Key Takeaways:
• Margins to remain stable going forward.
• Not chasing competition anymore in exercise books. The focus is on institutional sales to key customers like TCF, City School etc.
• Sourcing cheaper material to off-set the regulatory duty impact on self-adhesive paper.
For FY24, the company reported a 10% YoY increase in net sales, reaching PKR 1,927 million. Institutional demand significantly contributed, as the company remains the only recognized player in the formal sector for exercise books. However, 1QFY25 results showed a contrasting picture, with net sales declining 18% YoY to PKR 365 million.
Exercise books were the main contributor to this decline, largely due to aggressive sales in June ahead of the anticipated removal of Zero Rating and the imposition of sales tax in the Finance Bill, coupled with increased competition from the unorganized sector, driven by lower international pulp prices and cheaper paper availability.
In FY24, gross profit surged by 34% YoY to PKR 391 million, with an improved gross margin of 20% versus 17% last year. However, in 1QFY25, gross profit dropped by 30% YoY to PKR 61 million, with margin depressing to 17% from 20% in SPLY. The reduction in margins was mainly due to competitive pricing in exercise books segment and impact of 15% regulatory duty on self-adhesive paper.
The finance cost for FY24 decreased by 29% YoY to PKR 60 million, primarily due to the reversal of exchange losses into a minor exchange gain and a decline in interest rates during the year. Similarly, in 1QFY25, finance costs dropped significantly by 46% YoY to PKR 12 million, reflecting the same factors.
The profit after tax (PAT) for FY24 rose by 75% YoY to PKR 156 million, with EPS increasing to PKR 19.49 due to higher margins and lower finance costs. In contrast, 1QFY25 saw a 61% YoY drop in PAT to PKR 13 million, with EPS declining to PKR 1.59. While the challenge remains in the exercise book segment, the company is also facing competition from other players in the pro-label segment.
Another challenge is passing on the regulatory duty impact. The company wants to honor its commitments to the customers and trying to optimize the impact of regulatory duties by seeking cheaper vendors, keeping costs under control, and maintaining profitability.
In the Pro Labels segment, efforts to improve internal efficiencies, maintain high-quality standards, and leverage stable exchange rates are expected to sustain margins, even as competition intensifies.
Similarly, in the Exercise Books segment, the company plans to capitalize on strong institutional demand and the retention of its Sales Tax Zero Rating, which provides a competitive edge against the informal sector. Going forward, the management expects margins to remain stable at the current levels due to challenging circumstances.
Moreover, the Board has approved a modernization plan to invest in LED UV technology, which reduces energy consumption by over 50%, and advanced rewinding and slitting systems in Pro Labels to boost efficiency and production.
In Exercise Books, rising demand will be met through upgrades like a fully automated flexo ruling machine and a cutting-edge Hot Melt binding machine. These investments aim to enhance quality, improve efficiency, and drive sustained growth.
Important Disclosures
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