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 99.538 million shares outstanding which are held by 6,799 shareholders. Local general public have the majority stake of 57.54 percent in the company followed by Directors, CEO, their spouse and minor children holding 31.39 percent shares. Other companies account for 6.42 percent shares of IMAGE while joint stock companies have an ownership of 1.51 percent shares. Banks, DFIs, NBFIs, Takaful, Pension and stock funds hold 1.28 percent shares of the company. Modarbas and Mutual funds also have a share of 1.28 percent in the outstanding shares of IMAGE. The remaining shares are held by other categories of shareholders each having a stake of less than 1 percent in the company.

Performance Trail (2018-22)

The topline of IMAGE has shown a growth momentum in all the years under consideration with 2021 grabbing the limelight with a stupendous year-on-year topline growth of 148 percent. 2020, for all the obvious reasons related to COVID-19 posted a marginal 4 percent year-on-year topline growth. The bottomline, however, transgresses from this pattern whereby it slid in 2019 and 2020 despite topline growth. An analysis of financial statements will reveal the underlying details behind this performance trail.

In 2019, IMAGE, then known as Tri-star Polyester Limited, posted a 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 clocking in at 51 percent from 57 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 expenses. Consequently, operating profit slid by 27 percent year-on-year with an OP margin of 19 percent in 2019 versus 32 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 an EPS of Rs. 0.93 versus Rs.1.5 in the previous year. NP margin also massively dropped from 24 percent in 2018 to 14 percent in 2019.

In 2020, the world economies were 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 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 an 8 percent year-on-year growth in gross profit with a GP margin also ticking up to 53 percent in 2020. Operating expenses grew on the back on an increase in advertisement expenses and salaries and wages. This pushed the operating profit down by 12 percent year-on-year. OP margin also dropped to 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. The net profit slid by 57 percent year-on-year in 2020 to clock in at Rs.22.41 million with an EPS of Rs.0.39. NP margin for the year thinned down to 6 percent.

The 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. 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, the GP margin considerably shrank to 44 percent due to hike in raw materials prices. Operating expenses also soared primarily on the back of an increase in advertisement expense and salaries expense, yet operating income was able to boast a 206 percent year-on-year growth with OP margin rising up to 20 percent in 2021. Although downward revisions were made in the discount rate during the year, finance cost expanded on the back of increase in the 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 an EPS of Rs. 2.02. NP margin also significantly improved to 11 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 72 percent in 2022. However, high cost of sales on the back of skyrocketing raw material prices as well as fuel and energy charges put pressure on the GP margin which narrowed down to 43 percent in 2022 despite a 69 percent year-on-year growth in the gross profit. Operating expenses also grew significantly on the back of a rise in advertisement budget coupled with increase in salaries, rent expense, maintenance and utility expense as well as fee and subscription charges. The operating profit managed to achieve a 23 percent year-on-year growth but OP margin tapered off to 14 percent – the lowest in all the years under consideration. 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 11 percent on the back of lesser borrowings. The bottomline posted a momentous growth of 81 percent during the year to stand at Rs.208.17 million in 2022 with an EPS of Rs.2.37. NP margin slightly improved to 12 percent during the year.

Recent Performance (1HFY23)

During the period under consideration the topline boasted a year-on-year growth of 52 percent. This came on the back of the timely launch of Lawnkari and Printkari collection. The company has also gained a strong foothold in the export markets. While majority of raw materials consumed by the company is locally sourced which keep it insulated from the current import restrictions which marred the performance of many local companies, towering inflation didn’t spare the company and increased its cost of sales by 60 percent during 1HFY23 which narrowed its GP margin to 42 percent from 45 percent in 1HFY22. Distribution expense also grew by 49 percent year-on-year during 1HFY23 while admin and general expenses showed some respite and slid by 4 percent year-on-year. This enabled the operating profit to grow by 64 percent in 1HFY23 with a slight improvement in OP margin from 18 percent in 1HFY22 to 19 percent during the current period. Finance cost marginally ticked up which might be due to bank charges as the company has settled all the liabilities with the bank which saved it from rising discount rate. The net profit boasted a 71 percent rise to clock in at Rs. 172.36 million in 1HFY23 with an EPS of Rs.1.67 versus Rs. 1.32 in 1HFY22. NP margin also boasted an improvement from 15 percent in 1HFY22 to 17 percent in 1HFY23.

Future Outlook

While the country in under severe economic and political headwinds, the company has identified various strategies to keep itself shielded from the storms and keep raising its bar high. Firstly, a vigorously growing export market will keep the topline robust amidst sharp devaluation in Pak Rupee. Secondly, local raw material sourcing will protect its operations from a standstill owing to import restrictions. Thirdly, an equity dominated capital structure will prevent it intense monetary tightening. 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 keep its topline healthy and margins robust in the coming times.