THE food company, Ismail Industries Limited, produces a wide range of confectionery items, biscuits, potato chips and snacks under the brands ‘CandyLand,’ ‘Bisconni’ and ‘SnackCity’. It also owns the firm ‘Astro Films,’ which rolls out cast polypropylene film (packaging films).
But Ismail Industries has been in the spotlight this month not for its sweets and candies, but for its gradual accumulation of shares of Bank of Khyber (BoK) from the open market.
During the month, the company acquired 11.9m shares of BoK in several lots: it purchased 2m shares on January 7 and 2.5m shares each on January 9, 13 and 14. It bought a further 2.4m shares on January 15, raising its stake in the bank from 8.6pc to 10.8pc.
At its extraordinary general meeting of shareholders on December 23, 2014, the company had sought approval of shareholders to “acquire around 15.89pc shares of BoK to raise its total shareholding from 8.6 up to 24.5pc of the paid-up capital of the bank”.
Maqsood Ismail, CEO of Ismail Industries, also sits on the board of BoK. The market was rife with rumours of a possible takeover of management control of BoK by Ismail Industries.
But the story of the sale of strategic shares of the bank goes as far back as March 6, 2012, when the Khyber Pakhtunkhwa government, which holds a 70.2pc management stake in the bank, had invited expressions of interest (EoI) to transfer the bank’s management.
The board of directors of Ismail Industries gave “in principle approval to the company to submit an EoI in respect of transfer of management of BoK in accordance with the invitation subject to regulatory approvals”.
The confectionary company has increased its shareholding in the bank from 8.6pc to 10.8pc, and has received approval from shareholders to raise it up to 24.5pc
However, the Peshawar High Court stayed the sale of a controlling interest in the bank after BoK employees filed a petition. The bank’s management at the time denied that the bank was being privatised, and said only 19pc shares were being sold as per the requirements of the law.
The question doing the rounds now is: can Ismail Industries make a hostile bid for a controlling stake in the bank with 24.5pc shares?
Both Ismail Industries and the Bank of Khyber have extremely thin free float, which is why analysts and brokerage houses do not cover them in their corporate reports.
The BoK has a track record of 20 years. It operates over 100 branches, including 44 Islamic banking branches, and its registered office is in Peshawar. By December 31, 2013, its paid-up capital stood at Rs10bn and total assets at Rs108bn. The bank had Rs77bn in deposits, and earned an after-tax profit of Rs1.154bn for the year, producing a 10pc return on equity. It had disbursed bonus shares at 11.12pc in 2013.
At the close of market last Thursday, BoK stock was trading at around Rs10.54 a share. At the same time, Ismail Industries’ stock was quoted at Rs215.
The confectionary company has a record of producing sweet results and disbursing healthy cash dividends. Yet, its stock price could have more to do with the shareholding pattern of the company, as 90.9pc of it is concentrated in the hands of just three shareholders: the company’s chairman, CEO and a director.
Due to the limited free-float, only 0.26m shares of the company came up for trading in calendar year 2014. Meanwhile, 8.37m BoK shares were traded in the year. How small that is can be gauged from the fact that on most trading days, the top five volume leading stocks each witness trading of over 10m shares.
In its annual report, Ismail Industries mentioned that its products are exported to over 40 countries, including the US and Australia, as well as those in Europe, Africa, Far East and Middle East, where it is said to have had strong business relationships with customers for over 15 years.
For quarter ending September 30, 2014, the company recorded net sales of Rs2.5bn, up 16pc from the same quarter of the previous year. Its profit-after-tax grew 27pc to Rs73m, or 3pc of net sales. At the close of its financial year on June 30, 2014, Ismail Industries had Rs11.6bn in assets, Rs505m in paid-up capital and Rs2.75bn in reserves. The break-up value of the share worked out at Rs64.39. It paid dividends of 20pc in 2011 and 2012, and raised it to 22.5pc for each of the subsequent two years.
Regarding the company’s future prospects, CEO Maqsood Ismail stated in the latest quarterly report that “the political situation, unfavourable trade balance and escalation in input costs may lead to a slowdown in economic growth and performance of the industrial sector”.
He added that the purchasing power of the consumer segment had already been eroded by the continued increase in prices of essential commodities, utilities and necessities of life. “The company continues to face tough challenges in terms of maintaining its margins,” he said. However, he assured investors that the company hoped to minimise the impact on margins through a growth in sales and an efficient management of inventory.
Published in Dawn, Economic & Business, January 26th , 2015