Treet Corporation Limited

Treet Corporation Limited (PSX: TREET) needs no introduction and is amongst the largest conglomerates in Pakistan. Though its inception dates back to pre-partition, the Treet Group became a public listed company in 1977. Treet Group of Companies (TGC) is a consortium of six entities with Treet Corporation Limited (TCL) as the Holding Company.
The company is involved in the manufacturing of razor blades, which is the largest segment and has also traditionally been the star performer in terms of revenue and profitability. It also manufactures soap, corrugated packaging, as well as motorbikes.
Recently, the group has ventured into production and trading of batteries for UPS and automobile sector as well. But the diversification spree does not stop there. The Treet Group also made a move in the pharmaceutical sector last year with the acquisition of the majority stake in Renacon Pharma Limited, which is a dialysis medication manufacturer. Treet has become a significant player in exports over the years. Currently, Treet is exporting its products to over 35 countries around the globe with the majority going to the Middle East, China and Bangladesh respectively.
Shareholding pattern
The largest shareholder of the company is Mr. Shahid Ali who owns 28.3 percent while his son and Director Syed Sheharyar Ali owns 7.5 percent. An associated company Loads Limited has 5.5 percent while the National Investment Trust (NIT) holds 9.2 percent.
Historical performance
Even though the group has diversified considerably in the past decades, not all of its bets have paid off. FY18 saw TCL's consolidated earnings decline considerably due to falling margins and lacklustre top line growth in key segments.
Razor sales picked up by 12 percent in FY18 but saw a more than proportionate increase in COGS, resulting in a modest increase in gross profit. Treet has famous brands both in double-edged blades category such as TRBC (Treet Blade Coated) in carbon steel and TPS (Treet Platinum Super) as well Trim-II XL, Treet-II and Treet Hygiene in the bonded razor category.
Due to its significant local market share as well as decent export sales, the company has reduced prices to further boost sales volumes and keep its market share intact. Treet is also investing in balancing, modernisation and replacement to come up with new products and increase production efficiency.
However, things are not as stable when it comes to other segments. The soap division continues to mount losses and witnessed a 23 percent reduction in turnover and a 27 percent decline in gross profit in FY18 as compared to the previous year. The company blamed it on competition and rising production costs but believes that stable palm oil prices will help improve margins.
A similar story happened in the corrugation segment, which saw a 20 percent dip in its gross profit for the FY18 period on the back of intense competition. To help improve margins, a strategy of toll manufacturing to serve clients in the southern part is being considered by Treet.
The two latest ventures by the Treet Group are the lead acid battery plant as well as the acquisition of Renacon Pharmaceuticals. According to the company's annual report, the production speed and sales volume is set to increase in the coming years, and the company wants to spread fixed costs over increased unit sales.
The 1HFY19 saw continued losses for TCL on a consolidated basis with the half yearly PAT going down massively as compared to the same period last year. The usual suspects that are a drag on the bottom line for TREET continue to be soap and corrugation, while the bike division's performance was nothing home to write about as well.
Soap sales volumes increased but the company's decision to cut prices in the face of competition meant that margins continue to take a hit. In corrugation, the company maintained its volumes but the increase in raw material costs took a strain on profitability.
The razor division has kept the boat going for TREET with the company registering good growth in both local and export markets while its margins remained sound. The pharmaceutical segment seems to be a promising acquisition with good top line growth and solid margins. The commercial production from the new plant in Faisalabad will commence from the last quarter of CY19.
Future outlook
Treet Group has made two big bets in its quest to diversify. One is its battery manufacturing plant utilising Korean technology and the other is the acquisition of Renacon Pharmaceuticals.
Currently Renacon is producing haemodialysis concentrates but the management eventually wants to expand into tablets and capsules as well. The group believes that a great opportunity available is in this segment in both the domestic and export market. There are roughly 3-4 million dialysis procedures done per year in Pakistan in about 450 dialysis centres according to unofficial estimates. The company plans to further expand its footprint in the healthcare sector with a hospital on the cards as well.
The Daewoo battery is the other product which has the potential to make or break the group. After importing the batteries from Korea initially for setting up distribution channels, the company has amped up its production at its factory and sales are gathering pace. The company also wants to develop export markets and market development exercises are on-going.

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TREET CORPORATION LIMITED

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Rs (Million)             1HFY19   1HFY18      YoY

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Sales                     5,626    4,617      22%

Cost of Sales             4,838    3,427      41%

Gross Profit                787    1,190     -34%

GP Margin                    14%      26%

Operating profit           -651      267    -344%

Finance Cost                453      210     116%

Profit after Tax           -896       49   -1929%

NP Margin                   -16%       1%

EPS                       -5.41     0.29   -1966%

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Source: Company accounts

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TREET CORPORATION LIMITED: Pattern of shareholding                        % held

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Directors, CEO & their spouse/minor children                               41.31

of which

Syed Shahid Ali                                                            28.35

Syed Sheharyar Ali                                                          7.51

Associated Companies and Related Parties                                    5.45

Of which

Loads Limited                                                               5.38

NIT                                                                         9.18

Banks, DFI's, NBFIs, insurance/takaful firms, modarabas & pension funds     3.97

Foreign investors                                                           4.04

Individuals                                                                30.97

Joint-stock companies                                                       1.27

Others                                                                      1.51

Total                                                                        100

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