Tri-Pack Films Limited (PSX: TRIPF) was established in 1993 under the abolished Companies Ordinance 1984. It is a public limited company formed by a joint venture between Mitsubishi Corporation of Japan and Packages Limited of Pakistan. The company produces and sells biaxially oriented polypropylene (BOPP) film and cast polypropylene (CPP) film. These can be used as packaging solutions for the food industry, as well as other industries, such as lamination, outer packaging, bag making, etc. The company also exports to Bangladesh, the Middle East, Kenya, South Africa and other countries.

As of December 31, 2020, related companies, operators and related parties hold nearly 63% of the shares. Among them, the major shareholder is M/S. Package Co., Ltd. The local public owns nearly 22% of the shares, followed by "others" holding 7.6%. Directors, CEOs, their spouses and minor children own more than 2% of the shares, which are mainly held by the chairman of the company, Mr. Syed Babar Ali. The remaining approximately 5% of the shares belong to other shareholder categories.

Except for CY15 and CY16, most of Tri-Pack Films' revenue has been growing over the years. The profit margin has been on a downward trend until FY19 and then improved again in FY20.

Revenue in the 2017 fiscal year increased by 4% to over 12 billion rupees, after falling for several consecutive years (FY2015 and FY2016). This is due to a favorable environment, better security conditions, and the expansion of the retail sector that encourages demand. The latter in turn encourages investment. But with the increase in raw material prices, higher revenue has not translated into higher gross profit margins. On the other hand, the sales price remained stable. Therefore, production costs accounted for 85.6% of revenue, compared with 83% last year. With little change in other areas, the net profit margin also dropped to 4.7% year-on-year.

Revenue in FY2018 increased by nearly 8%, exceeding 13 billion rupees. This may be due to increased demand. However, profitability continued to decline and raw material prices rose. Despite stable supply, it continued to consume a larger share of revenue, exceeding 89%, resulting in a decline in gross profit margin to 10.4%. Coupled with the increase in the proportion of financial expenses in revenue, the net profit margin dropped to 1.2% due to the increase in policy interest rates.

CY19's revenue growth was 11%, and revenue reached 14.7 billion rupees. On the other hand, due to inflationary pressures, production fell year-on-year. The latter is also reflected in the production cost, which has increased slightly to nearly 90%. As a result, the gross profit margin also fell slightly to close to 10%. However, financial expenses rose to 5.6% of revenue, from 507 million rupees in FY18 to 820 million rupees in FY19. This is due to the combined effect of rising policy interest rates and significant exchange losses. Due to higher tax expenses, the company lost 310 million rupees after four years.

In fiscal year 2020, the company's revenue increased by 2.8% due to the same sales volume as the same period last year. The loss of sales in the first half of the year was offset by the recovery in the second half of the year, when the strict lockdown measures were eased and demand began to pick up. Due to the increase in export profit margins brought about by timely raw material procurement, product mix restructuring and favorable exchange rate changes, the gross profit margin increased to more than 16%, the highest level since 2012. This has also gradually dropped to the bottom line, with a net profit margin of 4% for the year.

Quarterly performance and future outlook

CY21's revenue in the first quarter increased by 35.4% year-on-year, and sales volume also increased. This is due to the increase in demand and the increase in the price of raw materials leading to an increase in sales prices. As the share of production costs in revenue has decreased significantly year-on-year, from nearly 87% in 1QCY20 to 81% in 1QCY21, 1QCY21's profitability has improved compared with 1QCY20's loss.

Revenue in the second quarter increased again by nearly 21% year-on-year. This is also due to the continued high prices of raw materials, leading to rising prices. Due to intermittent blockades and market closures, trading volumes have declined slightly. However, due to higher financial expenses, 2QCY21's profitability is slightly lower than 7%, while 2QCY20 is close to 8%. Due to lower interest rates, the latter is lower in 2QCY20.

In 3QCY21, revenue increased by 24% year-on-year, and sales volume also increased because the market was fully operational during the quarter. However, due to slightly higher production costs and financial expenses, the profitability of 3QCY21 declined slightly to 3.68%.

The production cost of 3QCY21 increased significantly compared with the first two quarters of CY2, indicating that raw material prices and currency fluctuations will continue to be at risk.

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