Biafo Industries Limited (PSX: BIFO) was incorporated in Pakistan as a public limited company in 1988 and started its commercial operations in 1994. The principal activity of the company is the manufacturing and sale of commercial explosives and blasting accessories which include detonators and other materials.
BIFO also offers Tovex Water gel explosives including blasters, breakers, coal miners, seismic explosives etc. The company is required to annually renew its license for the manufacturing and sale of explosives.
Pattern of Shareholding
As of June 30, 2024, BIFO has a total of 46.383 million shares outstanding which are held by 1,704 shareholders. General public holds 29 percent of BIFO’s shares followed by directors, CEO, their spouse and minor children holding 24.70 percent shares.
Joint stock companies have 1.64 percent stake in the company while mutual funds hold 1.03 percent shares. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-23)
BIFO’s topline slid in 2019, 2021 and 2024 and grew in the remaining years under consideration. Conversely, its bottomline posted year-on-year growth only in 2021 and 2023. The company’s margins fell until 2020 followed by an improvement in 2021.
The margins slumped again in 2022 and then rebounded in 2023. In 2024, BIFO’s margins ticked down with OP and NP margin hitting their lowest level. The detailed performance review of the period under consideration is given below.
In 2019, BIFO’s topline eroded by 16.56 percent to clock in at Rs. 1409.58 million. This was on account of sluggish economic activity. Blasting activity of on some of the existing large road construction projects were completed during the year with slow momentum for ongoing and new orders as the government didn’t initiate any new infrastructure project during the period.
Increase in the prices of imported raw materials coupled with Pak Rupee depreciation resulted in 28.18 percent decline in gross profit with GP margin sliding down from 50.18 percent in 2018 to 43.19 percent in 2019. Operating expense inched up by 2.70 percent in 2019 on account of slightly higher payroll expense incurred during the year.
BIFO curtailed provisioning for WWF and WPPF during the year which trimmed its other expense by 49.18 percent in 2019. Other income registered a drastic 88.41 percent decline in 2019 as the company didn’t record any gain on re-measurement of investments at FVTPL.
Consequently, operating profit nosedived by 37.95 percent in 2019 with OP margin falling down from 40.63 percent in 2018 to 30.22 percent in 2019. Finance cost mounted by 175 percent in 2019 on account of higher discount rate.
However, it was conveniently counterbalanced by finance income which largely included dividend income and exchange gain. Net profit tumbled by 32.43 percent year-on-year in 2019 to clock in at Rs.359.89 million with EPS of Rs.10.33 versus EPS of Rs.20.17 registered in 2018. NP margin also slipped from 31.53 percent in 2018 to 25.53 percent in 2019.
In 2020, BIFO’s net sales improved by 12.55 percent to clock in at Rs.1,586.55 million. Blasting activities in some of the existing large scale construction projects gained momentum during the year, however, other sectors continued to remain sluggish due to economic slowdown.
Hike in the prices of imported raw materials as well as currency depreciation resulted in 7.40 percent drop in gross profit with GP margin shrinking to 35.53 percent. Operating expense spiked by 15.35 percent in 2020 on account of higher sales commission and payroll expense incurred during the year.
Other expense dropped by 10.21 percent in 2020 due to lower profit related provisioning booked during the year. Other income also dropped by 3.50 percent in 2020 on account of lower rental income recognized during the year.
BIFO also booked allowance for ECL worth Rs.33.23 million in 2020. As a consequence, operating profit dropped by 23.69 percent in 2020 with OP margin contracting to 20.50 percent. Finance cost ticked up by 13.22 percent in 2020 due to higher discount rate for most part of the year.
Conversely, finance income which largely comprised of dividend income and exchange gain dropped by 47.62 percent in 2020. BIFO’s net profit slumped by 31.68 percent year-on-year in 2020 to clock in at Rs.245.87 million with EPS of Rs.6.41 and NP margin of 15.50 percent.
BIFO’s net sales which showed improvement in 2020, inched down by 7.17 percent to clock in at Rs. 1,472.77 million in 2021. While export sales and supplies to cement sector and Saindak copper and gold mining projects increased while supplies to rest of the sectors decreased due to economic slowdown. The company was able to cut down its cost by 11.15 percent in 2021 owing to cost control measures.
This resulted in a slight improvement in gross profit with GP margin rising up to 38.29 percent in 2021. Operating expense declined by 0.91 percent in 2021 owing to significantly lower sales commission which was partially offset by higher payroll expense incurred during the year. Provision for WWF and WPPF collectively slumped by 2.20 percent in 2021. During the year, the company booked reversal of Rs.6.08 million on ECL versus allowance recorded in the previous year.
Operating profit rebounded by 13.52 percent in 2021 with OP margin mounting to 25 percent. Finance cost ticked down by 24.86 percent in 2021 due to monetary easing despite the fact that BIFO’s outstanding borrowings significantly multiplied during the year.
Finance income also shrank by 73.65 percent in 2021 due to lower dividend income, lesser gain recorded on re-measurement of investment through FVTPL and no exchange gain recognized during the year. Net profit picked up by 3.32 percent in 2021 to clock in at Rs.254.04 million with EPS of Rs.5.48 and NP margin of 17.25 percent.
BIFO’s net sales registered decent 13.26 percent year-on-year growth in 2022 to clock in at Rs.1668.10 million. This was on account of increased supplies to Oil & Gas and construction sectors. Surge in the prices of imported raw materials as well as deteriorating local currency drove cost of sales up by 19.51 percent in 2022. This resulted in paltry 3.20 percent uptick in gross profit while GP margin leveled down to 34.89 percent in 2022.
Operating expense multiplied by 13.63 percent in 2022 due to higher payroll expense and sales commission expense incurred during the year. BIFO increased its workforce from 219 employees in 2021 to 232 employees in 2022. Profit related provisioning also grew by 17 percent in 2022. Other income inched up by 2.67 percent in 2022 due to higher rental income. Operating profit dwindled by 5.92 percent in 2022 with OP margin dropping to 20.81 percent.
Finance cost mounted by 32 percent in 2022 due to monetary tightening as well as increased external borrowings obtained during the year. However, it was offset by 463.91 percent higher finance income recognized in 2022 which was the result of hefty exchange gain on export sales amid Pak Rupee depreciation. Higher effective tax rate due to deferred tax impact and imposition of super tax pushed the bottomline down by 2.48 percent in 2022 to clock in at Rs.247.73 million with EPS of Rs.5.34 and NP margin of 14.85 percent.
In 2023, BIFO posted the highest ever growth in its net sales to the tune of 62.65 percent. Net sales clocked in at Rs. 2713.10 million in 2023. During the year, the company targeted export sales and entered Africa as a niche market. Robust sales were made to North Sudan during the year.
Rebound in sales volume as well as increased prices resulted in 103.44 percent improvement in gross profit in 2023 with GP margin rising up to 43.64 percent. Operating expense escalated by 18.85 percent in 2023 due to higher payroll expense as well travelling & conveyance charges incurred during the year. Provisioning for WWF and WPPF registered 140.85 percent growth in 2023. 58.40 percent surge in other income in 2024 was due to reversal of WWF and miscellaneous income earned during the year.
Net impairment loss on financial assets multiplied by 1314.16 percent in 2023 to clock in at Rs.68.12 million. BIFO was able to register 134.40 percent year-on-year rise in its operating profit in 2023 with OP margin mounting to 30 percent. Finance cost built up by 7.60 percent in 2023 due to high discount rate despite the fact that BIFO curtailed its outstanding borrowings during the year.
Sizeable exchange gain due to increased export sales resulted in 35.17 percent higher finance income in 2023 which offset the finance cost. Imposition of super tax drove up tax expense for the year by 122.64 percent in 2023. Net profit magnified by 145.30 percent in 2023 to clock in at Rs.607.68 million with EPS of Rs.13.1 and NP margin of 22.40 percent.
In 2024, BIFO recorded 11.35 percent slide in its topline which was recorded at Rs.2405.08 million. During the year, sales to mining, cement and mining export processing sectors improved, however, lower demand from other sectors including Oil & gas exploration sector took its toll on the net sales of the company in 2024. Cost of sales slid by 9.13 percent in 2024, resulting in 14.23 percent thinner gross profit recorded during the year. GP margin ticked down to 42.22 percent in 2024.
Operating expense surged by 21.76 percent in 2024 due to higher payroll expense, business development expense, sales commission, legal & professional charges as well as travelling & conveyance expense incurred during the year. Lesser provisioning booked for WWF and WPPF resulted in 58.56 percent lesser other expense incurred during the year. Other income also plunged by 14.98 percent in 2024 due to no miscellaneous income recorded during the year.
Net impairment loss on financial assets registered a massive surge of 296 percent in 2024 due to amount overdue from a customer in Africa. BIFO’s operating profit dwindled by 47.92 percent in 2024 with OP margin hitting its lowest level of 17.62 percent. Finance cost escalated by 43 percent in 2024 due to monetary tightening.
Unlike last year, finance income was not strong enough to absorb the finance cost. Finance income thinned down by 67.22 percent in 2024 as the company didn’t record any exchange gain. Net profit shrank by 51.45 percent to clock in at Rs.295.03 million in 2024. This translated into EPS of Rs.6.36 and NP margin of 12.27 percent.
Recent Performance (9MFY25)
During 9MFY25, BIFO’s net sales ticked up by 4.56 percent year-on-year to clock in at Rs.2,198.51 million. During the period under consideration, sales to oil & gas exploration, mining and other large projects increased due to improvement in the economic activity.
The company also signed a contract with the Riqo Diq mining company for the supply of explosives and blasting services. The civil work for Riqo Diq is expected to commence by the end of FY25. During 9MFY25, supply to export sector decreased. Cost of sales mounted by 24.26 percent in 9MFY25 which resulted in 19.16 percent thinner gross profit recorded during the period.
GP margin drastically fell from 45.36 percent in 9MFY24 to 35.07 percent in 9MFY25. Operating expense escalated by 16.54 percent during the period seemingly on the back of higher payroll expense and sales commission incurred. Lower provisioning done for WWF and WPPF resulted in 3.91 percent downtick recorded in other expense in 9MFY25. Other income strengthened by 41.16 percent in 9MFY25 apparently due to reversal booked against ECL.
Net impairment loss booked on financial assets also dropped by 91.62 percent in 9MFY25. BIFO recorded 9.84 percent decline in its operating profit in 9MFY25 with OP margin clocking in at 22.10 percent versus OP margin of 25.63 percent recorded in 9MFY24. Finance cost tapered off by 63.43 percent in 9MFY25 due to monetary easing.
Finance income also ticked down by 18.65 percent in 9MFY25 seemingly due to no exchange gain recorded during the period. BIFO recorded 30.48 percent plunge in its net profit which clocked in at Rs.280.59 million in 9MFY25. This translated into EPS of Rs.6.05 recorded in 9MFY25 versus EPS of Rs.8.70 recorded in 9MFY25. NP margin also contracted from 19.20 percent in 9MFY24 to 12.76 percent in 9MFY25
Future Outlook
Going forward significant improvement in supplies to oil & gas and mining sectors will continue to add to the BIFO0’s sales volume. The company’s plans to expand in East Africa, Central Asia and other targeted regions will also add depth to its sales mix. Capital expenditures lately done to adopt latest technology and enhance manufacturing capacity will also add to the company’s operational efficiency and squeeze the cost.
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