Dipped Products Dec. quarter in red as margins compress

Hayleys group rubber glove manufacturing unit, Dipped Products PLC (DIPD) reported a net loss of Rs.78.9 million for the quarter ended December 31, 2015 from a net profit of Rs.326.2 million due to contraction in top line, the interim results showed.
The loss per share was Rs.1.32. However the Dipped Products share gained by 10 percent or by 10 cents to Rs.96.90 at Wednesday’s close.
The top line has declined by 19 percent year-on-year (yoy) to Rs.5.04 billion as the competition as low cost substitutes in the international markets have compressed the profit margins hitherto fetched by the company’s gloves.
DIPD once used to be the first and the only choice of  international buyers. But the company now operates in an environment where a number of low cost suppliers have emerged. At the same time, buyers also appear to have reduced their dependency on a single supplier after the Rathupaswala incident delayed their orders.

Further, the overheads are also weighing on the bottom-line as the company now operates with an over capacity due to irrational expansion of plants since the alleged Rathupaswala water contamination issue forced the company to shift its factory into the industrial processing zone in Biyagama.
Factory in Biyagama too operates under its optimal capacity but the carrying costs of new factories are high and the depreciation charges during the initial years are generally higher.
The cost of sales however declined by 15 percent yoy to Rs.4.2 billion while the gross profit is down by 34 percent yoy to Rs.810.4 million.
The distribution cost is 14 percent higher than the corresponding quarter of last year.
DIPD, which exports a lion’s share of its products to Europe and the United States, has been looking for new markets to maintain revenues. The Middle East is one such new market the company has entered into.
DIPD manufactures and exports industrial, general purpose and medical gloves and is the leading supplier to the global market.
Meanwhile, the company took Rs.1.19 billion worth of fresh long-term borrowings during the nine months to December 30, 2015. The value of fixed assets rose by Rs.1.9 billion.
For the nine months ended December 31, 2015, the DIPD group posted a net profit of Rs.75.3 million against a net profit of Rs.852.2 million for the same period last year.
The earnings per share took a steep fall to Rs.1.26 from Rs. 14.24 a year ago.
The top line for the nine months saw a 25 percent contraction to Rs.15.99 billion while the gross profit fell 34 percent to Rs.2.38 billion.
As at December 31, 2015 Hayleys PLC held 42.12 percent stake in DIPD. The state-controlled private sector pension fund, Employees’ Provident Fund held 12.76 percent as the second single largest investor.