Buxly Paints Limited – BR Research
Buxly Paints Limited (PSX: BUX) was established as a limited liability company in 1954 under the Companies Act of 1913 (now the Companies Act, 2017). A few years later, in 1985, it was transformed into a public limited company.
The company mainly manufactures and sells paints, pigments, protective surface coatings, varnishes and other related products. It sells both in the domestic market and in the international market, especially in the Far East and the Middle East. Some of its customers are Pakistan Petroleum, Fauji Fertilizers, auto parts dealers and motorcycle manufacturers.
As of June 30, 2020, nearly 57% of the shares were held by associated companies. This category includes Berger Paints Limited and Slotrapid Limited; the latter holds a greater number of shares. Just over 29% of shares are owned by the local general public, followed by over 8% by mutual funds. Directors, CEO, their spouses and minor children hold less than 1% of the company’s shares. The remaining shares, around 6 percent, belong to the rest of the shareholder categories.
Historical operational performance
Buxly Paints has mostly seen a rise in sales over the years with the exception of FY10, FY11 and quite recently FY19. Profit margins fluctuated between period FY12 and FY17, after which they declined to FY19, before improving at FY20.
During fiscal year 2017, the company experienced one of the strongest growth in revenue, exceeding 28%. This was also accompanied by a reduction in production costs which fell to almost 76 percent of sales, the lowest the company had seen outside of FY09 when it was recorded at almost 70 percent. hundred. Lower costs allowed gross margin to peak at 24 percent, again, a level last seen in FY09. But the improvement in operating and net margin was not as pronounced year-over-year due to a decline in other income and an increase in financial charges. As a result, the net margin was posted at an all-time high of 3.15% for the year, compared to 2.45% the previous year.
Although lower than the previous year, sales growth in fiscal 2018 remained in double digits at 16.7%. But there was a larger increase than the corresponding rise in production costs, recorded at nearly 85 percent of revenue, a significant jump from nearly 76 percent last year. The rise in costs has been attributed to higher commodity prices, spending and currency devaluation. The rise in costs could not be fully passed on to consumers, meaning the company hampered its profitability, as indicated by the drop in gross margin, to 15.3%, from 24% in the past. fiscal year 2017. Despite the support of other income, the operating margin fell to less than 1%; the rise in interest rates led to an escalation of financial charges which could not be covered. As a result, the company incurred a pre-tax loss of Rs 1.5 million, which rose to Rs 5.4 million after tax.
Buxly Paints experienced the largest contraction in revenue in fiscal 2019, at over 18%. This was also accompanied by an increase in production costs, to almost 88% of sales. It was the highest level the company had seen. The rise in production costs has been attributed to general inflationary pressure and currency devaluation. The economy also experienced considerable uncertainty following the general election held in 2018. As a result, the gross margin fell to an all-time low of 12%. The constant increase in other income was not enough to offset the increase in charges, resulting in an operating loss of Rs 6.6 million, which rose to Rs 15.7 million in net loss, taking into account the increase financial charges, both in value and as a share of income.
Revenue growth stood at 7.2% in FY20, despite the development of Covid-19 in the second half of the year, which led to a sudden shutdown of activities and production. The increase in revenues also translated into an improvement in the gross margin which was recorded to 19.3%, with production costs accounting for nearly 81% of revenues. While administrative and distribution expenses continued to consume a similar share of income year-over-year, the increase in income allowed more room to absorb expenses. Thus, the company managed to post a profit of Rs 52,000, with a net margin of less than 1%, which was considerably better than the loss suffered last year of Rs 15.7 million.
Quarterly results and future outlook
The first quarter of fiscal 21 saw a 10% year-over-year decline in revenue. This was due to the effect of the Covid-19 pandemic as business activities were only starting to pick up. Strong cost control and lower borrowing rates by the State Bank of Pakistan allowed profitability to improve year over year to a net margin of 2.3%.
The second quarter saw revenue decline 1% year-over-year as economic activity picked up. But the higher production expenses negatively affected the gross margin which was also reflected in the net result; the company suffered a loss of Rs 1.1 million for the quarter. Sales recovered considerably in the third quarter where they almost doubled year on year. This allowed profit margins to improve year over year, despite the higher production expenses at 3QFY21 compared to 3QFY20.
Cumulatively, the company achieved better margins in 9MFY21 year over year through improved revenues and reduced administrative, distribution and financial expenses. In the future, he sees his income pick up and increase to reach his goal for the year.