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Thall Ltd expect Sales, Profit to take further hit amid Economic Recession

May 23, 2023

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THALL conducted its 3QFY23 Analyst Briefing to discuss the key highlights and future prospects of the business.

To recall, Thall Ltd recorded net sales of Rs10.2 billion in 3QFY23, reflecting a decline of 1.3% YoY compared to Rs10.4 billion in the same period last year. Gross margins also decreased to 16% from 18% in the previous year, while the earnings per share (EPS) for the quarter stood at Rs11.15, down 32% YoY from Rs16.15. The consolidated earnings per share reached Rs8.35, indicating a 64% YoY decrease, resulting in a 55% YoY decline in the 9MFY23 EPS to Rs26.75.

The performance of the engineering segment (which accounts for 42% of company sales) was impacted by low auto sales, leading to a 37% YoY decline in sales during the nine-month period. This division manufactures car parts such as thermal systems, engine components, and electrical systems.

Pakistan’s auto industry faced challenges due to decreasing foreign exchange reserves, restrictions on raw material imports, rising inflation, and monetary tightening measures.

These factors resulted in non-production days for original equipment manufacturers (OEMs), affecting the supply chain. THALL has been actively engaging with new and existing auto players, including Hyundai, MG, PSMC, and INDU, to expand its presence in the segment. However, the company faced multiple supply chain issues during the period, and its subsidiary Thal Boshoku experienced sales decline along with higher financial charges.

THALL management expects a challenging business environment ahead, with volatility in macroeconomic indicators impacting the demand for autos and the overall engineering industry.

The jute business was affected by import restrictions and uncertainty around raw material supply. While sales are expected to remain consistent in 4QFY23, the segment is likely to continue facing these issues. The company aims to address these challenges by increasing exports and expanding its client base to ensure long-term sustainability.

The packaging business, serving various industries including cement and industrial packaging, experienced pressure on margins due to a slowdown in the economy and PKR devaluation. Cement sales, a significant driver for the packaging segment, declined by 18% YoY in the first nine months of the fiscal year. To compensate for the decline in local cement sector sales and currency devaluation, THALL is exploring export opportunities.

The company’s woven polypropylene business, with an annual capacity of 90 million bags, showed growth in sales by 30% YoY, aligned with overall growth in the company. The laminates division faced challenges due to the economic slowdown but managed to sustain profitability by adjusting pricing, introducing new products for the international market, and optimizing the product mix. The company has increased its focus on the local market in the North, resulting in an increase in market share.

THALL holds an 11.9% stake in SECMC and a 26% stake in ThalNova Power Thar Pvt Ltd through its wholly-owned subsidiary Thal Power Pvt Ltd. ThalNova achieved Commercial Operation Date (CoD) in February 2023. SECMC reported revenue of Rs21.8 billion and a loss after tax of Rs3.8 billion in 1QCY23.

The profitability of the company was impacted by foreign exchange losses of Rs8.6 billion during the quarter, which is expected to be recovered in the next indexation. The company has applied for the tariff true-up to the Thar Coal and Energy Board for phase-II, with Phase-III CoD expected by the end of FY24.