Thal Limited (THALL) Earnings Call Transcript & Summary

Welcome to the corporate briefing session for Thal Limited. We're gathered here today to take you through our business to cover FY '25, '26 year. Present with me in the room, I'll start with [ Abbas Raza ] in front of me. He looks after HMPL; Syed Umair, who looks after the packaging business. We have [indiscernible], who takes care of Sacks; Shahid Saleem, who is our CFO; Waqas Ahmed, who looks after the Laminates division; Tayyab Tareen, who is our CEO; myself, Sameer Amlani, the Company Secretary; and [ Ali Gori ] here with me who works in finance. So I'll briefly start over the introduction and then I'll hand it over to Tayyab just take us through the company. Before we start, we'll have you [indiscernible] to recite few words from the Holy Quran.

[Foregin Language] Have you not considered how your lord dealt with the possessors of the elephant? Did he not cause their wall to confusion and sent down to pray upon them, birds in flocks, casting them with stones of that clay, So he rendered them like a straw eaten up. [Foreign Language]

Thank you very much. Welcome, everyone, to the corporate briefing session of Thal Limited. So you have just got the introduction. I have just one more gentleman who looks after our new business, which is Thal Grain. Based in the hall and he is online as well. So any questions around that, so he'll be able to answer Okay. So I'll just kick start the session. Okay. Just to give somebody -- I mean, most of you would know about the company and the history of the company as well, but some of them are new. So I'll just quickly run through that. So the company was formed in 1966, got listed in '67, started with chew packaging. a pioneer project of [indiscernible]. Now we have a number of multiple business segments as well, which I will talk about in a bit more detail. And so okay, next slide, please. So this is the overall the group structure, Thal Limited being parent company. They have 3 divisions. One is engineering, which manufactures various sorts of parts which we'll talk about in detail in the presentation of engineering. Packaging, who is looked after by Umair, is [indiscernible] paper and polypropylene packaging. He'll talk about in detail there. And [indiscernible], who looks after the Laminates business, and he will talk about in detail as far as laminates business is concerned. Then we have subsidiaries where we have multiple joint venture arrangements with international groups. The first one being we have 60%. It's a joint venture with a German company Metro. It's headed by the CEO is [indiscernible] Raza, who is here as well. So he will talk about the developments in that company. Then we have another joint venture with Toyota and Corporation of Japan. It is a 55% owned by SAL and 45% jointly by both Bosch and GTC. Then Poos,afam 100% owned subsidiary, where we are in the process of setting up a plant with a Swiss company Pool for the corn processing, dry milling and the silos as well for the storage. Then we have a sizable, in certain cases with a minority, but a very strategic interest where we actively get involved either through the Board representation or various other representations as well. As far as the associates companies are concerned in this water company, we have a strategic stake of 6% Ario industry around 7.5% and Sab Tiles a minor stake of around 1.3%. And they're all house of run companies and with different structures. The other 2 strategic investments which we have is in the mining and the power sector in the energy vertical, where we have SECFC,ichgroo of Mining is a public-private partnership. It's one of the most successful public-private partnership in Pakistan. It was the actual -- the concept of getting the coal to be processed into various energy for and it was -- so Agro,CO,,MAP, which is a Chinese company and which owns majority of around 54% are the partners in that company. Then we have Minemouth power plant, which is ThaLNOVA. It's a 330-megawatt power plant, which is a joint venture with HCO, Novate and SME, which is again a Chinese company, is a EPC contractor as well. And we have around 26% and a strong board representation in both of these companies. Okay. So now just a quick business highlights before I pass it on to Sameer to take you through the rest of the presentation. The revenue Ala grew from PKR 30 billion to PKR 36 billion, around 20% profit before tax, Ala as a shareholder, proud of it as well, PKR 3.5 billion to PKR 10.6 billion, primarily, I mean, operating results plus the dividend from our investment -- strategic investments, which was primarily in the energy vertical. As far as the engineering side is concerned, higher OEM volumes with new business and disciplined cost helped us to grow our profitability. Diversification efforts are continue -- we are continuously working on them. We have ventured into white goods and also into the power sector. Power sector, we haven't got a commercial order yet, but it's something where we see a lot of -- there's a promising area where we feel that we would be able to diversify and grow that sector. As far as aftermarket business is concerned, we continue to grow that business and build our dealers network and expand our dealer network. On the packaging side, as far as the is concerned, we had a bit of a challenging year because of the supply constraints from the source and also the purchases by PCO and Punjab Food. But through operational improvement, strong export performance and a good performance through PT and the packaging because cement sector also moved back into packaging, even though the current geopolitical scenario did not help but really the team worked very hard to weather that storm and come out with a growth as far as the profit and the revenue is concerned. Lemonades, we continue to make strides in building business and new revenues there and new products have been launched and Vas will talk in a bit more detail. On energy investments, [Foreign Language] a good year, good dividends received from Syna Group Gold Mining Company and ThalNova [indiscernible] PKR 3 billion. And we also achieved COD, commercial operations on October 5 for Phase 3, 3.8 million tonnes per annum of coal, which will be supplied to Lucky Power, which operates 660 megawatts. So now after this lucky call, 2,000 megawatt of power has been generated using the coal from our block to [indiscernible]. And also a very good remarkable men done by a power company, ThalNova, which achieved a BCD, which is project completion both you get your dividends and you can -- so you have to -- that was declared in less than 3 years [indiscernible] earlier quickest quick BCD in all the IPPs in Pakistan. So these were the broader highlights. So before I would like to request Shahid to talk about it more in details, various companies. And then we have the CEOs from all the businesses as well in divisions and subsidiaries. So if you have any specific questions for anyone, we'll be happy to -- they will be happy to answer.

Thank you, Tayyab. Thank you for the good overview. I just want to go a bit into the details of our financials, still keeping it high level and as this presentation has already been circulated as well. So I'm sure you guys have had some time to consume this data, but Tayyab mentioned, good revenue, PKR 36 billion was primarily driven by higher OEM volumes, and we saw an uptick in our exports. So those are the 2 main reasons that helped us increase our revenue. PT was maintained at 10% [Foreign Language]. And then PBT, as you can see, was a sharp increase from last year, 3.5% to 10.6%, which, again, was driven by our dividends. So our investments a year long of investments in SECMC ThalNova and our other investments are finally paying off. Profit after taxation 38.3%, which is in line with our PBT as well, which resulted in an EPS of 103%, a triple-digit EPS. And also increase the value of the company to PKR 490 million. On the balance sheet side, our current assets, the performance driven by our investments contributed a lot here as well as our operational efficiencies. So our cash and short-term investments, it rose from PKR 9 billion to about PKR 17 billion. And the major contributor was all the dividends that we received in the year about PKR 10 million and improved working capital efficiency as well. That directly who was mirrored in our shareholders' equity, where it rose from [ 33 to 34 ]. So help the company grew and then dividends were paid out a bit. So we ended the year with PKR 34 million as net value of the company. On to the next just a few financial ratios. I wanted to highlight here as well. Like I mentioned, GP was maintained at 10%. Net profit increased by 23% because of our investments, and that helped us increase our return on equity. Like I mentioned, the [indiscernible] in our working capital was witnessed to the liquidity ratios and capital structure ratios as well. And overall, this helped us earned PKR 103 per share, which resulted in a dividend of PKR 30 as well. So final dividend payout of 29%, an increase in breakup value. Now just moving on and spending over the divisions very quickly, I wanted to highlight the major achievements and how the business has been going. So a bit of an overview. First and foremost, the automobile industry, the numbers here are important because our direct correlation with OEM sales with automobile sales when it comes to auto parts is important here. So we have a few that we -- the customers that we deal with. And you can see an uptick in Suzuki, but good volumes overall. Here is our product offering. So the engineering division is split primarily between the Thermal and Electrical. And then we have our diversification sector as well. So now thermal, these are all the car parts that we deal with, and there's a technical assistance with Denso and [indiscernible] one of the more recent ones that we've gotten into. On the electrical side, we started off with Furukawa and Yazaki as their Japanese and then entered into technical agreements with [indiscernible] and THN as well, which are the Korian companies. And these are the 5 [indiscernible] that you see are predominantly the wire harnesses that we manufacture for all the autos. So giving you a list of -- the quantity of wire harness that we deal or we sell it to each and every OEM. So next, over the years in the past year, these were the main 4 variants that we've secured in new businesses that we have obtained for in the [indiscernible] side. Then moving away from direct OEM sales. This is our aftermarket center where we've grown significantly to 19 all over Pakistan to help service the aftermarket industry. And these deal with the Denso parts and all of those. So Engineering side of things, we have diversification engineering solutions over there. We have developed wire harnesses for our [indiscernible] and successfully started the order. And then secondly, we have the oil level sensor, which was an internally developed equipment. This really helps [indiscernible]. And these are the 2 main products that are serviced, the [indiscernible] seats and across seats. We also serve the OEMs with a few of these tracks and air cleaner as well. So that kind of takes us to the overall engineering -- and our quality is witnessed by not by our old words, but how others have appreciated us. So these are the list of awards that we've received during the year. Just, once again, the same thing for packaging. I want to quickly go over give you an overview of our packaging is made up of. It is primarily [indiscernible] paper, WPP as we call it and Jute. So paper, plastic and Jute. These are some of our paper products that we service and we have a stamp of unlimited at the bottom of these. So it's a good way to identify them if we have to come across them. But these are the 4 main segments that we service in paper. And then in more in paper, we not just packaging where we try to deal with solution, storage and lifestyle-oriented solutions as well. So these are some of the products there, get [indiscernible] and laundry staff. When we go to the WPP, we have our iconic IKEA FRAKTA bag that we are about [indiscernible] supplying to IKEA. But other than that, we've gotten into bulk handling. So these are all WPP-related products. And then we have Jute, give you an overview. We import Jute and then we mill it to either cloth or our finished products, as you can see. And here's if anyone's interested you can span this and go through our full product catalog of our packaging [indiscernible] the countries that we service, 24 export countries, which have grown year-over-year. So good efforts there. And then some of our key customers that we service that we thought we should highlight here. And then obviously, all of this -- this growth comes with quality, and this quality is sorted by all the certifications that we have on hand, and we continue to maintain them. Over to the laminate. So laminates, we know as we deal with 3 primary products here, high-pressure [indiscernible] compact laminates and laminated boards. We've worked a lot over the year and introduced new patterns and new finishes. So if anyone wants to take a look, we also have broader catalog here, you can go through an entire product list and see the kind of different products that we make. And then in the year, we worked really hard to develop variance, specialty and premium finishes. So the metallic one that you see on the right-hand side is actually a live picture from one of our projects that we've done. So it's a nice shiny finish that we have. And then we've developed with market demand and customer feedback. These are all -- the lamiguard, but it's also something that we take pride in because it's antimicrobial and has been used in a lot of hospitals, kitchens and schools. Once again, this division has also [indiscernible] 9001 and 14001. Moving on to Habib Metro. I just want to give you an overall listen, the dividends that we've been receiving from Habib Metro, this is 100% share. and 60% goes to Thal. So some of the new projects that we've launched, I wanted to introduce them to [indiscernible] that we have recently opened up. This is the [indiscernible] on here as well. We have our Instagram link here as well if we want to explore more and see what it is, even encouraged you can go there and visit it. And then we have our [indiscernible]. So these are the 3 main projects that we've done. And then our [indiscernible]. We're also keeping up with the hype of paddle and we've introduced this as a state-of-the-art ports here as well. Now we'll move on to our energy. So in ING, as he mentioned, the public private partnership and a prime example of how success can be achieved when we work together. But it also came from a vision because it was one of the largest Ignite gold deposits. And just to give you how large [indiscernible], it's 175 billion tonnes of coal. What that means is actually 50 billion tonnes of oil, which is more than the reserves of Saudi Arabia. So just to put that into perspective, it's a huge area, and we have potential to produce 100,000 megawatts, which is enough to service Pakistan's enegry need for the next 200 years. As Tayyab mentioned, the Phase 3, [indiscernible] lucky is the recent thing that we have done and with that, we're supplying 11.2 million tonnes per annum and we've saved about $2 billion there. On the mine mouth [indiscernible], which we service from SCMC [indiscernible] just a few figures on the load and the gigawatts produced, which has done better and PCB was also done last year as well. So just a few of the key risks as I wrap up and move on to the question-and-answer session. Our direct correlation with the Auto business has risks in terms of auto volumes and our [indiscernible]. When it comes to the [indiscernible] supply, [indiscernible] mentioned, it was a challenging year. And that's because of international constraints from [indiscernible] to import. And all of this was also fueled by geopolitical events that drastically increased oil prices, freight costs, and that directly [indiscernible] into our commodity pricing. So our WPD business is directly related to or drives from polypropylene when oil goes, polypropylene moves and then our definitely macroeconomic exposure, which is common to each and every business working in the world. We have our input prices, when changes happen or when our local currency devaluates, it impacts our ability to sell and produce. So now I move on to the question-and-answer section, taking you over and I open the floor for you guys to let us know if there's anything specifically that we can answer for you.

No questions.

So I wanted to ask regarding the upcoming auto policy. This may be [Foreign Language] how does the management see that [Foreign Language]

No, good question. And I think that's a long awaiting auto policy because it was supposed to be last year. Number of drafts have been floated recently. You also heard that was approved by the government. It has not been actually officially been approved and issued. So it has a number of steps. It has to go to the Parliament, go to the Senate, and ECC has to approve it as well. So that's as far as the process of getting the auto policy approval. But as far as the duty structure is concerned, as yes, the government is looking to rationalize the duty structure and [indiscernible] but at the same time, in that policy, the draft which we have read and which have come through so far, they're also looking to increase the pressure or the increase the actual to increase the localization as well. So it actually -- it is -- they're working through that goods which have already been localized. So the OEMs will also be asked that they should further localize it. And they're also talking about export as well. So this is something you can only export if you reduce the cost of your finished product in Pakistan and then you can further export it. So it has both sides of it as well, and we are quite hopeful the way we are working because as far as the leading auto part manufacturer in Pakistan, so we feel that we have an edge from that standpoint that we should be able to capitalize on that. Sorry, if I may, if you can also introduce yourself from which institution and from [indiscernible]

I'm a shareholder. [Foreign Language] as on September, the company was holding around PKR 19 billion in cash on a stand-alone basis, not consolidated stand-alone basis. the cash was around PKR 19 billion. So what are the plans for this I always feel that Thal is holding so much cash, as if they are very slow in identifying new projects. [Foreign Language] have you not been able to identify new projects, policy heck, you want to hold so much cash? Can you explain the rationale behind this?

No, again, a very good question. No, we don't have the policy of holding on to cash. But at the same time, as you have seen our journey as a growth and how the organization has evolved since 1966. We -- whenever we make investment, there's a lot of due diligence and a lot of emphasis on the thoroughness of our process before we make an investment. And I think our last investment, which was made, which was the energy vertical, [indiscernible], now we are getting dividends out of that as well. And there has been some sizable dividend, which has come through in the last 12 to 18 months. At the same time, now we have seen that you can hear from Pahar as well if you have any questions relating to Tal Grain, that's something a vertical we have a completely new greenfield, which we have launched into it as well, and that's something we feel that's just a footprint we are starting and that would eventually grow further as well. At the same time, just to give you comfort that we are very actively pursuing and looking into various avenues for investments within Tal in addition to what we have done with THAL [indiscernible].

Sir, my follow-up question project -- can you identify or can you share exactly how much total capital you're committing to that project? What are the debt and equity ratios? And what kind of returns are you looking at over the long term ROEs? And...

Debt equity within the group, that's a separate debate. But overall, you've seen the cash which we have on our balance sheet. So obviously, it will be funded through -- because it's 100% owned subsidiary. So it will be funded through the cash which we have. That's one. The second question relating to overall project. As I said, that is just a setting the foundation of the project where we are putting up the silos and also a dry mining. But it's an agri space which we are venturing into and processing of agri space, and that's something which we feel there's a lot of potential in that. And it's just the beginning, and there will be a number of multiple projects which will stem out of that this project 2 questions, and I'll answer. The first one is relating to that whether we are predominantly into Toyota and Suzuki that's not correct. Yes, Toyota is a sizable share. Suzuki also has a sizable share. But in the last 5-plus years, we have also gone into a number of other OEMs as well. We also have our customer. We also have Hyundai as our customer and a few other EVs as well. And we are continuously working to grow that portfolio and working with the new entrants as well. That includes EV and any other -- so that's the answer to the first one. The second part of your question where you asked about that if the government is giving relief on that and the Japanese. So you see if -- even if you look at today's Toyota, Honda, Suzuki, their market share is also they're either holding their market share or they've actually improved their market share. So they're continuing to develop new products. They're also looking at a few new areas as well and a new model. So that's something which obviously I will not be able to disclose. But that's something which we continuously work very closely with all the OEMs. And in addition to 4-wheelers, we also -- THAL Engineering also supplies to parts to buses, tractors and 2-wheelers as well. So we have a broad spectrum as far as the within the auto space is concerned.

I think we have one question in chat from portion of dividends from 10 billion another minute and he should be able to close the session. So there are no further questions.

As I already answered that, and I'll just repeat some part of it. And that is that we will do a very -- whenever we do an investment, there's a lot of thorough diligence which we do -- so far as far as the company is concerned that whatever investments which we have gone in, Ananda, they have been profitable and they have given return to the shareholders. So that's something a journey which we'll continue. We have launched into a new arena as far as the agri space is concerned. And in parallel, we are looking at further investments in other sectors as well, which we are in the process of evaluation. In addition to that, we have seen that a number of our businesses, which are already the business divisions, we continue to invest in them as well. You've seen Habib Metro story. We have invested in various avenues there. So whatever the new model comes as far as the engineering is concerned, whatever the new model comes, the sizable investment alongside with that. So that's -- we continue to invest and grow that portfolio through our direct investment in that -- through an operational -- and you will see in packaging also, we continue to invest. So that's obviously comparatively to a sizable starting a new project is a smaller investment, but that is something we continue to grow our current businesses as well. So that's the answer. As far as the dividend is concerned, so you have seen the dividend...

Regarding this investment of your investment. So why don't you just diversify in property sector as well because Thal Engineering [Foreign Language] so why don't you establish a REIT of your own subsidiary for, subsidary REIT [Foreign Language] I thought you people must give a thought to that as well. [Foreign Language]

I got your question. Now you need to please hear me out. So I'm happy to see that our shareholders are actively and they know the business and they understand they go through the financial statements in detail. Yes, that's something which is part of our overall plan is the strategic plan. And we obviously will do it at the right time, and this is something which is part of our overall long-term strategy.

And the buyback or the option, if you can also comment on that...

I think buyback as far as the split option is concerned, that's something which we have seen a lot of other companies. I mean that's something which we keep on looking at it as well. But so far, our study has been the companies which have done it, that over a period of time, it comes back to the same number, same sort of a return profile for the shareholders. So yes, this is something which we will keep on observing and see when is the right time to do. Our share is, if you don't -- if you remember, it's already a PKR 5 share, it's not a PKR 10 share.