Merit Packaging is part of the highly recognised Lakson Group, which was founded in 1954. Lakson Group has presence in various industries of Pakistan and employs over 3,000 people. Some of the other companies operating under the Lakson Group umbrella include Colgate-Palmolive, Century Paper and Board, Lakson Investments, Century Insurance and Cybernet.
Historical performance Over the last five years' financial performance of the company has been erratic, to say the least. Sales have been up and down, while margins have also fluctuated. From FY11 to FY16, Merit Packaging had posted losses in FY12, FY13 and FY14.
In FY13, the management of the company announced a 750 rights issue at Rs 10. (par-value). The purpose of this rights issue as per the notification to the exchange was to have liquidity for working capital. Previously the capital base of the company was small and the management had to borrow additional loans. Apart from that, the funds were to be used for enhancing production capacity and capital expenditure.
After the rights issue and much needed liquidity injection, the performance of the company started improving. In FY14, the top line of the company grew by over 35 percent and gross margins almost doubled as compared to FY13. There was improvement across all segments of the company.
In FY15, Merit Packaging returned to profitability. Sales grew by seven percent year-on-year, and for the first time in its history, the company crossed Rs 2 billion in annual turnover. The capital expenditure during the previous year brought significant improvement in production capacity and efficiency across the board. The FMCG sector, which is the main target sector of Merit Packaging, demand was picking up which meant that company could maintain its margins.
However, energy cost prevented the company from achieving its desired profitability targets. The whole packaging sector has been marred by energy costs over the years.
Later in FY15, there was a fire incident which affected the Gravure unit of the company. The production in that unit had to be suspended and outsourced to other factories.
The fire incident took toll on the company's performance in FY16 as well. Significant expenditure had to be done to get suspended production back online in the Gravure unit. Also some ageing machines had to be replaced. All this meant that financials of the company suffered from top to bottom. Sales declined by almost 20 percent and net profit went down by 78 percent.
Recent performance 9MFY17 During the first nine months of the fiscal year, the sales of the company went up by 10 percent as compared to previous. The increase in top line can be attributed to utilisation of capacity, which was previously not being used. Over the last few years the company has done expenditures to get the production facilities back in shape and the results of these efforts are being witnessed now.
However, the bottom line of the company decline by 55 percent with earnings per share of Rs 0.09. The main dent to the earnings came from the finance cost, which increased by about 25 percent. Overall the gross margins improved by 2 percent, while net margins declined by 0.03 percent.
Shareholding pattern Majority of the shareholding of the company is held by the sponsors and associated companies of the Lakson group. Amongst the institutions, NIT has over 10 percent holding, while mutual funds hold about 14 percent of the company. The general public holds around 28 percent shareholding of the company.
Stock performance The stock price of Merit this year has fluctuated a lot, but over the course of last twelve it has largely outperformed the benchmark KSE-100 index. Investors after witnessing the turnaround flocked into the stock and exceptional volumes were seen after the reporting of quarterly results.
Future outlook Looking forward, the company should be able perform at its full strength after some forgetful years of underperformance due to various issues. With a wide variety of services and a growing economy, the company should make sure that it regains its market share by targeting the FMCG sector, which are the main buyers of its products and services.
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Pattern of Shareholding (As of June 30, 2016)
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Directors, CEO, and their Spoces and minor children 74,915 0.19%
Associated Companies, Undertakings and related part 22,545,364 55.92%
SIZA (Private) Limited 3,907,159 -
SIZA Services (Private) Limited 5,560,819 -
SIZA Commodities (Private) Limited 4,529,488 -
Premier Fashion (Private) Limited 8,545,602 -
NIT and ICP 4,211,732 10.45%
Banks, DFI, NBFI 385 0.00%
Modarabas and Mutual Funds 5,741,889 14.24%
General Public 11,255,164 27.92%
Others 696,482 1.73%
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Source: Company Accounts Note: Some shareholder are reflected in more than one category
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Merit Packaging Limited
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Rs. (Million) 9MFY16 9MFY17 YoY
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Sales 1,232 1,360 10.4%
Cost of Sales 1,137 1,228 8.0%
Gross Profit 94.71 132.5 39.9%
GP Margin 8% 10% up 200 bps
General and Admin Expenses 25.18 32.2 27.9%
Selling and Distribution Expenses 26.1 26.3 0.8%
Other Income 22.6 0.2 -99.1%
Other operating expenses 0.23 0.32 39.1%
Operating Profit 63.59 72.9 14.6%
Finance Charges 55.6 69.3 24.6%
Profit Before Taxation 0.79 0.35 -55.7%
Taxation - - 0.0%
Profit After Taxation 0.79 0.35 -55.7%
NP Margin 0.06% 0.03% down 3 bps
EPS 0.2 0.09 -55.0%
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Source: Company Accounts
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Nestle Pakistan
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Rs(mn) IQCYI7 IQCYI6 YoY
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Sales (net) 30,417 26,733 14%
Costs of goods sold 18,997 17,009 12%
Gross profit 11,420 9,725 17%
Distribution & selling exp 4,385 3,511 25%
Administrative exp 767 669 15%
Operating profit 6,269 5,545 13%
Finance cost 195 258 -24%
Other operating exp 468 447 5%
Other income 45 52 -14%
Profit before tax 5,651 4,893 15%
Taxation 1,550 1,451 7%
Profit after tax 4,100 3,442 19%
EPS (Rs/share) 90.42 75.89 19%
Gross margin 37.55% 36.38%
Operating margin 20.61% 20.74%
Jet margin 13.48% 12.87%
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Source: PSX
CORRECTION: With respect to yesterday's Brief Recording on Nestle Pakistan, The company's financial statement showed a wrong Gross Profit figure, which was carried forward to the earnings for 1QCY16. BR Research regrets the error. The correct financial statement is as follows:
Copyright Business Recorder, 2017