Mitchell’s sees most profitable quarter since 2021

Mitchell’s, under the leadership of Najam Sethi, has navigated a tumultuous journey since his takeover. However, the recent unveiling of their quarterly results for the second quarter of 2024, ending in December 2023, has sent ripples of astonishment through the market, marking the company’s most profitable quarter since 2021, with a net profit of Rs 67 million.

Despite a decline in sales from Rs 856 million in the same quarter of the previous year to Rs 707 million this year, Mitchell’s has displayed adept management of expenses. Notably, the gross profit margin surged from 28% to 30% year on year, and the operating profit margin rose from 9.5% to 12.6% over the same period. The company also tightened its administrative expenses, decreasing from 18% to 17%.

However, a notable setback was the doubling of finance costs, escalating from 2.2% to 3.7%, attributed to higher interest rates prevailing in the economy. The decrease in administrative costs came after the company considerably cut down on its marketing and distribution expenses.

“Due to these efforts, the margins have registered a healthy growth, admin costs have been rationalised and distribution expenses have been drastically brought down. The cost of financing is at its peak in the country which is the reason for the phenomenal increase in finance costs. On the other hand, due to cashflow challenges, we have not been able to undertake any major marketing advertisement activity which is essential for attaining volume growth. Due to this, volume decrease in local sales is more as compared to export sales which remain steadier at over USD 1 Million level during this period,” read the latest director’s report.

Furthermore, Mitchell’s witnessed a significant uptick in other income, soaring from Rs 8.5 million to Rs 22 million, while simultaneously reducing other operating expenses from Rs 20 million to Rs 7 million. Consequently, the net profit margin experienced a remarkable surge from 4.7% in the second quarter of 2023 to 9.5% in the recent quarter. This improvement was mirrored in the earnings per share (EPS), escalating from 1.77 per share to 2.95 per share.

 Profit in an earlier report stated that the fluctuating efforts of Sethi as the CEO with glimpses of hope discernible in the quarterly results of 2023, sparking anticipation of a potential shift in the company’s trajectory come the new fiscal year.

During the first quarter of 2024, Mitchell’s secured a profit of Rs 11.1 million, with a gross profit margin of 24.9%. Despite this, the earnings per share (EPS) remained modest at Rs 0.49. However, projections indicate an expected EPS of approximately Rs 2 by the end of the fiscal year.

Following the release of the recent quarterly results, Mitchell’s, yet again, witnessed a notable surge in its stock price, soaring from Rs 132 on February 7 to Rs 171 on February 29, the day the results were disclosed. This remarkable increase sparked speculation regarding a potential sale, which was swiftly quelled by an insider from the company, attributing the rise solely to the commendable performance of Mitchell’s.

Building on the momentum, the company plans to layoff redundant assets and generate additional cashflows. 

“With a view to inject some much-needed capital into the business, addressing working capital shortages and reduce the interest costs, the company, with Board approval, entered into a sale agreement on 15 January 2024 to sell a portion of its land. The transaction is expected to complete in March 2024, with the first tranche of the money received in January. The piece of land being sold was not adding any value to the company, the price obtained was excellent and whilst being less than 15% of total company land, sets an attractive realised benchmark valuation for the residual 39+ acres which are not valued on our balance sheet,” the directors emphasised in the quarterly report. 

The Sethi factor

Since 2020, Mitchell’s fortunes have been run by one man in varying capacities: Najam Sethi as the Chairman and as the CEO. In 2020, net sales stood at Rs 2.1 billion, while cost of sales stood at Rs 1.7 billion. Consequently, net loss stood at Rs 55 million.

The next year, in 2021, Mitchell’s actually managed to experience a bright spot. Net sales increased to Rs 2.2 billion, while cost of sales stayed around the Rs 1.7 billion mark. Additionally, a slight dip in administrative costs that year meant that Mitchell’s just managed to scrape a profit of Rs 10.4 million.

2022 proved to be the worst year in Mitchell’s history. Net sales slightly increased to Rs 2.4 billion, but the cost of sales ballooned to Rs 2.3 billion. Other costs like distribution costs and administrative expenses also ballooned, leading to a net loss of Rs 622 million – the greatest in the company’s history.

After this, Sethi took charge as CEO and according to the annual report 2023, in the first quarter, the company experienced a loss of Rs 98 million. Following his ascension, the subsequent two quarters showed profitability: profit in the second quarter stood at Rs 40.5 million, and in the third quarter stood at Rs 32.4 million.

However, despite the positive trajectory in the second and third quarters, the company faced challenges in the last quarter with a loss of around Rs 34 million. The year’s total annual loss stood at Rs 59 million. The good news was that the revenue went up to Rs 2.7 billion, and gross profits managed to rise from Rs 193 million in 2022 to Rs 648 million in 2023. 

Mitchell’s underwent a turbulent phase in 2018 when the family-owned company contemplated a sale due to internal discord and management issues, enlisting Habib Bank Ltd as sell-side investment bankers. By July 2019, negotiations with Bioexyte Foods, a subsidiary of Getz Pharmaceuticals, to assume management control of Mitchell’s were nearing fruition. However, the onset of the coronavirus pandemic in early 2020 resulted in the collapse of the deal. Consequently, Mitchell’s stock price, which had surged by 77% during the deal announcement to Rs 345 per share, witnessed a steep decline post-collapse, albeit remaining slightly above pre-announcement levels.

Najam Sethi’s tenure as CEO has been marked by strategic pricing revamps and a meticulous overhaul of revenue streams, propelling Mitchell’s into a marginally healthier financial standing.