Karachi, November 25, 2022 (PPI-OT): TGL: Plant overhauls to interrupt near-term operations
Tariq Glass Limited (TGL) held its Analyst Briefing for FY22/1QFY23 to discuss the company’s financial performance and future outlook. Results for the quarter deteriorated QoQ with PBT clocking in at Rs372mn, down 62% QoQ, however, lower tax expenses due to application of minimum turnover tax led to a 20% rise in QoQ profitability.
The Float Glass line which was due to resume production in Sept/Oct-2022 has been delayed for 5 more months whereas the tableware furnace operations are due to resume in 4 – 4.5 months. Project with ICI is expected to be delayed further by 6 – 8 months owing to delays in opening LCs.
In the coming quarters, demand is expected to remain under pressure owing to 1) impact of floods, 2) plant closures and 3) lower demand from the construction sector, with the management expecting volumes to clock in at 250k tons for FY23.
Lower taxes improve profits, up 20% QoQ
Tariq Glass Limited (TGL) held its Analyst Briefing for FY22/1QFY23 to discuss the company’s financial performance and future outlook. To recall, TGL posted an EPS of Rs2.05 during 1QFY23, up 20% QoQ and lower by 69% YoY. Results for the quarter deteriorated on a QoQ basis with PBT clocking in at Rs372mn, down 62% QoQ, however, lower tax expenses due to application of minimum turnover tax led to sequential rise in bottom-line.
Net sales lose steam amid plant closures
Net sales during 1QFY23 declined to Rs6.4bn, down 19% QoQ driven by lower sales volume owing to 1) impact of floods, 2) plant closure and 3) lower demand from the construction sector. This depicts that the multiple price hikes over the past few quarters to counter the impact of rising fuel costs could not nullify impact of declining volumes. Sales mix for the quarter shifted towards the Tableware segment, as contribution from Float glass clocked in at 59% of total sales as against 63% during previous quarter.
Margins fall prey to energy costs, bounce back expected
With volumes declining for reasons mentioned above coupled with elevated energy costs as compared to FY21 levels, gross margins have come crashing down to 11% for 1QFY23 as compared to a high of 32% witnessed in 3QFY22. Management, however, has increased prices in the range of 10-15% for 2QFY23 and with decline in crude in crude oil prices expects improvement in the coming quarters. Although the company uses alternative sources of meeting its energy requirement such as FO, RLNG, Diesel gen-sets, based on whichever is cheaper and easily available, TGL is currently operating on FO as it remains the cheapest source at current rates.
Plant repair burdens to ease for next 6-7 years
TGL has a total of four furnaces (2 each for both segments) with a combined production capacity of 1,390TPD (Float Glass: 1,050TPD, Tableware: 340TPD). Each furnace has a useful life of 7-8 years. Currently two of the company’s furnaces are offline for major repair and rebuild (1 in FG and 1 in TW).
The Float Glass line went offline in Apr-2022 for the said purpose and was due to resume production from Sept/Oct-2022 after incurring an estimated CAPEX of Rs1.5bn. While 95% of the work has been completed, the company is facing issues in importing some parts due to delays in opening of LCs by SBP and hence is now expected to resume operations from Mar-2023.
Similarly, the tableware furnace went offline in Nov-2022 and is due to resume operations in 4-4.5months, incurring a CAPEX of Rs600mn. The remaining two plants are new. Hence, once the ongoing repairs are completed, the management foresees no major plant shutdowns for at least another 6-7 years.
Outlook: demand concerns remain a threat
In the coming quarters, demand is expected to remain under pressure with the management expecting volume to clock in at 250k tons for FY23 as compared to 375k tons during FY22. Project with ICI is expected to be delayed further by 6-8 months owing to difficulty in opening LCs with another 2.5 years needed to complete phase 1 of the project once construction is started. As a way to offset the impact of shrinking local market, management highlighted its plan to focus on export market where company has already increased its presence in 55 countries as compared to 42 as of last year. On the gross level, management expects a bounce back in the coming quarters owing to the downward trend in energy prices and impact of price hikes. Higher FO prices as a result of expected gas shortage however, remains a risk.