The company's operational capacity is of 15,000 tons with the plant located at Port Qasim. Its associated companies include TOYO Packaging (Pvt) Limited, Hilal Confectionary (Pvt) Limited, Shalimar Food Products (Pvt) Limited, and Kings Food (Private) Limited.
Industry overview
BOPP is a variant of polypropylene (PP), which is a thermoplastic polymer. It has an ideal printing surface and can be made into labels and stickers along with a host of different plastic materials. A study by PITAD estimates that Pakistan consumes around 300,000 tons of PP a year. This demand is met almost entirely by imports.
Since BOPP is made of the petrochemical, it is vulnerable to volatility in the global price of oil and gas feed stocks. PITAD's study indicates that its consumption is about 40,000 tons per year in the country. Tri-Pack claims to be the market leader with almost 70 percent of the BOPP market in Pakistan.
Since BOPP is used primarily in packaging, particularly food, its demand is driven by macro trends such as population growth, urbanization, and rising incomes.
Financial history
While sales have been following a generally rising trend in recent years, the company's profits have been declining.
In 2012, sales revenue increased by 35 percent as compared to last year because of 40 percent increase in production to cater to higher demand. Higher capacity utilization and sales resulted in higher profits. To expand the company's portfolio, Macpac singed a MoU for the import of a BOPP metalizer and slitter to add capacity of 6000 tons per annum of metalized film.
Sales continued to rise in 2013, primarily because the firm focused on selling directly to customers rather than converters who would then make the packaging film for the end product. Despite higher sales, profit shrank due to lower margins per unit. Higher input costs and higher competition increased cost of goods sold, which could not be passed on to consumers.
Input costs increased due to shut down of raw material plants of PP causing regional shortages. These trends continued in FY14 with capacity utilization falling to 37 percent. As sales dipped down significantly with input costs increasing, the company posted losses. To mitigate these challenges, the company pinned its hope on the metalizer, which was expected to increase sales by 50 percent.
The metalizer commenced operations in FY15 and aided in the growth of top and bottom lines. Capacity utilization increased to 45 percent in part due to the continued focus of the company to direct market sales.
While sales rose volumetrically in FY16, top line decreased due to dip in petrochemical prices as oil prices declined, resulting in decrease in the price of BOPP products as well as inventory losses of hedged materials.
Sales and gross profit increased in FY17 but net profit declined mainly due to prior year taxation that increased because of tax audits during the year for tax year 2015 and 2016. The audits created a charge of Rs 1.4 million and Rs 11.8 million, respectively.
Capacity utilization rose to 70 percent in FY18, pulling up revenues to the highest level in company's history at over Rs 2 billion. However, increase in petrochemical's landed cost resulted in an increase of overall material cost, which was compounded by currency devaluation.
Macpac has invested in new cast poly propylene (CPP) plant to increase capacity by 40 percent and expand product portfolio. It is expected to commence production in FY19.
1QFY19 Performance
The first quarter's results are dismal with a double digit decline in sale and the company posting losses. Sales volume has gone down while purchase cost has increased due to currency devaluation, resulting in a loss of Rs 40 million.
Other operating expenses have increased manifold, presumably because of exchange losses. Finance costs increased, possibly because of an increase in short term borrowing as well as increase in Istisna loan (Islamic financing facility) of Rs 100 million. The CCP plant has not come online as yet.
Future outlook
Since BOPP is a petrochemical, its price is linked to oil and gas prices, which causes volatility. Its raw material PP is not manufactured in Pakistan so its key input is dependent on regional supply and demand dynamics of neighbouring countries as well as strength of PKR.
While trends such as urban lifestyles and single-serve product sizes are favourable for the company, it also faces competition for others in the sector. Devaluation will continue to put pressure on its margins since past trends indicate that MACFL was unable to pass on higher input costs to its consumers.
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Macpac Films Limited
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Rs(mn) 1QFY19 1QFY18 YoY
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Turnover 430 477 -10%
Cost of sales -422 -413 2%
Gross profit 8 65 -88%
Administrative expenses -20 -22 -9%
Marketing and selling expenses -7 -7 0%
Finance costs -13 -6 117%
Other operating expenses -10 -3 233%
Other income 0.8 0.4 100%
(Loss)/profit before tax -40 27
Tax -5 -8 -38%
(Loss)/profit after tax -44 19
(Loss)/earnings per share -0.75 0.46
Gross profit margin 2% 14%
Net profit margin -10% 4%
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Source: company accounts
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Pattern of shareholding (as at June 30, 2018)
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Category No. of shares %
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Directors, their spouses, & minor children 39,294,815 66
EOBI 4,666,000 8
Executives 191,525 0.3
Banks and other financial institutions 6,500 0.0
General public-local 13,068,888 22
Others 2,073,422 4
Shareholders holding 5% or more
Maqbool Elahi 27,596,455 47
Naeem Ali Mohammad Munshi 9,103,783 15
EOBI 4,666,000 8
Munaf Ibrahim 4,073,500 7
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Source: company accounts