May 19, 2022 (MLN): Packages Limited (PSX: PKGS) is planning to expand the capacity of Bulleh Shah Packaging by a further 30-35% in addition to the expansion already announced. This additional capacity is expected to come online in 1HCY23, the management of the company informed while holding a corporate briefing session.
This expansion will help the Bulleh Shah’s capacity of the corrugated cartons to 225KT and paper & board to 450KT, as per briefing takeaways covered by JS Global.
To recall, growth in this segment was limited due to a fire that broke out in the company’s finished goods section. As a consequence of the fire, the closure of the production facility has been moved ahead.
The company has insurance claims against the incident which are expected to be recovered in 4-5months. Under the segment, the company has a corrugated cartons division with a capacity of 105KT and a paper & board division with a capacity of 265KT.
Bulleh Shah remained the second-highest contributor to net sales (42% during CY21) during the quarter posting a growth of just 5% YoY to Rs9.85bn.
In the paper and board segment, sales mix stood at 45% brown paper and 55% white paper where 65% of sales of white paper are generated from tobacco companies. The company plans to increase its market share in the segment post capacity expansion, the management further informed.
In addition, the company has increased its stake in Tri-Pack Films Limited (TRIPF) in February 2022 through additional investment taking it from 49.9% to 69.0% making it one of its subsidiaries and the 3rd highest contributing company in consolidated net sales of PKGS.
To note, TRIPF is involved in the business of producing BOPP and CPP holding a sizable share in the market. These films are primarily used in the food industry for packaging of various items such as chips, biscuits etc and have seen a surge in demand post-COVID as travel restrictions have led to higher consumption of snacking food items.
Furthermore, with the introduction of online delivery services, demand for BOPP and CPP films is expected to remain elevated. Total CAPEX incurred by the company is anticipated to be around Rs33bn for all upcoming projects including the investment in TRIPF.
The house was also briefed regarding the sales mix of the company as the management highlighted that Packages converters accounted for the highest growth during the quarter growing to Rs9.87bn, which is up by 35% YoY.
The segment contributed 34% to the company’s topline during CY21. Under this segment, the company produces folding cartons, flexible packaging and consumer products.
Adding to it, the management stated that 48% of the revenue in the segment is generated by flexible packaging while 29% is accounted for by folding cartons and 23% by consumer products. The consumer products segment is expected to grow the fastest owing to rising demand for items such as tissues, paper cups and paper plates.
The investors were apprised regarding the financial performance of the company as per which the company had posted consolidated net sales of Rs26.9bn which is up by a staggering 37% as compared to the same period last year.
The surge in profitability was attributed to a combination of multiple reasons including growth in demand from the food sector leading to higher sales for all the company’s food-related subsidiaries and the inclusion of TRIPF in the consolidated accounts. As a result, earnings expanded by 2.2x YoY to Rs41.06 per share.
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