JS Securities Limited - JS Research (31-08-2021)

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JS Securities Limited – JS Research (31-08-2021)

August 31, 2021

Karachi, August 31, 2021 (PPI-OT): TREET: Key takeaways from the Corporate Briefing session

Treet Corporation Limited held its corporate briefing session to discuss the outlook of the company. We present key takeaways from the session.

Treet Corporation Ltd (TREET) is the only manufacturer of shaving blades and razors and in its niche market segment the company has an 85-90% market share. Owing to increased demand in the hygiene razor segment, the company decided to enter into an expansion last year to increase its capacity by 25%. Management expects the blade expansion to come online by Oct-2021.

The company is planning to utilize the proceeds from the sale of its wholly owned subsidiary, Global Arts Ltd, to repay its debt.

Its subsidiary, First Treet Manufacturing Modaraba (FTMM), is engaged in the manufacturing of batteries, corrugated boxes and soaps. FTMM is seeking private equity partnership for the Battery business and expects it to be profitable in a year. It has a 10% share in the battery market. Company is also evaluating the feasibility of Lithium battery business.

Management has changed the business strategy for its Packaging business and has shifted from high volume – low margin product to low volume – high margin to improve margins.

TREET plans to increase its current holding in FTMM by way of converting its Rs7.4bn debt to long term investment.

FTMM pays 0.75% of revenue up to Rs5bn from the battery business as royalty to Daewoo. Post Rs5bn, royalty of 0.5% of revenue is paid.

Management plans to re-profile debt of both TREET and FTMM and to bring FTMM’s equity in the green zone. Moreover, the company also plants to spin off the battery segment from FTMM into a separate company. Management also plans to revamp FTMM’s Bike and Soap divisions. To recall, the group’s packaging, battery and bike businesses incurred gross losses both in FY20 and 9MFY21 (35% Revenue contribution from these businesses for the group).

The group plans to resume work on the new facility of Renacon Pharma (associate of TREET) as it expects high demand from Pharma exports. The plant and machinery for the project has been financed through TERF and the rest of the financing requirements will be met through equity partnership with an NGO. The new facility is expected to come online by the end of FY22.