Buxly Paints Limited

Buxly Paints Limited (PSX:BUXL) first started manufacturing paints in 1933 in undivided India. After partition in 1948, it was the first paint factory set up in Pakistan under the name Buxly Paint Works.

It was incorporated as a private limited company in 1954 and converted into a public limited company in 1985. In 2000, the major shareholders disinvested their shares which were bought by Slotrapid Limited – UK. Berger Paints Pakistan Limited owns 19 percent of Buxly’s shares as well.

Buxly manufactures and sells paints, pigments, protective surface coating, varnishes and other related products under a toll manufacturing agreement with Berger Paints Pakistan Limited, at a specified toll manufacturing fee. Buxly delivers the materials, packing, filling and bulk components, together with other ingredients to Berger Paints Pakistan Limited which in turn processes and packs the products and delivers them back to Buxly or any other designated party as indicated by Buxly. Buxly’s royalty agreement with Berger specifies that the rate of 1 percent of net sales will be given for the use of Buxly’s brand name.

Operational and financial overview

Buxly operates by providing the ingredients to Berger which then produces paint for them. In return they are given a toll fees which in 2017 was about Rs. 17 million or 6 percent of total sales. As a result it does not have any production facilities of its own. However, the volume in litres that Berger delivered increased from 1.1 million in 2016 to 1.5 million in 2017.

The increase in volume of paint is reflected in the increase in turnover which has been increasing steadily. Since 2012, it has more than doubled its sales while its profit after tax has increased 5 times.

This speaks well of Buxly’s overall profitability with both gross profit margins and net profit margins increasing steadily. Though it has outsourced production to Berger, its cost of production is not significantly higher than that of industry heavy weight Berger. Its net profit margins are comparable to that of Berger’s.

As Buxly’s turnover grows, so do its working capital funds requirements which is the reason given for not announcing year end dividends in FY17. However, Buxly has not given out dividends since 2008. Buxly’s other income consists of royalty and rental income from Berger.

1QFY18

Buxly continues its strong trend of increase in turnover in the first quarter of this fiscal year. However, due to an increase in the cost of sales the increase in sales did not result in higher profits with gross profit increasing marginally.

Distribution and selling expenses are the biggest expense eating up Buxly’s gross profit. The bulk of this expense is attributed to salaries and other benefits. Though this expense declined, its affect was nullified by an increase in administrative expenses. This, with increase in financial cost resulted in a lower PAT when compared to the same period last year. Both gross profit margin and net profit margin decreased in 1QFY18 as compared to 1QFY17.

Future outlook

Buxly is a small player in Pakistan’s highly competitive paint sector with turnover of only Rs. 269 million in an industry that is valued upwards of Rs. 30 billion. On one hand there are giants such as Berger and Akzo Nobel and on the other there is a fairly large and flourishing unorganised sector that has the advantage of not paying taxes and selling at substantial discounts. Furthermore, there is competition from imports from China which increased by about 36 percent in FY17 as per SBP’s annual report.

Though part of the decorative paints market, Buxly caters to the specialized sectors by providing products such as epoxies, polyurethanes, and chlorinated rubber. Amidst all this competition, Buxly has held its own by forming close associations with the Pakistan Army, Navy and Air Force. Its products are used to paint coaches that are manufactured by Pakistan Railways.

Buxly names Fauji Fertilizers, Siemens, Pakistan Steel Mills, among others, as its customers and also supplies to local industries of auto parts vendors and motorcycle manufacturers. By establishing its market presence in the industrial and automotive sector rather than the decorative category, it has controlled its marketing costs. Since its production is in the hands of Berger which is known for its quality products, it is respected by its established customers.

Though decorative paints dominate the sector with their share at about 60 to 75 percent, the pressure of competition is more intense than in the industrial and automotive segments. Not only is there more brand awareness, innovation along with environment-friendly products are required.

Given Buxly’s business model and scale of operations, it is doing well by concentrating on industrial and automotive products especially since CPEC is expected to result in an increase in industrial products while car manufacturers are expected to set up in Pakistan. Therefore, Buxly’s future outlook appears to be strong despite its performance being below that of KSE-100.

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Buxly Paints Limited - Latest financials


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Rs mn                              1QFY18   1QFY17    % Chng


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Net sales                            66.4     54.6       21%


Cost of sales                      (53.4)   (41.7)       28%


Gross Profit                         13.0     12.5        4%


Distribution and selling expenses   (8.6)    (9.9)      -14%


Administrative expenses             (2.4)    (1.2)       97%


Operating profit                      2.1      1.4       51%


Other income                          1.0      1.1      -10%


Financial cost                      (0.9)    (0.1)      711%


Other charges                       (0.2)    (0.2)       -7%


Profit before taxation                2.0      2.2       -7%


Taxation                            (0.8)    (0.5)       53%


Net profit after taxation             1.2      1.6      -27%


EPS                                  0.82     1.12      -27%


Gross profit margin                   20%      23%      -14%


Net profit margin                      2%       3%      -40%


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