Ismail Industries Limited

Ismail Industries Limited (PSX: ISIL) today is the largest confectionery manufacturer as well as the confectionary exporter in Pakistan. The company was incorporated in Karachi, as a private limited company in 1988. And in 1989, the company was converted into a public limited company. Principal activities of the company include manufacturing and trading of sugar confectionery items, biscuits, potato chips and cast polypropylene film.
Business segments and export markets
The firm started off with CandyLand in 1988, which is the biggest and the leading confectionery brand in the country today. The foundation for the first production plant was laid down on a one acre land, and the first brand was launched in 1990.
From there, the company has expanded horizontally with other brands like Bisconni, and SnackCity with products like biscuits/cookies and chips etc., respectively. Bisconni came into existence in 2002, and has grown to become the leader in the value-added cookies category in Pakistan.
SnackCity division of Ismail industries was built in 2006 when the company set up its manufacturing facility at Hub and began production of its potato chips Kurleez. And the foundation for a second production facility was laid down in Lahore in 2010, which caters to demand coming from the North and Central regions of Pakistan.
ISIL's vertical expansion comes from its venturing into cast polypropylene film in 2004 under the brand name Astro Plastics. It manufactures CPP, BOPP and BOPET films. It comprises of three brands, namely: Astro Pack, Plastiflex Films Pvt. Limited, and Astro Plastics Pvt. Limited. The business is located in the southern region of Pakistan, and has supplied products not just locally but to six continents of the world including the US market.
Ismail Industries Limited has been exporting its products to over 40 countries in North America, Europe, Australia, Africa, Far East and the Middle East where its products are sold both under its brand name and as white labeled products. Its global clients fall in the categories of large importers and distributors, retail chains, supermarkets and grocery stores.
ISIL shareholding pattern
Majority of the firm's shares are held by the CEO, Director, their spouses and children. One of the directors, the chairman and Mr. Miftah Ismail hold over 32, 29 and 30 percent shares in the company, respectively. The associated company of the firm, Uniron Industries (Pvt.) Limited holds just a little above 0.6 percent.
ISIL also has a subsidiary called Hudson Pharma (Pvt.) Limited. It made the investment in 2016, which was a long term equity investment or Rs 605 million, representing 71.29 percent of its share capital. HPPL has already received approval from DRAP for some of its products. According to the Company's annual accounts, Hudson Pharma aims on providing hospital and health institutions with more sterile injectable materials as the injectable market is less competitive in Pharma industry providing the firm with first mover advantage.
Historical financial performance
Ismail Industries has been a successful company with the right quality standards and product checks in place in a sector that largely has unregulated players. The company has grown tremendously to a leadership position. The rising income levels and changing consumption patterns for hygienically packed impulse food items have been key demand drivers for the firm.
Over the years, ISIL has expanded its product lines, increased capacities and spent on marketing and branding - key components for this sector. A look at the last five years shows that in FY13, ISIL's division grew by 12 percent amid rising food and energy costs as well as security costs. The company's key brand, CandyLand continued to witness growth in its key products like jellies, chocolates, toffees, etc. Bisconni, the cookie brand also showed encouraging performance in FY13 after a year of consolidation, while SnackCity continued with its growth where the firm introduced a new product as well. On the whole, the firm achieved improvement in both the capacity utilization and profitability, which was also seen in the plastic film segment.
FY14 was a better year for Ismail Industries. According to the firm's FY14 Annual Report, it was a year of savings in supply chain and overheads, and improvement in efficiencies of trade and marketing spends. All these resulted in better operating performance. Earnings and sales grew due to positive change in mix, better cost absorption, and saving initiatives. The core confectionery business - CandyLand led the growth where plans for new investments were also made. Bisconni also witnessed growth where the firm developed in-house manufacturing of chocolate chips and some further expansion plans. However, due to high cost of raw material ie potatoes, the SnackCity segment had a difficult year in FY14.
FY15 and FY16 were also good years for ISIL. In FY15, the firm achieved 14 percent growth in gross sales, while profits improved by 27 percent, year-on-year, all due to cost saving initiatives. The performance of the food segment was very healthy with 18 percent increase in turnover. Candyland continued to deliver growth both in terms of baseline as well as with new launches. Bisconni saw increased efficiency in both manufacturing and selling, resulting in strong growth in both revenues and profitability. However, SnackCity's performance continued to be affected by the price shock in base raw material. The plastic films segment came under pressure due to rapid fluctuations in raw material prices and availability driven by the steep drop in oil prices, which according to the Company's Annual Accounts resulted in closure of various resin production units, the primary raw material for this segment.
FY16 was a year where ISIL posted a top-line growth of 40 percent and an increase in earnings by 24 percent. A key event during the year was the merger of Astro Plastics (Private) Limited with and into ISIL. And this merger was the reason for the decrease in gross margin as raw material costs in plastic segment make up a larger component of total cost as compared to food segment. However, the gross margins of the food segment alone continued to climb in FY16.
FY17 and beyond
ISIL sailed forward in FY17. The firm's sales posted a solid growth of 15 percent year-on-year, while its gross profit and net profit increased by 20 percent and 16 percent, respectively in FY17. The year also saw a decrease in the firm's finance cost by 16 percent, year-on-year due to lower benchmark rates.
In the food segment, there was an overall increase in the local sales revenue by 17 percent, and export sale by 20 percent, year-on-year. In FY17, CandyLand launched its product: Novella chocolate. In addition, jellies, candies, candy bars and chews continued to show growth and remained key to the business. During the year, the company also installed additional new production line for marshmallows to avoid any shortfall in supply amid rising demand.
ISIL witnessed improvement in SnackCity in FY17 where both Hub and Lahore factories had been further improved on quality and capacity utilization measures. For Bisconni, the firm is installing new production lines at Port Qasim manufacturing facility with modern technologies for its renowned brands. At the same time, ISIL also added a new production line at Port Qasim manufacturing facility for the introduction of its new product "Sponge Cake".
Recently, ISIL has decided to enhance its existing production capacity of BOPET films due to rising demand and has entered into an agreement with plant supplier, Brickner Maschinenbau GmbH & Co. KG - Germany for the acquisition of BOPET film manufacturing plant and machineries having production capacity of 36,000 tons per annum. This will increase ISIL's BOPET production capacity by 200 percent.

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ISIL-Pattern of Shareholding (As at June 30, 2017)

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Shareholder's Category                    Percentage held

CEO, Directors their Spouses & Children            98.77%

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Directors:

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Mr. Maqsood Ismail Ahmed                            0.30%

Ms. Farzana Muhammad                                2.16%

Ms. Almas Maqsood                                  32.59%

Ms. Reema Ismail Ahmed                              1.99%

Mr. Ahmed Muhammad                                  1.57%

Mr. Hamid Maqsood                                   1.60%

Mr. Muhammad Zubair Motiwala (Independent)         0.001%

Chief Executive Officer:

Mr. Munsarim Saifullah                             0.001%

Chairman:

Mr. Muhammad M. Ismail                             29.24%

CEO, Directors their Spouses & Children:

Mr. Miftah Ismail                                  30.91%

Associated Company                                  0.68%

Uniron Industries (Private) Limited                 0.68%

Foreign Companies                                   0.01%

Others                                              0.01%

General Public                                      0.53%

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Total                                                100%

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