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Synthetic Products Enterprises Limited is a publicly listed company engaged primarily in the business of manufacturing and sale of packaging products for the fast moving consumer goods and food industry, and manufacturing and sale of technology intensive products for the automobile sector.
Moreover, in addition to offering product labeling and design printing services, the company also houses a molding workshop and manufactures molds for its customers as well as for its own products.
During 1HFY16 the company registered a topline of Rs1.09bn (16pcYoY) whereas gross profit registered a massive 40pc growth YoY.. Revenue growth led to an uptick in profitability translating into a net profit after tax (NPAT) of Rs135mn (EPS:Rs1.74) resulting in an impressive YoY increase of 66pc.
Despite the decline in earnings during 2QFY16 one can expect the profitability of the company to increase during 2HFY16 owing to seasonal increase in demand.
Furthermore, a tax credit due to plant expansion will likely be allowed, according to the management, in 4QFY16 and the expected effective tax rate for FY16 is likely to decrease to 19pc which will be applicable retrospectively. The company went public last year to fund its expansion plans.
While most proposed projects are on track, the company decided to discontinue the proposed pre forms project on account of waning feasibility and instead opted for developing a new manufacturing unit comprising of blow molding and injection molding facilities at the Rahim Yar Khan Industrial Estate which is expected to come online in 2HFY17.
The management is of the view that with the expected rise in the national per capita income in the medium term, demand from both its key costumer segments (FMCG & autos) will go up at a higher pace compared to GDP growth.
Thus the company plans to keep its focus on raising capacity to fulfill the expected demand and maintain its position as sole supplier in most of its key products.
The company’s earnings accretion is primarily attributable to 1) huge volumetric growth experienced by the auto sector driving demand for its products (66pcYoY growth during 1HFY16), 2) production efficiencies due to rehabilitation and enhancement of its own facilities, and 3) a general rise in consumer spending leading to increased buying behaviour witnessed by the FMCG sector.
However 2QFY16 proved to be lacklustre for the company as it witnessed a 6pc QoQ dent in profitability owing to cyclical impact resulting in depressed sales during winter months owing to reduced demand, and higher maintenance expense.
Published in Dawn, Business & Finance weekly, February 29th, 2016
