Wednesday, September 20th, 2017
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Part of the reputable Ghulam Faruque Group (GFG), Cherat Packaging (PSX: CPPL) was established in 1991. Other companies in the group include Cherat Cement and Mirpurkhas Sugar Mills.

The company is a manufacturer of paper-sack (PS) and poly-propylene (PP) and is one of the largest suppliers of packaging material to the cement sector in Pakistan. CPPL boasts an installed capacity of 460 million bags out of which 50 million has been a recent addition. The manufacturing unit of the company is located near Swabi, Khyber Pakhtunkhwa whereas the head office is based out of Karachi.

Historical performance CPPL has managed to capitalise on the cement sector boom in Pakistan and as a result shown robust growth over the past five years. The company installed its first line of PP bags at 65 million bags per annum in 2012. The capacity was further increased to 105 million bags and CPPL subsequently took it to 145 million bags in 2013. PP bags have played a pivotal role in changing the fortunes of the company.

The company's revenue surged from Rs 2.4 billion in 2011 to Rs 6.8 billion in 2016, registering CAGR of 23 percent. The bottom-line of the company has also shown significant improvement. During the past five years, the margins of the company have significantly improved. The gross margins, which hovered around 11-12 percent from between 2011 and 2014, have showed an impressive jump to 23 percent in 2016. The up-tick in gross margins has been achieved due to the continuous expansion over the years, management of fixed costs and efficient use of resources.

Share price performance Even though the past several years have been good to Cherat Packaging Limited, yet the stock has mostly underperformed the benchmark KSE-100 index this past year. The price has almost gone down by half and the recently prevailing political uncertainty has been unkind to generally all stocks. However, the company's recent results also seem to have disappointed investors, which might explain the recent plunge in comparison to the benchmark index.

Shareholding pattern More than a quarter of the shares in Cherat Packaging are held by the group companies. Faruque (Pvt) Ltd, Cherat Cement Company, Mirpurkhas Sugar and Greaves Pakistan combined have a 26 percent holding in the company. Atlas Insurance holds 9.2 percent shares, while mutual funds collectively have around five percent holding. The general public and the financial institutions have about 32 and 22 percent holding respectively.

9MFY17 snapshot The company's revenue for the period dipped by 5 percent despite an increase in sales volume compared to the corresponding period in the previous year. The decline in revenues comes on the back of a reduction in selling prices due to increased competition and the introduction of a new type of PP bags, which are cheaper than traditionally used bags by the cement industry. Resultantly the gross profit took a 19 percent plunge.

The rise in distribution, administrative and other expenses led to profit from operations declining by 25 percent. However, the company was able to reduce its finance cost by 25 percent taking advantage of the low interest rate environment. Consequently, CPPL's bottom-line shrunk by 20 percent and the EPS fell from 24.28 in 9MFY16 to Rs 18.66 in the current period. The company is going for expansion of its production capacity to around 400 million paper-sacks per annum which is expected to be completed by the end of this year.

Future outlook The future looks promising for Cherat Packaging with its constant drive for diversification, which has resulted in new revenue streams particularly in the export sector. It aims to enter the flexible packaging niche by 2018 and expects the total cost of the project to be Rs 1.6 billion. In addition, demand forecasts for cement, fertilizer, sugar are set to grow, which will be positive for CPPL and the company has prepared for it with its on-going expansion.





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Cherat Packaging: financial snapshot (Rs'000)

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Particulars 9MFY17 9MFY16 YoY

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Turnover 4,890,748 5,200,520 -6%

Cost of sales 3,931,091 4,011,488 -2%

Gross profit 959,657 1,189,032 -19%

Distribution cost 90,984 58,044 57%

Administrative expenses 47,430 35,460 34%

Other expenses 55,937 75,345 -26%

Other income 18,563 25,613 -28%

Profit from operations 783,869 1,045,796 -25%

Finance cost 50,416 61,861 -19%

Profit before tax 733,453 983,935 -25%

Taxation 180,895 293,000 -38%

Profit after tax 552,558 690,935 -20%

EPS (basic and diluted) 18.66 24.28 -23%

GP Margin 20% 23% down 324 bps

NP Margin 11% 13% down 200 bps

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Source: Company Accounts/PSX





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Pattern of Shareholding: major heads (as of June 30, 2016)

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Directors, CEO, and their Spouses and minor children 1,734,611 5.85%

Associated Companies, Undertakings and related parties 77,189,066 26.90%

Faruque (Pvt.)Limited 2,952,101 9.97%

Cherat Cement Company 2,055,308 6.94%

Mirpurkhas Sugar Mills Limited 1,469,933 4.97%

Greaves Pakistan (Pvt.) Limited 1,487,026 5.02%

Mutual Funds 1,716,398 5.80%

Banks, DFI, NBFC, Insurance Co, Takaful,

Modaraba & Pension Funds 6,554,110 22.14%

of which: Atlas Insurance Limited 2,724,763 9.20%

General public 9,545,076 32.24%

Others 1,314,850 4.44%

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Source: Company Accounts



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