The company has achieved the unique position of being the only company that offers the complete range of building material, including the wall and floor tiles, installation material, laminated wood flooring, sanitary wares and sanitary fittings.
Historic financial performance: The journey of the tile company over the last five years is not an easy one. The company saw its fortunes turned around in FY2010 and posted a healthy 42 percent growth in its top line to Rs 4.06 billion from Rs 2.8 billion in FY09, largely due to sheer volumetric growth. However, the journey after that has not been phenomenal. Year after year, STCL's top line growth was slowed down to average around 6 percent during 2011-2013, eventually culminating into a negative of 2 percent in FY 14 and gigantic negative 14 percent in recently ended FY15. It was despite the fact that construction sector had grown by 11.3 percent in FY14 and has registered a growth of 7 percent in FY15. On the other hand, the demand for tiles showed an increase of around 5 percent in both ceramic and porcelain tiles.
Shabbir Tiles has been continuously haunting by the problem of slow growth in the company. In FY15, the tile company repositioned selling prices of selected products. The Company has two primary sales channels for its products, a nation-wide dealership network and directly to large builders and corporate customers. During the year, the company lost sales in both sales channels. The volumetric sale during the last financial year declined by 11 percent. Production volume too decreased by 8.6 percent compared to the same period last year from 8.56 million square meters to 7.82 million square meters. The cost reduction measures were also taken during FY15 and successfully able to reduce the raw material and other input costs to set off the impact of lower sales and production volumes. Nevertheless, despite all these measures undertaken by Shabbir Tiles, it suffered a loss after tax for the year of Rs 62.14 million compared to the last year's loss of Rs 26.04 million. During the FY15, the company also introduced Nano polish floor tiles to enhance further its product range. The product also has export potential, and Tile Company was able to export limited quantities of this product to the Middle East and Spain during the financial year.
Tile industry across the country is suffering because it has become quite difficult for them to get a better price for their product, thanks to the low import trade price (ITP) regime in place from FY10. Despite growth in market demand, against last year, the local tile industry is facing a challenging environment both amongst the local players as well from under invoiced imported ceramic and porcelain tiles. The tile manufacturers claim that tiles worth around $2 billion just from Iran have been smuggled and dumped at Karachi and Lahore's dealers and retailers' storage. In the other parts of the country situation is not much different then Karachi and Lahore. If that's not enough, the government has enforced 2 percent additional sales tax on the tiles manufactured locally. These measures have put local manufacturers of tiles at a tight spot.
1QFY16 performance Shabbir Tiled & Ceramics Limited started the new financial year on a good note at least in terms of its top line. In the first quarter, the company has reported a growth of 13 percent year-over-year. The core cost has increased quite a lot during the first three mounts that have put pressure on the gross profit margin that has declined by 100 bps in the year-on-year review. The company cites severe competition from imported Chinese/Iranian tiles. These imports have created substantial challenges for the enterprise.
Additionally, the recent increase in gas tariff by 23 percent is posing additional challenges to the local industry as whole and Shabbir Tiles, in particular. The higher core cost put an extra burden on the company and, as a result, it negatively affected the margins for the period. The higher distribution cost has widened the dent further in the company fortunes. Thanks to lower finance and administration cost that came down quite a bit otherwise the firm's bottom line would have been even worse.
Future Outlook It is not a good time to be in tile manufacturing business in Pakistan. Tile industry as a whole is facing tremendous pressure from the imported tiles from China, Malaysia, Spain, UAE, etc. To make the matter worse ITP of tiles from all Middle East/Iran regions was further decreased, which enabled the importers to dispose of the stocks on the port at very low rates causing a severe blow to the local industry.
However, the good news is that the construction sector is showing robust growth in the country that has increased the demand for tiles.
======================================
Shabbir Tiled & Ceramics Limited
======================================
Rs (mn) 1QFY15 1QFY16 YoY
======================================
Net sales 946 1,069 13%
Cost of sale 798 910 14%
Gross profit 149 160 7%
Gross margin 16% 15% Down
100 bps
Distibution 113 130 15%
Admin 34 33 -3%
Other income 5 353 N/A
Other charges 25 N/A N/A
Finance cost 63 13 -80%
Loss before tax -57 -11 -81%
Tax 8 7 -10%
Loss after Tax -49 -18 -63%
Net margin -5% -2% N/A
======================================
Source: Company accounts