Ayesha Mudassar

Roshan Packages Limited (RPL) experienced an increase of 60.9% and 42.7% in before and after-tax profits, respectively, in the first half of the ongoing fiscal year (1HFY24) compared with the same period last year (1HFY23), according to WealthPK. As per the company's half-yearly report, RPL posted a profit-before-tax (PBT) of Rs175.8 million and a profit-after-tax (PAT) of Rs111.5 million in 1HFY24. However, the gross profit declined by 2.7% to Rs558 million compared to the previous year's six-month period. This reduction reflects increased costs and potential pricing pressures.

The RPL revenue increased to Rs5.41 billion, representing a 4.3% growth from the preceding year's six months. This growth can be attributed to the company's improved focus on customer satisfaction, meeting international quality products, and increased market share. Operating expenses, including administrative, selling and distribution costs, decreased marginally from Rs344 million to Rs340 million during the period under review. Other income witnessed a substantial increase, rising from Rs65 million to Rs123 million in 1HFY24 thanks to diversified income streams and improved investment activities.

Performance over last four years (2020-23)

The net sales of RPL have been growing since 2020. However, the after-tax profit decreased in 2022 and 2023 after posting a growth in 2021. In 2021, RPL's topline grew by 33.7% year-on-year (YoY) on the back of a volumetric growth of 7.9%. Following the Covid-19 pandemic, people became more aware of hygiene and the importance of proper packaging, which buttressed the demand for RPL products. Owing to high demand and monetary easing, the net profit grew by 39% with a margin of 4.9% during this year. Moreover, EPS surged to Rs2.44 in 2021.

The demand remained robust in 2022 with a 27% YoY growth in topline. However, a rise in the cost of imported raw materials coupled with rupee depreciation and higher utility charges pushed the cost of sales up by 30% in 2022. The rise in finance costs due to higher discount rates and increased borrowings translated into a 23% YoY drop in net profit, which clocked in at Rs264.7 million. EPS also plunged to Rs1.87 in the year. The RPL's topline posted a 16% YoY growth in 2023. However, rupee depreciation and high energy and finance costs diluted the impact of topline growth. The net profit slashed by 57% YoY in 2023 to clock in at Rs150.3 million. Moreover, EPS shrank to Rs1.06 in 2023 from Rs1.87 during the last year.

Financial ratios

Roshan Packages Limited’s historical ratios provide insights into the company’s profitability, efficiency and growth trends over the years. The packaging company witnessed fluctuations in its gross profit margin over the four years. In 2023, the gross profit margin was 12.44% compared to the previous year's margin of 10.32%. This rise in gross profit reflects the company's effective cost management and pricing strategies. The company posted the highest net profit ratio of 4.94% in 2021. However, a declining trend was observed in the subsequent years (2022, 2023). The decrease may be attributed to various factors, including an increased operating expense, changes in market conditions or reduced profitability.

Roshan Packages experienced significant fluctuations in EPS growth over the period 2020-2023. In 2023, the EPS growth was negative at -43.32%, following a negative growth of 23.36% in the previous year. This was mainly due to challenges in maintaining profitability or unfavourable market conditions. The PEG ratio assesses the relationship between a company's price-to-earnings ratio and its EPS growth rate, providing insights into the company's valuation relative to its growth potential. In 2023, the PEG ratio was -0.19, indicating a potentially undervalued stock relative to its EPS growth.

About the company

Roshan Packages was incorporated in Pakistan as a private company limited by shares on August 13, 2002, under the Companies Act, 2017. It was converted into a public limited company on September 23, 2016, and was listed on the Pakistan Stock Exchange on February 28, 2017. It is principally engaged in the manufacture and sale of corrugation and flexible packaging materials.

Future outlook

With the initiation of foreign inflows and ease of import restrictions, RPL is in a better position to stock up on its inventory and to significantly streamline its customer portfolio to include fast-moving consumer goods (FMCG) and essential commodities segment. In this way, it can guard its margins and bottom line from further decline.

INPCredit: INP-WealthPk