IBRAHIM FIBRES LIMITED

Ibrahim Fiber Limited, formerly known as Ibrahim Agencies, started off as a mere cloth trading agency following the partition of the subcontinent. Over the years, as the company's business interests diversified, it successfully expanded its areas of operations and earned itself a reputable position in the industry.
After the mid-fifties, the company also ventured into yarn trading. In the eighties, manufacturing of in-house blended yarn was initiated through the establishment of Ibrahim Textile Mills Limited. In 1982, A.A. Textiles Limited was established; in 1987, Zainab Textile Mills Limited; and in 1991, Ibrahim Energy Limited, a power generation company was added to the corporate portfolio.
All these manufacturing companies have now been merged into Ibrahim Fibres Limited. The principal business of the company, however, is manufacture and sale of polyester staple fibre (PSF) and yarn.
Under the BMR plan, IFL replaced its textile plants with latest European machinery. Further plans for the modernisation of the textile plants are underway. Also, in the wake of increasing PSF demand, the IFL has undertaken the task of expanding its polyester plant, the terms of which have already been agreed upon.
All the manufacturing units of the company are located in Faisalabad, the industrial hub of the country.
Sales Revenue Sales revenue at IFL continued to show the upward trend it started in FY07, increasing by a whopping 23 percent in FY10 as opposed to 2.4 percent in FY09.
One of the major reasons for this colossal increase was an increase in the sales volume of PSF which improved by seven percent in FY10. This was helped by increase in the import of yarn by China and an increase in global cotton prices. However, IFL could not fully avail the benefit from the increased PSF demand owing to the shutdown of the polyester plant for two months for maintenance purposes. Growth in revenue was also helped by a 1.55 percent increase in the sale of yarn in FY10.
Cost of Sales The cost of goods sold in FY10 shot up to Rs 24.37 billion from Rs 19.75 billion in FY09. This jump of 23.4 percent is in sharp contrast to a paltry growth of two percent in cost of sales in FY09
Gross profit margin The handsome growth in sales revenue more than offset the spike in cost of sales in FY10. The company, in effect, registered an increase of 19 percent in its gross profits in FY10, compared to an increase of only 5.7 percent in FY09, and a stellar 34 percent in FY08.
The gross profit margin, on the other hand, decreased slightly to 10.1 percent in FY10, compared to 10.5 percent in FY09. This drop was mainly due to the increase in consumption of stores and spares and higher maintenance cost incurred during February-March shutdown of the Polyester plant.
Operating expenditures Sales and distribution expenditures remained pretty much stable as a percentage of revenue. Revenue growth during the year compensated for the considerable increases in salaries and benefits, and freight and forwarding expenditures.
On the other hand, the cumulative administrative expenses increased by 18 percent over previous year. Significant declines in advertisement expenses and legal & professional fees could not cover for the massive increase in other administrative expenditures like the increases in rents, rates and taxes, and repairs and maintenance expenses. Also, in FY10, the other operating expenses of IFL rose by a large amount from Rs 25 million to Rs 113.5 million.
Other Operating Income Other operating income for the FY10 showed a remarkable increase, rising from Rs 77.1 million in FY09 to Rs 201 million in FY10.
Operating Profit Margin The operating profit of IFL increased by 15.7percent in FY10, compared to an increase of 5.14 percent in FY09 and 39.8 percent in FY08. However, owing to higher expenditures, the operating profit margin declined to 7.84 percent in FY10, compared to 8.33 percent in FY09 and 8.11 percent in FY08.
Finance Costs After facing a massive 59.2 percent increase in finance cost in FY09, IFL brought down the same by nine percent in FY10.
Net Margin Despite cost overruns, the company managed to more than double its bottom-line in FY10 compared to FY09, thanks mainly to almost Rs 3 billion in profits received from associated companies. Consequently, IFL's net margin rose to 12.39 percent in FY10, from 7.37 percent in FY09 and 7.34 percent in FY08.
Liquidity Management The current ratio of IFL for FY10 has slightly improved to one which is the highest compared to the five year average of 0.8 to 0.9. This improvement suggests that short run liquidity may not be a problem for the company. This improvement in liquidity is mainly due to the decrease in current liabilities of the company over the preceding two years.
Debt Management IFL's debt-to-asset ratio for the year FY10 decreased to 0.44, from 0.55 in FY09. The debt service ratio of IFL is 1.4 in FY10, 1.1 in FY09 and 1.4 in FY08
Profitability Since net sales in FY10 were greater than the increase in the costs, the higher profits led to an increase of 60 basis points in the company's return on capital, which stood at 9.8 percent in FY10. However, it is still lower than what it was in FY08 at 10.7percent. The return on equity rose to 22.1 percent in FY10, an improvement of 840 basis points over the preceding year.
Market Value Owing to a strong bottom-line, IFL's EPS jumped to Rs 10.8 in FY10, from Rs 5.2 in FY09.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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