20000314

Brief recordings

BY SCANNER

Huffaz Seamless Pipe Industries Limited

Overview

This engineering sector enterprise based in Nooriabad Industrial Estate has suffered massive loss at Rs 29.12 million. Although the losses have been curtailed from the preceding year's loss at Rs 76.48 million. Basically the marketing department has enhanced its profile by aggressive thrust in sales and also in exports. But finance department could not contain the exorbitant financial cost despite the better dialogue with the banker. The company has acquired ISO 9001 & API-SL certifications. The directors have rightly visualised that "it has become feasible now to export our products. We are now, exporting our products to Saudi Arabia, Syria, Kuwait, Bangladesh, Singapore and USA." Although sales increased to Rs 228.56 million by 22.76 million by 23% but cost of sales escalated beyond proportion to sales growth. So gross margin stagnated.

--------------

The company was incorporated as a public limited company. Its registered office is located in the province of Punjab. Its manufacturing facilities are located in the province of Sindh at Nooriabad Industrial Estate Distt. Dadu.

The 10-rupee share in Huffaz Seamless Pipe Industries Ltd. was listed at Karachi Stock Exchange in 1985. The last 6-year highest price of the share was quoted in 1994 at Rs 16.75 while the lowest price at Rs 3.50 was recorded in 1998.

During the financial year 1998-99, which is the period under review, the share price remained within the band of Rs 2 and Rs 4.50. It's shares are quoted also at the Lahore Stock Exchange. At present the share is trading at Rs 4.25 around the price prevalent around the last financial year. It may be also mentioned here that the yearly lowest prices of its share has remained much below the par value since 1994: The present price carries 57% discount to its par value.

Since 1994, the company has paid dividend twice, once in 1995 at 10% and the other year in 1997 at 15%. The shareholders, majority of whom are individual investors, have not received even a modest compensation for investment in their equity investment in the Huffaz Seamless Pipe.

In the categories chart of the company's shareholders, there were total 1,523 shareholders of the company while their aggregate holding of the company's stock was to the extent of 87.45% of total Rs 122 million share capital. Among the institutional investors there were three investment companies who held 5.91% of the company's stock and these organisations were the largest category among the institutional shareholders.

In addition to the share capital, the sponsors, have injected funds in the enterprise to the extent of Rs 11.16 million as unsecured advance to the company and no mark-up was charged on the liability.

The manufacturing facilities have been established used for seamless steel pipes and tubes (tubular products). The unit has annual rated capacity of seamless products, special precision shafting as well as machinery and machinery components. The company produced 5,629 metric tonnes of tubular products during financial year 1998-99 under review. Output of this product range increased from the previous year's output of 5,102 metric tonnes and thus registered increase of 10.3% pushing up the capacity utilisation to 17.6% (1997-98: 15.9%).

In the department of the special precision shafting, the company did not undertake any production activity during the year. In this product range the annual production capacity has been designated at 30,000 metric tonnes. Last year the production in this department was not that significant so the capacity utilisation remained low only upto 800 metric tonnes. The capacity utilisation works out to only 2 to 3%. The company also manufactured machinery and machinery components and produced only 572 metric tonnes against 490 metric tonnes in the previous year. Against the annual rated capacity of 3,500 metric tonnes the utilisation of the capacity was to the extent of 16.34% compared to 14% in the preceding year. The notes annexed to the account stated about lower production activity due to "lesser demand of seamless products at viable price because of current economic conditions prevailing in the country."

Chief Executive Hafiz Abdul Majid has given the information that they are exporting their products. He stated:

"International Certification Ñ as has been reported in previous year's Annual Report, we have had quite bit of success in exploring foreign markets for seamless pipe/tubes. Due to acquiring ISO 9001 and API-SL certificates, it has become feasible now to export our products. We are now exporting our products to Saudi Arabia, Syria, Kuwait, Bangladesh, Singapore and USA."

The company has been suffering massive losses, during the last two years. So the balance sheet position is not that happy one. There appears to be weaker liquidity position as depicted by current ratio of 0.68. However after clubbing together the sponsors advances with the eroded equity the comfort in long term debt coverage is enhanced, shaping the debt/equity ratio to 16:84 as against the benchmark ratio of 60:40.

Sales during the year, in terms of value made a quantum jump at 22.7% to Rs 228.9 million from Rs 186.2 million generated in the preceding year. But due to higher cost of sales the gross profit stagnated at Rs 38.6 million which is a figure identical to the last year's.

The company suffered again massive loss after taxation at Rs 29.12 million which created an ugly situation on the equity base. It was already carrying last year's loss of Rs 76.48 million. The company's massive loss was triggered by its large financial charges.

This situation of financial charges has created bitter dialogue between the company and their banker. The Chief Executive reported, "the bank has charged extraordinarily excess mark-up unilaterally and against their own commitment."

--------------

Performance Statistics (Million Rupees)

June 30 1999 1998

Capital & LiabilitiesÉÉÉ

Paid-up Capital: 122.00 122.00

Reserves: Ñ 2.00

(Loss)/Unapp. Profit: (21.80) 5.32

Equity: 100.20 129.32

Sponsors Advance: 11.16 11.16

L.T. Lease Finance: 21.23 35.66

Deferred Liabilities: 15.57 15.07

Current Liabilities: 494.54 526.54

AssetsÉÉÉ

Fixed Assets Ñ Tangible: 299.05 276.44

L.T. Deposits: 6.08 5.85

Current Assets: 337.57 435.46

Total Assets: 642.70 717.75

Sales, Profit & PayoutÉÉÉ

Sales ÑÊNet: 228.56 186.17

Gross Profit: 38.63 38.47

Operating Profit: 23.80 23.22

Other Income: 0.25 0.39

Depreciation: 19.99 22.11

Financial Charges: 52.03 99.16

(Loss) Before Taxation: (27.98) (75.55)

(Loss) After Taxation: (29.12) (76.48)

Financial RatiosÉÉÉ

Share Price (Rs) 1/3/99: 4.25 Ñ

Book Value Per Share (Rs): 8.21 10.60

Price/Book Value Ratio: 0.52 Ñ

Debt/Equity Ratio: 16:84 25:75

Current Ratio: 0.68 0.82

Asset Turnover Ratio: 0.35 0.25

Gross Profit Margin (%): 16.90 20.66

Operating Margin (%): 10.41 12.47

Net Profit Margin (%): (12.74) (41.08)

EPS (Rs): (2.39) (6.26)

Price/Earning Ratio: (Ñ) Ñ

R.O.E. (%): (Ñ) (Ñ)

R.O.A. (%): (Ñ) (Ñ)

R.O.C.E. (%): (Ñ) (Ñ)

Plant Capacity & Production (Metric Tonnes)ÉÉÉ

A) Seamless Tubular ProductsÉÉÉ

Capacity: 32,000 32,000

Production: 5,629 5,102

Capacity Utilisation (%): 17.59 15.94

B) Special Precision ShaftingÉÉÉ

Capacity: 30,000 30,000

Production: Ñ 800

Capacity Utilisation (%): Nil 2.67

C) Machinery & Machinery ComponentsÉÉÉ

Capacity: 3,500 3,500

Production: 572 490

Capacity Utilisation (%): 16.34 14%

--------------

Company information: Chairman: Yosuf Mohammad Yosuf Najibi. Chief Executive: Hafiz Abdul Majid. Company Secretary: Abdul Hafeez Khan. Registered Office: 100-J, Model Town, Lahore. Head Office: Gulshan-e-Iqbal, Karachi. Factory: 90 km, Super Highway, Nooriabad Industrial Estate, Distt. Dadu (Sindh)