Matco Foods Limited

The company was formed in Pakistan as a private limited company in 1990. The company primarily processes and exports rice, rice protein, rice glucose, pink salt, seasonings, sauces, dessert mixes, and other related products. With its main brand "Falak" exported to more than 65 countries worldwide, MFL is one of the nation's biggest rice exporters.

Pattern of Ownership

There were 122.4 million outstanding shares of MFL as of June 30, 2023, and 1768 shareholders owned them. The primary owner of MFL, comprising around 41.6 percent, is made up of directors, their spouses, and their minor children. The local public owns 40.22 percent of the company's shares. 15% of the company's shares are owned by linked parties, undertakings, and associated companies. Other groups of owners own the remaining shares.

Economic Outcomes (2019–23)

With the exception of a little decline in 2021, the MFL topline has been rising since 2019. MFL’s bottomline reported an increase in 2019, dropped in 2020 and 2021 and rebounded thereafter. Conversely, its margins have been sliding until 2021 save for an improvement in its net margin in 2019. While net margin increased in 2022 but fell in 2023, gross and operational margins recovered strongly in the next two years. 

MFL reported a 17% increase in their top line in 2019. Due to the depreciation of the Pakistan Rupee and rising commodity prices on the global market, export sales were the primary driver of the development. Besides, export sales volume also inched up by 2.45 percent in 2019. High cost of sales on the back of inflation, raised energy prices and high commodity prices lowered GP margin from 12.94 percent in 2018 to 11.71 percent in 2019 despite 6 percent year-on-year improvement in gross profit. In 2019, the increase in sales promotion and export charges was offset by decreased payroll expense, shop rent, and allowance for ECL, resulting in a marginal 4 percent year-over-year growth in distribution expense. Administrative expense jumped by 20 percent year-on-year in 2019 on account of higher payroll expense as the company increased its staff from 673 people in 2018 to 729 employees in 2019 on account of installation of rice glucose facility (phase 2). Operating profit went up by barely 1 percent in 2019 with OP margin dropping down from 7.56 percent in 2018 to 6.51 percent in 2019. Finance cost rose by 15 percent year-on-year in 2019 on the back of higher discount rate and increasing borrowings. Higher finance cost was, to a great degree, counterbalanced by superior other income as MFL gained gain on sale of property, plant and equipment in 2019 which drove other income up by 498 percent. Moreover, the corporation made 110 percent larger exchange gain in 2019 due to constantly dropping value of local currency. The company additionally earned tax benefit on account of installation of rice glucose plant and listing of the company. As a consequence, net profit rose up by 34 percent year-on-year in 2019 to clock in at Rs.412.62 million. EPS grew from Rs.2.95 in 2018 to Rs.3.37 in 2019. NP margin also improved from 4.6 percent in 2018 to 5,24 percent in 2019.

In 2020, MFL’s sales to commercial industry such as hotels, tourism, restaurants etc came to a halt owing to limitation on the movement of persons and commodities on account of COVID-19. Furthermore, the company's export sales in that region were negatively impacted by the shortened Hajj season. On the other, home-based consumption took a massive jump as people started storing food and shopping products internationally. Striking sales in the home-based industry bypassed the weak demand in the commercial industry, culminating into a 44 percent year-on-year topline gain for MFL. However, supply chain disruptions, high freight rates, Pak Rupee devaluation and increase in the costs of imported raw materials led in an increase in the cost of sales which lowered the GP margin from 12.94 percent in 2019 to 11.7 percent in 2020. Then constraints on the transportation of goods, containers shortage and rising ocean freight rates exacerbated export charges and commissions which jacked up the distribution cost by 33 percent year-on-year. Administrative expense inched up by 12 percent year-on-year on account of greater payroll expense as number of employees grew to 809 in 2020. This squeezed OP margin to 4.7 percent in 2020. Finance cost also expanded since discount rates were high in the first three quarters of 2020 paired with higher working capital requirements of the organization. Other revenue couldn’t provide the helping hand either and lost its position by 47 percent year-on-year due to high-base effect. MFL also took a significant hit on the exchange gain front which decreased by 91 percent year-on-year due to excessive volatility of currency rates. Hence, an exceptional topline growth couldn’t trickle down to produce a healthy bottomline which slid by 66 percent year-on-year to register in at Rs.139.44 million with NP margin of 1.2 percent in 2020. EPS also fell to Rs.1.14 in 2020.

2021 proved to be even gloomier for MFL than the previous year as not only did its topline collapse, the bottomline registered a net loss. While the global economy started showing indications of recovery post COVID-19, MFL faced a hard time mustering export sales as freight rates grew by as high as 5 times in most of the export destinations of the company. This adversely hampered the export sales of the company which decreased by 21 percent year-on-year in terms of volume to clock in at 41,066 MT in 2021. This resulted in the small GP margin of 6.3 percent in 2021. Due to fewer travel, sales promotion, and export fees, low export sales lowered the distribution cost by 14% annually. Administrative expense reported 14 percent year-on-year growth on account of greater payroll expense, provision for GIDC as well as elevated fee and subscription charges. In 2021, operating profit fell by 69% on an annual basis, and the operating profit margin shrank to 1.6 percent. Finance cost contracted by 22 percent in 2021 as fewer export orders meant reduced working capital requirements and lesser short-term borrowings paired with low discount rate during the year. Other revenue and exchange gain did exceptionally well over the year but couldn’t sustain MFL’s bottomline in 2021. The company registered net loss of Rs.53.05 million in 2021 with loss per share of Rs.0.43.

The terrible bottomline recorded in 2021 proved to be a transitory as the MFL achieved a tremendous growth in its bottomline in 2021. This occurred on the back of 17 percent year-on-year gain in its net sales in 2022. The margins which had been narrowing since 2019 got back their impetus in 2022. This was on the strength of improved export sales volume (42,114 MT), inventory gains and increase in average prices of rice glucose products. GP margin was recorded at 10.8 percent in 2022 with 102 percent gain in gross profit. Distribution expense soared by 22 percent year-on-year in 2022 on account of greater sales promotion as well as higher export charges and commission. Administrative expense enlarged by 15 percent year-on-year in 2022 on account of higher payroll expense as the number of employees grew from 708 in 2021 to 750 in 2022 and also because of higher taxes, duty and fee paid throughout the year. Operating profit multiplied by 358 percent in 2022 with OP margin increasing up to 6.1 percent. Exchange gain showed year-on-year rise of nearly 200 percent in 2022. However, it was offset by 42 percent higher finance cost on the back of high discount rate and increased short-term borrowings and greater taxation due to the application of super tax. MFL achieved net profit worth Rs448.79 million in 2022 with NP margin of 3.6 percent and EPS of Rs.3.67.

With 61 percent year-on-year gain in net sales, 2023 proved to be the year of financial brilliance for MFL. While the company export off-take slipped to 32,829 MT in 2023, down 22 percent year-on-year, Pak Rupee devaluation and growth in export prices of rice from USD 981 in 2022 to USD 1220 per ton in 2023 considerably enhanced the net sales of the company. This, along with gain in inventory value resulted in 84 percent year-on-year growth in MFL’s gross profit with GP margin achieving its 5-year maximum figure of 12.38 percent in 2023. Distribution and administrative expense mounted by 55 percent and 60 percent correspondingly in 2023. The year-over-year increase in travel expenses, sales promotion costs, and export commission contributed to the elevated distribution expense. The result of increased payroll costs was higher administrative costs since MFL added 219 new hires throughout the year, bringing the total number of HR staff to 969 in 2023. The company's operating profit for 2023 was 105% more than its operating profit for 2022, resulting in an improved operating profit margin of 7.74 percent. Due to a record-high discount rate and an increase in external borrowing during the year, finance costs soared by 205% in 2023. While MFL's other income and exchange gain increased by 171% and 104%, respectively, in 2023, they were unable to counteract the year-over-year impact of increasing financing costs. This paired with increased super tax levied during the year slightly dampened the bottomline growth. MFL's NP margin shrank to 2.8 percent in 2023, while its net profit soared by 25 percent year over year to Rs. 559.94 million with an EPS of Rs. 4.47.

Current Results (1QFY24)

With a 128 percent year-over-year increase in MFL's topline in 1QFY24, the growth trajectory persisted in FY24. This was a result of increased export volume during that time, which totaled 9473 MT, up 39% from the previous year. Rice export prices also dramatically improved from USD 1115 in 1QFY23 to USD.1330 per ton in 1QFY24. During that time, the company also profited from increases in inventories and a stronger US dollar. Moreover, MFL's by-products, Falak food, and corn starch divisions significantly supported its revenues in the first quarter of FY24. However, MFL's 1QFY24 bottomline could not be increased by massive topline growth. The impact of growing gasoline, power, and energy costs resulted in a 143 percent increase in cost of sales for MFL, which caused its GP margin to decline from 17.07 percent in 1QFY23 to 11.83 percent in 1QFY24. Increased ocean freight costs and growing export volume amplified the distribution expenditure by 131%. Due to increased operations to accommodate increasing demand and inflation, administrative expenses also climbed by 47%. Higher operating expenses severely lowered MFL’s OP margin to 7.88 percent in 1QFY24 from 12 percent in 1QFY23. Finance cost continued to increase over the period under review, showing 134 percent spike due to greater discount rate and elevated working capital related borrowings. This resulted in 68 percent smaller net profit in 1QFY24 to clock in at Rs.75.81 million. In 1QFY24, MFL reported EPS of Rs.0.62, down from Rs.1.95 in the same period the previous year. NP margin also declined from 8 percent in 1QFY23 to 1.11 percent in 1QFY24.

Future Outlook

MFL’s products will stay competitive in the export market as import prohibition on Pakistani rice by Russia and Mexico has been abolished. Furthermore, India’s adoption of minimum floor price of USD 1200 per ton on its Basmati rice exports will open further avenues of growth for Pakistani rice exporters. This is probably going to keep MFL's top line strong going forward. Higher sales expenses, freight costs, and financing costs, however, will remain the company's nemesis, cutting into its profit margins.