· TREET group is one of the most diversified companies in Pakistan with 8+ businesses across different sectors (Blades & Razors, Batteries, Soaps, Corrugated Packaging, Hemodialysis Concentrate, Motorcycles, Chemical trading, and Radiators) with FY20 annual revenue over PKR 13 billion.
· Treet corporation is the only manufacturer and hence, the market leader in the Shaving Blades & Razors segment in Pakistan with approximately 85-90% market share in this category. The current capacity of blades and razors is 2.2 billion. In order to cater to the export demand, company intends to increase its hygiene razors capacity by approximately 25% which is expected to come online by Oct’21.
· The company has a fully automated & integrated battery production facility in Pakistan and can expand production capacity from 1.5 million batteries per annum to 3.0 million batteries per annum in Phase-2. The existing building infrastructure is sufficient for 5.0 million units per annum.
· Management believes battery business can become profitable in the upcoming quarters because: i) battery market is growing by double digits annually, ii) car battery market is growing by 10% per annum, iii) truck and buses battery market is growing by 4% per annum, iv) tractor battery market is growing by 5% per annum, v) exponential growth in solar energy installation, and vi) electric vehicle policy bodes well for battery manufacturers.
· Currently they have an agreement with KIA and Hyundai for supply of batteries making them their sole battery supplier. Going forward, the management plans to start supplying batteries to other/new automobile companies as well.
· Although there is a decline in packaging business margins, there has been a change in business strategy from high volume low margin product to low volume high margin product whereby the management expects margins of this segment to improve, going forward.
· Soap segment margins dropped due to abrupt increase in prices of raw material.
· Renacon Pharma is the pioneer producer and market leader of Hemodialysis Concentrates having local market share of more than 65%. The company is setting up a new facility of Renacon Pharma to overcome capacity constraints which will enhance capacity by 8 times. Company expects the new facility to come online by end of FY22. Renacon Pharma also launched RenaCare (Hand Sanitizers) & RenOxid (Disinfectants).
· Management also shared their strategic plans going forward, such as: i) Reprofiling of debt of Treet so as to reduce debt burden, ii) Capital restructuring of FTMM and spinning of battery segment from FTMM to separate entity, and iii) resumption of work on new facility of Hi-Tech Alloy Wheels and Renacon Pharma.
· Company also sold its Educational business (Global Arts limited) at a price of PKR 2.7 billion to pay off its debt to bring down debt to a sustainable level.
· Current borrowing of FTMM stands at PKR 11bn (PKR 4 billion from banks and PKR 7.4 billion from Treet). Management is planning to convert PKR 7.4 billion loan into long term investment which will increase current shareholding in FTMM.
· Management has also taken some key measures to improve profitability including: i) Retail price revision, ii) revised costing method to create more margins, iii) increase sales volumes through better market planning, and iv) exploring new opportunities with upcoming car OEMs.
· Management is arranging financing for Hi-Tech alloy wheels project and currently is in discussion with a foreign investor for private placement of equity. This project will take 6 months time to complete once the financing is arranged. Management believes this new facility will come online by 4QFY22. With this, Hi-tech alloy wheels will be the only plant in Pakistan to manufacture alloy wheels locally with a capacity of 600,000 per annum. It is expected that preference will be given to locally manufactured alloy wheels by OEMs operating in Pakistan as this will result in approximate saving of 40% over the imported.
Courtesy – AHL Research