Rafhan Maize Products Company Limited – BR Research


Rafhan Maize Products Company Limited (PSX: RMPL) was established in Faisalabad, Pakistan. The company uses corn as a raw material to manufacture and sell a number of industrial products: industrial starches, liquid glucose, dextrose, dextrin and gluten flours. The textile, food, confectionery, pharmaceutical, paper and corrugated cardboard industries, to name a few, use Rafhan Maize’s products. The company has three factories, located in Faisalabad, Jaranwala and Jamshoro.

Shareholding model

As of June 30, 2020, more than 71% of the shares are held by associated companies, companies and related parties. This category only includes Ingredion Incorporated. The local general public own about 20 percent of the shares, while directors, CEO, their spouses and minor children own about 6.5 percent of the shares. In this context, Mr. Zulfikar Mannoo is an important shareholder. The remaining 2.5% of shares belong to the rest of the shareholder categories.

Historical operational performance

Rafhan Maize Products mainly saw a growing turnover, with the exception of CY15 where it contracted by 2.3%. profit margin largely followed an upward trend.

In CY17, turnover increased by 2.8%, crossing Rs 26 billion in sales. This was attributed to higher sales of liquid glucose, cornstarch and cornmeal products. Production costs, on the other hand, accounted for a slightly lower share of sales at 71.4 percent, compared to over 72 percent the year before. As a result, the gross margin increased to over 28 percent. This was also reflected in the net result with a net margin recorded at nearly 17%. Distribution costs increased as a percentage of sales during the year; this was due to the significant increases observed in salary expenses, freight and distribution, and commission costs. However, the increase was more or less offset by a lower tax charge for the year.

The company has experienced the strongest revenue growth in CY18 so far, at 13.6%, exceeding Rs 29 billion in revenue. This can be attributed to the growing demand from writing / printing and industrial paper, board and corrugating which were the main consumers of the company’s products. Within the product line, higher sales were observed for liquid glucose, dextrose and starch. However, this has also been accompanied by a more than corresponding increase in production costs, with inflationary pressures leading to higher input prices. As a result, the gross margin decreased to 26.8 percent. But the operating margin and net margin were somewhat sustained at nearly 23% and 16%, respectively, due to an increase in other income and a decrease in distribution and administration costs, in percentage of turnover. Other income increased due to a higher mark-up on staff loans and profits on bank deposits, in addition to the Rs 21 million earned in foreign exchange gain.

At 19.3%, Rafhan Maize experienced the strongest revenue growth in year 19, due to an increase in prices; the top line crossed Rs 35 billion. Local and export sales have grown. Export sales have steadily increased due to export destinations such as the Middle East, Sri Lanka and Bangladesh which are fast growing developing economies. However, the higher incomes could not translate into higher profits, as production costs represented a larger share of the income, at over 74%, due to the high prices of inputs which were, at their turn, due to inflation. But the net margin was kept from dropping significantly and was slightly below 15.4%, due to support from other income. The latter was derived from an increase in staff loans and profits from bank deposits.

Despite the devastation caused by Covid-19, Rafhan Maize increased its turnover by 1.7% during the CY20. The majority of the challenges were concentrated in the second quarter, when the lockdown was imposed. This is due to the slowdown in the textile sector as orders were canceled and supply chains disrupted. On the other hand, the food segment and the animal nutrition segment recorded relatively stable performances. Production costs also fell as a percentage of revenue, to 72.7%, while other revenue continued to rise. Thus, the net margin improved to nearly 17 percent for the year.

Quarterly results and future outlook

CY21’s first quarter revenue increased 5.6% year-over-year. This is mainly due to rising prices and stable production costs. The demand for paper, corrugated board and textiles also increased, which helped improve incomes. Production was considerably lower year over year, resulting in better profitability for the period. In the second quarter of CY21, revenue increased 28.6% year-on-year. The major increase is due to a hard blow in volumes which was observed during the same period last year due to the lockdowns linked to Covid-19. The cost of production was also significantly better in 2QCY21 as a percentage of sales. Thus, the net margin was recorded at 20 percent, compared to 16 percent in 2QCY21.

Although the outlook is generally positive for 2021/2022, several factors such as Covid-19, the political environment, both internal and external, and inflation may have an impact on future profitability; in particular, with the rise in prices of agricultural products and the depreciation of the currency.

© Copyright Business Recorder, 2021

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