pushed the cost of sales up by 104.4 percent in 2022. Yet gross profit multiplied by 544 percent in 2022 with GP margin clocking in at 21.44 percent. Higher sales commission as well as travel charges resulted in a 350.86 percent hike in distribution expense in 2022. Administrative expenses also surged by 83 percent year-on-year in 2022 owing to high inflation and induction of additional human resources during the year. Other income massively increased by 78.56 percent year-on-year in 2022 on account of higher grouting income as well as a write-off of liabilities no longer payable. Operating profit posted a staggering growth of 987.93 percent in 2022 with an OP margin of 16.87 percent. Finance cost grew by 88 percent year-on-year in 2022 due to multiple rounds of monetary tightening during the year and also because the company undertook significant capital expenditure during the year to increase the transit mixers. SMCPL’s net profit enhanced by 607.64 percent in 2022 to clock in at Rs.46.456 million with an NP margin of 8.77 percent. EPS climbed to Rs. 1.86 in 2022.
2023 was characterized by tamed construction activities in the country due to low PSDP spending, rise in construction cost, and low purchasing power of consumers due to high inflation, unprecedented level of discount rate, political havoc, and sluggish economic activity. Despite all the odds, SMCPL’s topline posted a stunning year-on-year growth of 170.34 percent in 2023 to clock in at Rs.1432.03 million. This was due to the fact that the majority of SMCPL’s sales were made to its related parties which included Javedan Corporation Limited.SMCPL achieved capacity utilization of 14.76 percent in 2023 by producing 135,534 cubic meters, up 36.94 percent year-on-year. Cost of sales surged by 166.90 percent year-on-year in 2023, however, high volumetric sales and elevated prices resulted in 182.92 percent year-on-year growth in gross profit with GP margin clocking in at 22.43 percent in 2023. Administrative expenses multiplied by 55.53 percent year-on-year in 2023 due to high payroll expenses driven by high inflation. Distribution expense escalated by 99.15 percent in 2023 due to elevated sales commission, advertising & promotion budget as well as traveling charges. Other expenses considerably grew by 494 percent year-on-year in 2023 due to higher provisioning don for WPPF and ECL. The company also wrote off assets, receivables, and advances during the year which also contributed to driving up other expenses. Other income slid by 20.83 percent in 2023 due to the high-base effect as the company recorded write-back of liabilities, gain on the final settlement with CDGK, and write-off of recovery of receivables in 2022. SMCPL’s operating profit grew by a massive 177.32 percent year-on-year in 2023 while OP margin clocked in at 17.31 percent – the highest level during the period under consideration. Finance cost grew by 126.45 percent year-on-year in 2023 due to a high discount rate although the company paid off its entire short-term liabilities during the year and instead obtained a loan from related parties. Net profit substantially grew by 187 percent in 2023 to clock in at Rs.133.37 million with EPS of Rs.5.33 and NP margin of 9.31 percent.
In 2024, SMCPL’s net sales declined by 11.84 percent year-on-year to clock in at Rs.1262.48 million. This was on account of the slowdown of the ongoing projects due to the unprecedented level of discount rates and the high cost of raw materials. During the year, the company’s production slid by 22.45 percent to clock in at 105,100 cubic meters. This resulted in capacity utilization of 11.45 percent in 2024. The cost of sales slid by 9.75 percent in 2024. This translated into 19.05 percent lower gross profit recorded by the company in 2024. GP margin also contracted to 20.60 percent in 2024. Administrative expense multiplied by 8.71 percent in 2024 mainly on account of penalties paid for the termination of lease. Distribution expense dipped by 2.82 percent in 2024 due to lower sales commissions incurred on the back of petite sales volume achieved during the year. The company also considerably squeezed its advertising & promotion budget in 2024. Other expenses dwindled by 47.96 percent in 2024 due to the high-base effect as the company wrote off long outstanding advances and receivables in the previous year. Provision for WPPF also slid in 2024 contributing to lower other expenses. Other income also ticked down by 8.7 percent in 2024 due to the high-base effect as the company wrote back liabilities in 2023. SMCPL’s operating profit slumped by 19.76 percent in 2024 with OP margin falling down to 15.75 percent. Finance costs surged by 27.77 percent in 2024 due to the high discount rate. SMCPL’s net profit tumbled by 16.32 percent year-on-year to clock in at Rs.111.606 million in 2024 with an EPS of Rs.4.46. NP margin also inched down to 8.84 percent in 2024.
Recent Performance (1HFY25)
During the first half of the ongoing fiscal year, SMCPL’s topline multiplied by 20.92 percent to clock in at Rs.679.48 million. This was on account of the recovery witnessed in the macroeconomic indicators which provided impetus to the construction activity in the country. The cost of sales mounted by 33.19 percent in 1HFY25 due to the high cost of raw materials and elevated energy tariff. This pushed gross profit down by 18.45 percent in 1HFY25 with the GP margin clocking in at 16 percent versus the GP margin of 23.77 percent recorded in 1HFY24. Administrative expenses surged by 27.84 percent in 1HFY25 apparently due to higher payroll expenses incurred during the period. Selling expense also escalated by 78.68 percent in 1HFY25 due to higher sales volume which translated into increased sales commission. Other expenses slid by 37.48 percent in 1HFY25 perhaps due to lower profit and ECL-related provisioning done during the period. Conversely, other income posted a staggering year-on-year growth of 111 percent in 1HFY25 seemingly due to recovery of doubtful debts and profit from financial assets. SMCPL recorded a 23.48 percent decline in its operating profit in 1HFY25 with OP margin clocking in at 11.65 percent versus OP margin of 18.42 percent recorded in 1HFY24. Finance cost diminished by 25.97 percent in 1HFY25 due to a lower discount rate and a downtick in outstanding loans. SMCPL recorded a net profit of Rs.38.66 million in 1HFY25, down 23.16 percent year-on-year. This translated into EPS of Rs.1.55 in 1HFY25 versus EPS of Rs.2.01 recorded in 1HFY24. NP margin fell from 8.95 percent in 1HFY24 to 5.69 percent in 1HFY25.
Future Outlook
Relatively higher PSDP disbursement in the 2HFY25 may result in improvement in construction activities in the country. Downward movement of discount rate also provides momentum for the same. However, natural demand pickup in the private sector may take time due to a protracted period of high inflation which has compressed the pocket size of consumers.
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