Karachi, May 19, 2023 (PPI-OT): THALL: Economic slowdown dampens 9MFY23 earnings
THALL is a diversified corporation that manufactures engineering goods, jute products, laminate sheets, and paper sacks. The conglomerate also has investments in Real Estate and Energy sectors. The company held its 3QFY23 Analyst Briefing to discuss key highlights and the outlook of the business. On a standalone basis, the company posted an EPS of Rs11.15, down 32% YoY. Consolidated earnings clocked in at Rs8.35/share, down 64% YoY, taking 9MFY23 consolidated EPS to Rs26.75, a decline of 55% YoY.
Going forward, the management expects company's Engineering segment along with the Paper and Jute businesses to continue to witness pressure on margins owing to PKR devaluation and slowdown in economy. The company has investments in Energy sector through SECMC and ThalNova where the first and second phases of the Thar mining project have been completed, the third phase is expected to achieve CoD by 4QFY24.
Slowdown impacted most segments
THALL held its 3QFY23 Analyst Briefing yesterday to discuss key highlights and the outlook of the business. On a standalone basis, the company posted net sales of Rs10.2bn during 3QFY23 as against Rs10.4bn during the SPLY posting a decline of 1.3% YoY. Gross margins saw a drop during the quarter to 16% from 18% during SPLY while EPS for the quarter clocked in at Rs11.15 as compared to Rs16.15 during SPLY (-32% YoY). Consolidated earnings clocked in at Rs8.35/share, down 64% YoY, taking 9MFY23 EPS to Rs26.75, down 55% YoY.
Low Auto sales impact Engineering segment performance
The engineering segment (42% of company sales) posted sales of Rs11.8bn which is down by 37% YoY during the nine-month period owing to low demand from the automobile segment which dropped by 46% YoY during the same period. This division manufactures car parts such as thermal systems, engine components, and electrical systems. Pressure from decreasing foreign exchange reserves, limits on raw material imports, and rising inflation, along with monetary tightening measures, has produced a slowdown in the auto industry, resulting in non-production days by
OEMs affecting continuity of supply.
THALL has been trying to increase its footprint in the segment through multiple agreements with new and existing auto players. After Hyundai and MG, the company has been engaged with PSMC and INDU for their new models as well. On the operations side, the company saw multiple supply chain issues during the period. With regards to Thal Boshoku, the company has been facing decline in sales due to the aforementioned reasons coupled with higher financial charges. Going forward, the management believes that business environment remains tough, as volatility in macroeconomic indicators is projected to impact the supply and demand for autos, and therefore the overall engineering industry.
Restrictions on imports affected Jute business
Although sales are likely to stay consistent for the 4QFY23, company believes that issues owing to uncertainty around imports and raw material supply will likely continue to impact the segment. The company is focusing on tackling these issues by increasing exports and growing its client base in order to ensure the company's long-term viability. Export sales during the quarter remained dull due to the global economic slowdown. The business has witnessed an increase in market share during the last few quarters to around 45% during 3QFY22 compared to its historical average of 36%.
Low cement sector demand hurts Packaging business
The packaging business serves a variety of industries, including cement and industrial packaging (paper and WPP), carrying bags, and food packaging. THALL’s Packaging segment witnessed the most pressure on margins owing to slowdown in economy and PKR devaluation. The business depends greatly on cement sales which were down 18% YoY during the first 9 months of the ongoing fiscal year. To cover for lost sales to local cement sector and rupee devaluation, the company is exploring export avenues. To recall, company’s woven polypropylene business commenced its operations last year with a capacity of 90mn bags per annum.
The company had invested Rs1.7bn for the project which was availed under the SBP’s TERF facility. Packaging segment posted sales of Rs4.3bn, which is up by 30% YoY, in line with overall growth in the company. Under this segment, the company produces paper sacks, jute bags and laminates. The segment experiences seasonal variance where sales usually drop during 1Q of the fiscal year followed by sequentially increasing trend thereon.
Laminates division determined for sustainable progress
The slump in overall economic activities also had an effect on the lamination industry. However, by boosting pricing to cover for cost increases, releasing a new product for the international market, and creating savings via product mix tactics, the company was able to counteract the slowdown and sustain profitability. The company has a renewed focus on the North local market which has also helped increase its local market share.
Investments in the Energy sector on track
THALL hold 11.9% stake in SECMC and 26% in ThalNova Power Thar Pvt Ltd through its wholly owned subsidiary Thal Power Pvt Ltd. ThalNova achieved CoD in Feb-2023. SECMC posted revenue of Rs21.8bn and a Loss after tax of Rs3.8bn during 1QCY23. Profitability of the company was adversely impacted during the quarter owing to foreign exchange losses amounting to Rs8.6bn.
To note, this is a pass- through item and shall be recovered in the next indexation (the second half). The company has applied for the tariff true up to the Thar Coal and Energy Board for phase-II. Phase-I and II have been completed under budget whereas Phase-III CoD is expected by FY24 end.