Karachi, May 18, 2022 (PPI-OT): PKGS: Capacity expansions and TRIPF investment lead to growth
PKGS held its 1QCY22 Analyst Briefing yesterday to discuss recent financial results and company’s outlook. The company posted consolidated net sales of Rs26.9bn during 1QCY22, which is up by a staggering 37% YoY, while earnings expanded by 2.2x YoY to Rs41.06/share.
The company is planning to expand the capacity of Bulleh Shah Packaging by a further 30-35% in addition to the expansion already announced, taking capacity of the corrugated cartons to 225KT and paper and board to 450KT.
During 1QCY22, PKGS increased its stake in TRIPF through additional investment taking it from 49.9% to 69.0%, making it one of its subsidiaries and the 3rd highest contributing company in consolidated net sales of the company.
Rising demand from the food sector drives growth
PKGS held its 1QCY22 Analyst Briefing yesterday where the company discussed its financial performance and outlook. To recall, the company has posted consolidated net sales of Rs26.9bn which is up by a staggering 37% as compared to the same period last year. The driving force behind the growth is a combination of multiple reasons including growth in demand from the food sector leading to higher sales for all the company’s food related subsidiaries and the inclusion of TRIPF in the consolidated accounts. As a result, earnings expanded by 2.2x YoY to Rs41.06/share.
Packages Converters sales mix to shift to consumer products
Packages converters accounted for the highest growth during the quarter growing to Rs9.87bn, which is up by 35% YoY. The segment contributed 34% to company’s topline during CY21. Under this segment the company produces folding cartons, flexible packaging and consumer products.
As per the management, 48% of the revenue in the segment is generated by the flexible packaging while 29% is accounted for by folding cartons and 23% by consumer products. The consumer products segment is expected to grow the fastest owing to rising demand for items such as tissues, paper cups and paper plates.
Capacity expansion to drive sales for Bulleh Shah
Bulleh Shah remained the second highest contributor to net sales (42% during CY21) during the quarter posting a growth of just 5% YoY to Rs9.85bn. Growth in the segment was limited due to a fire that broke out in the company’s finished goods section. Though the fire did not affect production, the company damaged its inventory which was being built up to cater to the capacity expansion for which the production plant was due to go offline. As a consequence of the fire, the closure of the production facility has been moved ahead.
The company has insurance claims against the incident which are expected to be recovered in 4-5 months. Under the segment, the company has a corrugated cartons division with a capacity of 105KT and a paper and board division with a capacity of 265KT. The company is planning to expand the capacity of the segment by a further 30-35% in addition to the expansion already announced taking capacity of the corrugated cartons to 225KT and paper and board to 450KT. The additional capacity is expected to come online during 1HCY23.
In the paper and board segment, sales mix is 45% brown paper and 55% white paper where 65% sales of white paper are generated from tobacco companies. The company plans to increase its market share in the segment post capacity expansion.
Developments on various fronts
DIC Pakistan also posted an impressive growth of 33% YoY to Rs2.1bn. Under the segment the company sells various sorts of inks such as rotogravure, offset and flexographic inks. Margins in the segment have been impressive owing to higher capacity utilization, better product mix, cost efficiencies and better access to raw materials as compared to peers.
Omya Pack is expected to enhance its capacity as well which will further improve prospects for the company. Post expansion capacity is expected to increase by 50% and is expected to achieve COD by the end of this year. With Bulleh Shah undergoing capacity expansion as well demand for calcium carbonate is likely to grow further where an estimated 20-25% of the additional production by Omya Pack will be required by Bulleh Shah.
Packages limited also plans to inject capital of Rs1.4bn in its new 100% subsidiary Starch Pack (Pvt) Ltd and incorporate a wholly owned foreign subsidiary in the UAE which will be engaged in commercial trading with import, export, distribution and warehousing of the products manufactured within the group. Moreover, PKGS plans to acquire 35% in Sanofi with a purchased price of Rs940/share.
Total energy demand of the company stands at 10MW out of which 3MW is met through solar while the rest is met through FO and diesel. Over the long term, however, the company plans to shift towards bio fuel.
Investment in TRIPF to expand prospects
Post CY21, the company in Feb 2022 increased its stake in TRIPF through additional investment taking it from 49.9% to 69.0% making it one of its subsidiaries and the 3rd highest contributing company in consolidated net sales of PKGS. TRIPF is involved in the business of producing BOPP and CPP holding a sizable share in the market. These films are primarily used in the food industry for packaging of various items such as chips, biscuits etc and have seen a surge in demand post COVID as travel restrictions have led to higher consumption of snacking food items. Furthermore, with the introduction of online delivery services, demand for BOPP and CPP films is expected to remain elevated. Total CAPEX incurred by the company is anticipated to be around Rs33bn for all upcoming projects including the investment in TRIPF.