Roshan Packages Limited (PSX: RPL) was incorporated in Pakistan as a private limited company in 2002 and was converted into a public limited company in 2016. The principal activity of the company is the manufacturing and sale of corrugation and flexible packaging material.
Pattern of Shareholding
As of June 30, 2024, RPL has a total of 141.900 million shares outstanding which are held by 5105 shareholders. Directors, CEO, their spouse and minor children have the majority stake of 68.17 percent in the company followed local general public holding 24.77 percent shares of RPL.
The remaining shares are held by other categories of shareholders.
Historical Performance (2019-24)
Except for a marginal decline in 2020, RPL’s net sales have posted year-on-year growth in all the years under consideration. Its bottomline, which was in the negative territory until 2019 rebounded in 2020. The net profit further enlarged in 2021 and then nosedived in the subsequent two years followed by a rebound in 2024. RPL’s margins follow an irregular pattern.
Gross margin of the company inched down in 2019 and then rose for the next two years only to taper off thereafter.Conversely, operating margin rode an upward trajectory until 2021 and then dipped in 2022.
In 2023 and 2024, operating margin greatly recovered. Net margin whichwas in the negative zone in 2018 and 2019, rebounded for the next two years and then slumped in 2022 and 2023. In 2024, net margin slightly picked up.The detailed performance review of the period under consideration is given below.
In 2019, RPL’s topline grew by a substantial 33.88 percent year-on-year to clock in at Rs. 5397.12 million. This came on the back of volumetric growth of 18.73 percent. In 2019, the company dispatches stood at 39,012 MT.
As of June 2019, the company had an installed capacity of 60,000 MT of its corrugation plant and 12,240 MT of its flexible plant. The company operated its corrugation plant at 51.8 percent capacity in 2019 versus 44.4 percent in 2018. Flexible plant was operated at 69 percent capacity in 2019 versus 57 percent in the previous year.
Cost of sales grew by 34.60 percent year-on-year in 2019 which pushed down RPL’s GP margin from 6.17 percent in 2018 to 5.66 percent in 2019 despite 22.89 percent year-on-year growth in gross profit.
The company cut back on its administrative expenses by 7.33 percent year-on-year in 2019 despite high-capacity utilization which required additional human resources. The company increased in employee head count to 483 in 2019 versus 467 in 2018. However, a check on travelling & conveyance, entertainment, repair & maintenance etc enabled RPL to control its administrative expenses in 2019.
Distribution expense grew by 29.48 percent year-on-year in 2019 primarily due to higher payroll expense and added advertisement and promotion budget. Higher distribution expense was largely offset by reversal of allowance on trade receivables in 2019. Higher exchange loss due to depreciation of Pak Rupee culminated into 39.36 percent year-on-year growth in other expense in 2019.
Other income posted a handsome 36.36 percent year-on-year rise due to higher profit on bank deposits, higher markup on long-term loans and also because of gain on sale of fixed assets in 2019.
Operating profit grew by 381.68 percent year-on-year in 2019 with OP margin growing staggeringly from 1.17 percent in 2018 to 4.22 percent in 2019. The stunning growth in operating profit was diluted by 54.85 percent year-on-year growth in finance cost in 2019 due to higher discount rate despite keeping a check on borrowings.
The company posted profit before tax of Rs.41.22 million in 2019 as against the loss before tax of Rs.73.22 million in 2018. Upward revision in normal tax rate to 29 percent and turnover tax to 1.5 percent increased the current and deferred charge for the company which translated into net loss of Rs.26.9 million in 2019.
The loss posted by RPL in 2019 was 70.29 percent lower than that posted in 2018. Loss per share stood at Rs.0.19 in 2019 versus loss per share of Rs.0.64 registered in 2018.
The topline took 3 percent year-on-year dive in 2020 to clock in at Rs.5232.97 million. This was due to nation-wide lockdowns and supply chain disruptions owing to COVID-19. The volumes of the company fell to 36,261 MT in 2020, signifying 8.3 percent drop. This was due to lackluster performance of HORECA industry amidst lockdown which reduced the demand of packaging material.
The capacity utilization of corrugation plant fell to 49 percent and flexible plant fell to 57.5 percent due to plant shutdown. The company was able to rationalize its cost by streamlining its product and customer portfolio and was able to reduce its cost by 7.96 percent year-on-year in 2020. This increased its gross profit by 78.95 percent year-on-year in 2020 and boosted its GP margin to 10.45 percent.
The company reduced its number of employees to 434 in 2020 due to restrained operational capacity; however, administrative expense grew by 27.66 percent year-on-year due to higher payroll expense, legal and professional charges and higher depreciation due to idle capacity during the year.
Distribution expense inched up by 90.45 percent year-on-year in 2020 due to higher freight and transportation charges. Other expense dropped by 85.58 percent year-on-year in 2020 due to lower exchange loss.
While profit on bank deposits significantly dropped during 2020, it was greatly offset by higher profit on investment and interest income on loans to related parties. This resulted in a trivial downward movement of 0.65 percent in other income in 2020.
Operating profit grew by 74.73 percent year-on-year in 2020 with OP margin surging to 7.61 percent. Finance cost grew by 19.55 percent year-on-year in 2020 due to higher long-term financing secured under SBP’s refinance scheme for the payment of salaries and wages.The company was able to record net profit of Rs.247.96 million in 2020 with NP margin of 4.74 percent. EPS clocked in at Rs.1.75 in 2020.
In 2021, RPL’s topline boasted 33.69percent year-on-year rise to clock in at Rs.6995.84 million. This was on the back of 7.9 percent increase in sales volume which clocked in at 38,369 MT. After the outbreak of COVID-19, people became more aware about hygiene and the importance of proper packaging. This buttressed the demand for packaging products. Moreover, the culture of online shopping and online food deliveries further propelled the demandfor packaging material.
RPL’s margins attained their optimum level in 2021.Owing to demand growth, the company’s operated its corrugation plant at 53.5 percent and flexible plant at 65 percent capacity in 2021.
The number of employees also grew from 434 in 2020 to 483 in 2021. Cost of sales grew by 30.45 percent year-on-year in 2021 resulting in 61.47 percent growth in gross profit. GP margin climbed up to 12.62 percent in 2021. Administrative and selling expense grew by 20.27 percent and 19.22 percent respectively in 2021 on account of higher payroll expense, travelling and conveyance as well as freight charges.
Other expense grew by 106.30 percent year-on-year in 2021 due to higher provisioning for WWF and WPPF. While the company recognized exchange gain due to improvement in the value of local currency in 2021, lower profit on bank deposits and short-term investments as well as lower interest income on loan to related parties on the back of lower discount rate pushed other income down by 32.28 percent in 2021.
Operating profit grew by 45.62 percent year-on-year in 2021 with OP margin growing up to 8.30 percent. Finance cost fell by 49.97 percent year-on-year in 2021 due to monetary easing and lesser borrowings.
Net profit grew by 39.40 percent year-on-year in 2021 with NP margin of 4.94 percent. EPS surged to Rs.2.44 in 2021.
The demand remained robust in 2022 with 26.73 percent year-on-year growth recorded in RPL’s topline which was recorded at Rs.8865.56 million. The company dispatched 44,884 MT of packaging material in 2022.
The capacity utilization of corrugation plant increased to 62.5 percent; however, flexible plant operated at a reduced capacity of 60 percent in 2022. Besides higher dispatches in 2022, the company also rationalized its customer portfolio and focused on top-tier local and international corporate customers which resulted in improved prices.
However, rise in the cost of imported raw materials coupled with Pak Rupee depreciation and higher utility charges pushed the cost of sales up by 30 percent year-on-year in 2022. This suppressed the GP margin to 10.32 percent in 2022.
The number of employees grew to 565 in 2022 owing to higher capacity utilization. This coupled with inflationary effect pushed up the payroll expense, resulting in 18.41 percent year-on-year rise in administrative expense in 2022.
Selling expense grew by 44.23 percent year-on-year in 2022 on the back of increased advertising and promotion budget and freight charges. Other expense multiplied by 207.54 percent in 2022 due to massive exchange loss on the back of depreciation in the value of Pak Rupee. Other income also slipped by 8.12 percent year-on-year in 2022 due to lesser profit on bank deposits and short-term investments.
Operating profit plummeted by 25.98 percent year-on-year in 2022 with OP margin sliding down to 4.84 percent. 49.82 percent year-on-year increase in finance cost due to higher discount rate and increased short-term and long-term borrowings translated into 23.42 percent year-on-year drop in net profit which clocked in at Rs.264.71 million in 2022 with NP margin of 3 percent. EPS also plunged to Rs.1.87 in 2022.
RPL’s topline posted 15.58 percent year-on-year growth in 2023 to clock in at Rs.10,246.69 million.
The company’s sales volume slid by 9.78 percent to 40,493 MT in 2023 due to its emphasis on top-tier local corporate and multinational clients. Gross profit ticked up by 10.54 percent in 2023, however, inflationary pressure and declining value of local currency pushed GP margin down to 9.87 percent.
RPL’s corrugation plant operated at 58.43 percent capacity and produced 35,060 MT of packaging material in 2023. The capacity utilization of flexible plant stood at 44.38 percent in 2023 resulting in the production volume of 5433 MT.
Administrative posted a year-on-year rise of 32 percentin 2023 on account of high inflation which drove up payroll expense, utility expense, travelling and conveyance expense as well as freight and carriage charges. This was despite the fact thatRPL streamlined its workforce from 565 employees in 2022 to 516 employees in 2023.
Lower sales volume resulted in 55.32 percent plunge in distribution expense in 2023.Other expense slid by 27.23 percent year-on-year in 2023 due to lower exchange loss incurred during the year. Conversely, other income grew by 51 percent year-on-year in 2023 due to higher discount rate which pushed up the profit on deposits.
Operating profit strengthened by 53 percent in 2023 with OP margin rising up to 6.41 percent. Finance cost surged by 90.44 percent year-on-year in 2023. While borrowings considerably reduced in 2023, high finance cost was the result of excessive monetary tightening over the year.
Net profit slashed by 43.21 percent year-on-year in 2023 to clock in at Rs.150.339 million with EPS of Rs.1.06 and NP margin of 1.47 percent.
While sales volume continued to fall in 2024 due to poor macroeconomic conditions which squeezed the customer demand, price rationalization and focus on top-tier customers resulted in a marginal 0.85 percent uptick in RPL’s net sales in 2024 which clocked in at Rs.10,333.52 million.
Cost of sales swelled by 2.30 percent in 2024 on account of high inflation, Pak Rupee depreciation, heightened energy tariff and geopolitical tensions which disrupted the company’s supply chain.
Gross profit slid by 12.45 percent in 2024 with GP margin falling to 8.57 percent. Administrative and selling expense slid by 7.5 percent and 1.49 percent respectively in 2024 due to curtailed sales volume which kept a check on freight & carriage charges as well as payroll expense due to rightsizing of workforce to 461 employees. Other expense slid by 58.56 percent in 2024 as the company recorded no exchange loss.
Other income mounted by 85.33 percent in 2024 due to higher profit on bank deposits, short-term investments and loan to related parties besides recognizing exchange gain and dividend income on investment in mutual funds. Controlled operating expenses and robust other income enhanced RPL’s operating profit by 9.59 percent in 2024 with OP margin clocking in at 6.96 percent.
Finance cost thinned down by 5.59 percent in 2024 despite higher discount rate. This was due to better working capital management which pushed down RPL’s gearing ratio from 16 percent in 2023 to 8 percent in 2024. Net profit grew by 40.52percent to clock in at Rs.211.262 million in 2024 with EPS of Rs.1.49 and NP margin of 2 percent.
Recent Performance (9MFY25)
During the nine-month period of the ongoing fiscal year, RPL registered 10.15 percent deterioration in its topline which clocked in at Rs.7052.953 million. This was due to intense competition in the industry amid lower demand.
The company’s religious focus on operational efficiency and the installation of solar power plant in 2024 to reduce its dependence on the grid enabled it to maintain its gross margin at 8.7 percent despite 9.43 percent diminution recorded in gross profitability in 9MFY25.
Administrative expense surged by 25.81 percent in 9MFY25 due to inflationary pressure. Lower sales volume resulted in a marginal 3 percent uptick in distribution expense during the period under review. The company recorded reversal of Rs.35.70 million on allowance booked on ECL in 9MFY25. This was against the provision of Rs. 41.09 million booked on ECL in 9MFY24. Lower discount rate appears to have squeezed the company’s profit on bank deposits and loans to related parties, resulting in 73.34 percent thinner other income in 9MFY25.
Conversely, other expense ticked up by 18 percent in 9MFY25 seemingly due to exchange loss as the company recorded no export sales. Operating profit declined by 33.73 percent in 9MFY25 with OP margin recorded at 5.1 percent versus OP margin of 6.92 percent in 9MFY24.
Lower discount rate and efficient working capital management resulted in 44.37 percent lower finance cost in 9MFY25. Net profit faded by 33.41 percent to clock in at Rs.146.989 million in 9MFY25 with EPS of Rs.1.04 and NP margin of 2.1 percent. This was against the EPS of Rs.1.56 and NP margin of 2.81 percent recorded in 9MFY24.
Future Outlook
The company has significantly streamlined its customer portfolio to include FMCG and essential commodities segment where demand is expected to remain steady.
Increasing population and urbanization coupled with lower inflation and discount rate will buttress the demand of FMCG and essential commodities in the coming times and so will be the demand of packaging material. Furthermore, cost efficiency and price rationalization will provide RPL a competitive edge in the industry.