Image Pakistan Limited

Image Pakistan limited (PSX: IMAGE) was incorporated in Pakistan as a public limited company in 1990. The company was formerly known as Tri-star Polyester Limited. The company changed its name in 2021. The company is engaged in the manufacturing and sale of embroidered fabric, polyester filament yarn and ready-to-wear garments.

Pattern of Shareholding

As of June 30, 2022, IMAGE has a total of 131.640 million shares outstanding which are held by 6572 shareholders. Local general public has the majority stake of 55.65 percent in the company followed by Directors, CEO, their spouse and minor children holding 31.48 percent shares. Other companies account for 8.02 percent shares of IMAGE. Modarbas and Mutual funds have a share of 3.72 percent in IMAGE. The remaining shares are held by other categories of shareholders.

Financial Performance (2018-23)

The topline of IMAGE has shown an incredible growth in all the years under consideration. The bottomline, however, transgresses from this pattern whereby it slid in 2019 and 2020 and then rode an upward trajectory since 2022. Its margins have been oscillating over the period with gross margins and operating margins falling from their optimum level in 2018 to their lowest ebb in 2023. Net margin also boasted its optimum level in 2018, however, bottomed out in 2020 (see the graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.

In 2019, IMAGE, formerly known as Tri-star Polyester Limited, posted 20 percent year-on-year growth in topline which came on the heels of value-added embroidered fabric while the polyester filament yarn business was discontinued during the year. High cost of sales allowed the gross profit to grow by a meager 9 percent year-on-year in 2019 with GP margin falling down to 51.4 percent from 56.86 percent in 2018. Distribution and selling expense posted an enormous 153 percent year-on-year rise in 2019 which is mainly on account of increase in rent expense and utility expense. Administrative expense largely remained in check and grew by a marginal 3 percent year-on-year despite the fact that IMAGE undertook considerable increase in its workforce from 269 in 2018 to 357 in 2019. Operating profit slid by 27 percent year-on-year with OP margin of 19.24 percent in 2019 versus 31.53 percent in the previous year. Finance cost grew by 35 percent year-on-year in 2019 on the back of increase in discount rate during the year. The company’s finance cost mainly comprises of markup on diminishing Musharka finance facility. The rise in finance cost was partially offset by other income recorded during the year as some of the liabilities of the company were written back. However, the bottomline slid by 32 percent year-on-year in 2019 to clock in at Rs.52.67 million with EPS of Rs. 0.93 versus Rs.1.5 in the previous year. NP margin also massively dropped from 24 percent in 2018 to 13.62 percent in 2019.

In 2020, the local as well as global economy was hit hard by the global pandemic. In Pakistan, the lockdown began on the onset of spring-summer season when seasonal buying of fabric and garments is usually on the peak. Due to lockdown, the retail outlets of IMAGE couldn’t open during March-June, however, the topline attained a 4 percent year-on-year growth, thanks to the e-sales performance. The curtailed cost due to lockdown rendered 8 percent year-on-year growth in gross profit with GP margin also ticking up to 53.26 percent in 2020. Operating expenses grew on the back of an increase in advertisement expenses to boost online sales as well as salaries and wages. This pushed the operating profit down by 12 percent year-on-year. OP margin also dropped to 16.16 percent in 2020. Finance cost grew by a mere 2 percent year-on-year in 2020 as the company reduced its diminishing musharka finance facility and acquired more loans from associated parties. Net profit slid by 57 percent year-on-year in 2020 to clock in at Rs.22.41 million with EPS of Rs.0.39. NP margin thinned down to 5.56 percent in 2020.

Poor customer traffic on the outlets in 2020 was reversed in 2021 whereby not only physical sales grew massively but online sales also outshone the last year’s figure owing to company’s continuous effort to make its online sales more seamless and hassle free. The company became the first approved Pakistani seller on Amazon in 2021 which provided further impetus to the e-sales of the company and allowed the company to have access to customers in the UK, the US and Canada. While the topline did a splendid job in 2021 boasting 148 percent year-on-year rise, GP margin considerably shrank to 44.12 percent due to hike in raw materials prices. Distribution expenses soared by 107 percent primarily on the back of an increase in advertisement expense, rent expense and utilities expense incurred during the year. Administrative expense grew by 11 percent year-on-year in 2021 primarily due to higher payroll expense as the number of employees grew from 206 in 2020 to 541 in 2021. Despite higher operating expense, operating profit was able to boast 206 percent year-on-year growth with OP margin rising up to 19.88 percent in 2021. Although downward revisions were made in the discount rate during the year, finance cost expanded by 45 percent year-on-year in 2021 on the back of increased outstanding debt of the company. The bottomline posted a stunning year-on-year growth of 414 percent in 2021 to clock in at Rs.115.10 million with EPS of Rs. 2.02. NP margin also significantly improved to 11.49 percent in 2021.

2022 was characterized by store optimization activities whereby the company opened its stores in the prime locations of the key metropolitan cities and refurbished the existing ones to add further momentum to its in-store sales. The company also expanded its online store. This culminated into a year-on-year topline growth of 37 percent in 2022. The company also significantly revised its prices to absorb high cost of sales on the back of skyrocketing raw material prices, Pak Rupee depreciation as well as elevatedfuel and energy charges. This enabled IMAGE to register 59 percent year-on-year growth in its gross profit with GP margin considerably improving to 51.22 percent. Distribution expenses hiked by 97 percent year-on-year in 2022 on the back of a rise in advertisement budget coupled with increase in salaries of sales force, higher rent expense, maintenance and utility expense. Administrative expense also surged by a whopping 117 percent year-on-year in 2022 on the back of higher payroll expense as HR tally rose to 639 in 2022. Mounted fee and subscription charges, travelling and IT cost also played their role in driving up administrative expense in 2022. Operating profit managed to achieve 6 percent year-on-year growth but OP margin tapered off to 15.36 percent in 2022. The company also made other loss worth Rs. 34.36 million as it booked provisions against NIT units. Despite discount rate ticking up, the company was able to reduce its finance cost by 12 percent on the back of lesser borrowings. IMAGE posted the lowest gearing ratio of 5 percent in 2022 (see the graph of gearing ratio and finance cost). The bottomline posted growth of 51 percent during the year to stand at Rs.174.05 million in 2022 with EPS of Rs.2.06. NP margin improved to 12.66 percent in 2022.

With robust in-store and online sales, IMAGE registered 50 percent year-on-year growth in its net sales in 2023. As IMAGE taps new geographical markets as well as new segments such as formals and semi-formals, its sales growth become more sustainable. While majority of raw materials consumed by the company is locally sourced which keep it insulated from depreciating value of local currency and the recent import restrictions which marred the performance of many local companies, however, towering indigenous inflation didn’t spare the company and increased its cost of sales by 81 percent year-on-year in 2023. While gross profit rose by 20 percent year-on-year in 2023, GP margin clocked in at its 6-year lowest level of 41.08 percent. Distribution expense hiked by 15 percent year-on-year in 2023 on the back of mounting rent expense, utilities expense, E-commerce expense as well as sales force payroll expense. Administrative expense ticked up by 2 percent year-on-year in 2023 as number of employees grew to 878 which increased the payroll expense. Operating profit burgeoned by 44 percent year-on-year in 2023; however, OP margin slumped to 14.68 percent. Finance cost magnified by 21 percent year-on-year in 2023 due to record high discount rate. Net profit grew by 19 percent year-on-year to clock in at Rs.207.80 million in 2023 with EPS of Rs.1.91. NP margin dropped to 10.07 percent in 2023.

Recent Performance (1QFY24)

IMAGE kicked off 2024 on a robust note with 32 percent year-on-year rise in its topline. This was the result of staggering international e-commerce business which is yielding superior margins amid Pak Rupee depreciation. Cost of sales inched up by just 4 percent year-on-year as the company imported new embroidery machines which greatly increased the productivity and reduced cost. Gross profit grew by 64 percent year-on-year in 1QFY24 with GP margin strengthening from 46 percent in 1QFY23 to 57 percent in 1QFY24. Distribution and administrative expense spiked by 16 percent and 9 percent respectively during the period under consideration apparently on account of higher inflation, E-commerce expense, advertisement & promotion and payroll expense. Operating profit boasted a stupendous turnaround of 158 percent in 1QFY24. OP margin also incredibly picked up from 16 percent in 1QFY23 to 31 percent in 1QFY24. Finance cost escalated by 156 percent year-on-year in 1QFY24 on account of higher discount rate and also because of increased long-term loan supposedly for the import of machinery. Bottomline enlarged by 166 percent year-on-year in 1QFY24 to clock in at Rs.132.78 million with EPS of Rs.1.01 up from Rs.0.5 during the same period last year. NP margin doubled during the period from 13 percent in 1QFY23 to 26 percent in 1QFY24.

Future Outlook

IMAGE has identified various strategies to keep itself insulated from economic and political headwinds circling the local economy. Firstly, enthusiastically growing export market and e-commerce sales will keep its topline and margins robust amidst sharp depreciation in Pak Rupee. Secondly, local raw material sourcing will protect its bottomline and margins from exorbitant cost hikes due to declining value of local currency. Thirdly, an equity-dominated capital structure will prevent any massive hike in finance cost due to monetary tightening. Furthermore, IMAGE’s target market is largely immune from economic pressures and have high disposable income. These factors coupled with widespread improvement in the customer experience in terms of product quality as well as shopping experience - both in physical and online sales - will ensure vigoroussales and margins in the coming times.