Rise in topline driven by prices & volumes; Tufted capacity directed towards the local market
ORWE reported a healthy top-line of EGP3,265 mn, a rise of 18.2% YoY and 8.6% QoQ. Export revenues contributed 66% of total revenues, increasing by 16.5% YoY and 7.5% QoQ. Local sales contributed 34%, increasing by 21.5% YoY and 10.9% QoQ.
The rise in local revenues came backed by a 4.6% YoY rise in volumes and a 7.6% rise QoQ. Woven product sales climbed by 19.2% YoY while maintaining flat volumes, while ASP climbed by 18.9%. This rise was mainly backed by demand for Grade B products and by consumers making an early purchasing decision in anticipation of price increases in the local market in general. The tufted products witnessed a strong recovery in sales due to diversifying distribution channels. Sales inclined by 33.5% YoY and 22% QoQ, where volumes climbed by 30.1% YoY and 23.2% QoQ. The non-woven segment sales increased by 25.3% YoY and 5.4% QoQ, despite a drop in volumes of 2.3% YoY and 12.6% QoQ. Average pricing during the quarter climbed by 16% YoY in the local segment, due to an elevated product mix and a new collection with higher price points as well as the price increase of 5% implemented in March.
Export sales recorded EGP2,162 mn, a YoY rise of 16.5% and a QoQ rise of 7.5%. The rise was mainly price-driven as ASP climbed by 20.7% YoY and 9.6% QoQ, while volumes dropped by 3.4% YoY and 1.9% QoQ. The Arab region came as the strongest performing market due to the increasing presence of the company in Saudi Arabia, sales climbed by 51% YoY and 52% QoQ. European sales increased by 34% YoY and 3% QoQ, driven by new product ranges with better margins. US region sales increased by 2% YoY and 3% QoQ. The minimal growth resulted from weakened purchasing power. Tufted export revenues dropped by 17% YoY and 8.4% QoQ, owing to the fact that the US region forms 50% of total tufted export segment revenues which is currently facing a slowdown. Management decided to direct the capacity to cater to the local market, rising the local segment by 36% YoY.
Rising costs weighed heavily on profits; Export rebates counterbalance the pressure
Gross profit recorded EGP357 mn, declining YoY by 25.8% and 16.3% QoQ, leading to a GPM of 10.9% versus 17.4% in 1Q21 and 14.2% in 4Q21. Despite multiple price increases implemented by the company, they lagged the rapidly increasing raw materials cost, leading COGS to climb by 27.4% YoY and 12.7% QoQ. Raw materials contributed the highest annual rise among COGS components by 31% YoY and 7.1% QoQ.
EBITDA for the quarter recorded EGP348 mn, a steep decline of 29% YoY and 17.1% QoQ, backed by heightened SG&A expenses by 21% YoY and 9.2% QoQ with their percentage to sales reaching 4.7%, leading to an EBITDA margin of 10.7%, compared to 17.7% in 1Q21 and 14% 4Q21.
Net interest expenses recorded EGP7 mn, compared to EGP11 mn in 4Q21 and a net interest income of EGP14 mn in 1Q21. Net debt by March 2022 recorded a high of EGP3,395 mn with a breakdown of 60% USD, 10% Euro, and 30% EGP, compared to EGP933 mn by December 2021 with a breakdown of 53.1% USD, 9.4% Euro, and 37.5% EGP, and net cash of EGP247 mn by March 2021.
The rise in net debt was driven by capacity expansion financing where ORWE is currently building a new production facility that will include 22 looms and a carpet finishing area with a total investment cost of USD50 mn. The project will be implemented in 3 stages, the first will include installing 8 looms, the second 8 looms, and the final stage to include 6 looms.
Attributable net profit recorded EGP236 mn, a YoY drop of 21.2%, yet a sequential incline of 4.2%. The drop in bottom-line came as a trickling down effect from heightened production costs and expenses driven by higher raw materials costs and a rise in FX losses to reach EGP65 mn compared to EGP3 mn in 1Q21 and EGP9 mn in 4Q21. This came despite other revenues (export rebates) rallying to reach EGP165 mn, versus EGP10 mn in 1Q21 and EGP17 mn in 4Q21. NPM came in at 7.1%, versus 10.8% in 1Q21 and 7.5% in 4Q21.
Price increases to drive sales despite weak demand; Margins to gradually recover; Export rebates is a bright spot
Despite heightened costs taking a toll on performance, ORWE would still benefit from the currency depreciation when it comes to export market sales value and in turn, export rebates. The heightened net debt levels cast shadows over the bottom line in the middle of a high-interest rate environment and weak local currency as 70% of the current debt levels are in foreign currencies. ORWE expects to end FY22 with a total export rebate within the range of EGP470 mn. As raw material prices cool down towards 2H22, and after passing on the increase in prices to the end consumer, profitability and margins are expected to pick up again and raise profitability, with the support of export rebates.
We expect ORWE to record revenues of EGP13,054 mn by the end of FY22 (+14.5% YoY), to end our forecast period with revenues of EGP15,500 mn by FY26, to witness a 5yr CAGR of 6.3%. Attributable net profit is expected to hit EGP1,062 mn by FY22 with a margin of 8.1%, to end with EGP1,840 mn in FYand a margin of 11.9%, with a bottom-line CAGR of 11.1%. With the implementation of the new export rebates program and increasing export sales by the company, it is expected to end the current year with EGP473 mn, before hitting EGP1,012 mn by FY26.
ORWE is currently trading at a FY22 P/E of 4.4x and an EV/EBITDA of 6.0x.