Ibrahim Fibres Limited (PSX: IBFL) was incorporated in Pakistan as a public limited company in 1986. The company is engaged in the manufacturing and sale of Polyester staple fibre (PSF) and yarn. Ibrahim Holdings (Private) Limited is the parent company of IBFL.
Pattern of Shareholding
As of December 31, 2023, IBFL has a total outstanding share volume of 310.507 million shares outstanding which are held by 1995 shareholders. Ibrahim Holdings (Private) Limited, the parent company of IBFL holds 91.62 percent of its shares followed by local general public having a stake of 4.42 percent in the company. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-23)
Except for a nosedive in 2020, IBFL’s topline has followed an inclining trend over the period under consideration. Conversely, its bottom line which had been inching down posted a net loss in 2020. In 2021, IBFL’s bottom line registered a staggering rise only to recede in the subsequent years. IBFL’s margins also followed a similar pattern as its bottom line. The detailed performance review of the period under consideration is given below.
In 2019, IBFL’s topline posted a 22.92 percent year-on-year rise. While PSF sales tumbled by 7 percent year-on-year to clock in at 291,825 MT in 2019, yarn sales posted robust 25 percent growth to clock in at 33,528 MT. During 2019, the company enhanced its yarn production capacity by installing a spinning plant with a production capacity of 32,500 tons of blended yarn. During 2019, sales growth was mainly driven by local sales, however, export sales shrank. The cost of sales grew by 26.32 percent year-on-year on account of an increase in raw material prices coupled with the Pak Rupee depreciation. Moreover, the prices of crude oil remained under pressure due to changes in the USA and OPEC policies, resulting in lower prices of PSF and its feedstock. This pushed gross profit down by 14.43 percent year-on-year in 2019 with GP margin slipping from 8.3 percent in 2018 to 5.8 percent in 2019. Higher freight and forwarding charges resulted in a 2.84 percent uptick in selling and distribution charges. Administrative expenses also registered 7 percent year-on-year growth in 2019, mainly driven by directors’ remuneration as well as employee payroll expenses. On account of lower provisioning for WPPF and also because of a high base effect created by loss on the disposal of property, plant, and equipment in 2018, other expenses slumped by 16.84 percent in 2019. Conversely, other income grew by 63 percent year-on-year in 2019 on the back of scrap sales. All these factors translated into a 19.73 percent year-on-year drop in operating profit in 2019 with OP margin tapering to 4 percent from 6.1 percent in 2018. Finance cost posted a spike of 58.25 percent in 2019 not only because of a higher discount rate hike but also because of a massive rise in the running finance-related borrowings during the year. This resulted in a 52.6 percent drop in net profit which clocked in at Rs.998.49 million in 2019 with NP margin of 1.5 percent versus an NP margin of 3.9 percent posted by IBFL in 2018. EPS also slid from Rs.6.78 in 2018 to Rs.3.22 in 2019.
IBFL’s topline dipped by 28.93 percent year-on-year in 2020. The company sold 210,021 MT of PSF and 24,533 MT of yarn which was down by 28 percent and 27 percent respectively when compared to the off-take registered by the company in 2019. The top line was primarily impacted by the decline in local sales during the year. Conversely, export sales multiplied by 4.6 times in 2020. However, export sales still constituted 0.09 percent of the net revenue of IBFL in 2020. While the local demand was already tamed due to high inflation which resulted in shrunken pockets of consumers, the situation was further worsened by the outbreak of COVID-19 in the second half of 2020, pushing local sales down by 29 percent year-on-year. Crude oil prices massively fell during the year owing to a wipeout of demand. This had a spillover effect on the PSF and its feedstock prices. Gross profit dwindled by 49.28 percent year-on-year in 2020 with GP margin inching down to 4.1 percent. Lower sales volume meant lower freight and forwarding charges. This resulted in a 9.81 percent year-on-year dip in distribution and marketing expenses in 2020. Administrative expenses grew by 9.11 percent year-on-year in 2020 on account of high payroll expenses despite the fact that the number of employees considerably dropped from 3846 in 2019 to 1337 in 2020. IBFL didn’t book any provisioning for WPPF in 2020 which translated into an 81.39 percent plunge in other expenses during 2020. Other income also plummeted by 54.62 percent year-on-year in 2020 due to significantly lower scrap sales. Operating profit slumped by 69.61 percent year-on-year in 2020 with OP margin slipping down to 1.7 percent. To add to ado, finance costs posted a hefty 170.88 percent surge in 2020 due to a high discount rate for the most part of the year coupled with borrowings obtained during the year particularly long-term financing facilities under the Diminishing Musharakah arrangement. This resulted in a net loss of Rs.1295.48 million in 2020 with a loss per share of Rs.4.17.
The company soon recovered and posted a 49.98 percent rise in its net sales in 2021 (year ended June). This was the result of a 27 percent uptick in the sales volume of PSF which clocked in at 267,037 MT and a 125 percent growth in the sales volume of yarn which clocked in at 70,607 MT in 2021. High crude oil prices pushed the PSF prices up, resulting in improved margins. Although high raw material prices tried to dilute the gross profit, however, with robust sales volume and upward price revisions, IBFL was able to multiply its gross profit by 538.81 percent in 2021, with GP margin reaching its optimum level of 17.65 percent. Distribution and administrative expenses grew by 12.94 percent and 41 percent respectively. High freight and forwarding and high payroll expenses were the main culprits behind elevated operating expenses in 2021. Other expenses multiplied by 2112.78 percent in 2021 due to higher provisioning booked for WWF and WPPF. Other income also majorly grew by 173.75 percent during 2021 on account of higher scrap sales and gain on disposal of property, plant, and equipment during the year. Operating profit grew by 1189.84 percent in 2021 with OP margin jumping up to 14.75 percent. Finance cost slid by 42.19 percent year-on-year in 2021 which was the result of a low discount rate and significantly lower borrowings as the company was able to improve its liquidity to a great extent in 2021 (see liquidity ratios graph). IBFL was able to post a net profit of Rs.6578.95 million in 2021 with an NP margin of 9.32 percent and EPS of Rs.21.19.
(In 2022, IBFL, in compliance with the regulations of SECP, changed its financial year from January to June. Comparing the year-ended June 30, 2021, to the year-ended December 31, 2022, is paradoxical as the period of Jan - Jun, 2022 is included in the annual reports of both 2021 and 2022. To ignore this overlapping, the analysis of 2022 is presented on an irrelative basis)
In 2022, IBFL’s topline was recorded at Rs.115,581 million. During the year, the company sold 285,540 MT of PSF and 53,511 MT of yarn. The year proved to be a challenging one due to deteriorating macroeconomic and political scenarios and devastating floods in the country. Commodity super cycle in the global market owing to the Russia-Ukraine crisis coupled with steep deprecation of the Pak Rupee and high indigenous inflation pushed up the cost of sales and resulted in a GP margin of 11.68 percent in 2022. Higher freight and forwarding charges due to surging fuel costs and increased sales volume played an important role in suppressing the operating profit during the year. Administrative expenses also spiked on the back of higher payroll expenses on account of inflation. The OP margin turned out to be 9.16 percent in 2022. Higher finance costs on account of excessive monetary tightening and elevated borrowings culminated in a net profit of Rs.5310,545 million in 2022 with an NP margin of 4.6 percent and EPS of Rs.17.10.
In 2023, IBFL’s net sales posted a paltry 3.62 percent year-on-year rise. While PSF sales dropped by 20 percent year-on-year in 2023 to clock in at 228,940 MT in 2023, yarn sales posted a 4 percent year-on-year uptick to clock in at 55,813 MT. While high inflation had already squeezed the demand in the local market, incentives given by the GOP to the PSF importers further harmed the local PSF manufacturers. High raw material and conversion costs due to elevated prices of raw materials, Pak Rupee depreciation, and high energy tariff resulted in a 33.58 percent lower gross profit recorded by IBFL in 2023. GP margin fell to 7.49 percent in 2023. Selling & distribution expenses registered a 26.9 percent year-on-year surge in 2023 due to high freight & forwarding charges. Administrative expense multiplied by 12.81 percent in 2023 primarily on account of higher payroll expense on account of inflation. IBFL streamlined its workforce from 3490 employees in 2022 to 3203 employees in 2023. Considerably lower provisioning for WWF and WPPF resulted in 60 percent lower other expenses incurred by the company in 2023. Other income also slid by 76 percent in 2023 because of the high-base effect as the company recorded dividend income, gain on the sale of fixed assets, and gain on redemption of short-term investments in the previous year. Operating profit declined by 44.98 percent in 2023 with an OP margin of 4.86 percent. Finance costs escalated by 215.42 percent in 2023 due to a high discount rate and increased borrowings. Net profit dwindled by 94.28 percent to clock in at Rs.303.53 million in 2023 with EPS of Rs.0.98 and NP margin of 0.25 percent.
Recent Performance (1QCY24)
During 1QCY24, IBFL’s net sales grew by 13.7 percent. Progress was seen in the production volume of both PSF and yarn during the period due to a slight decline in the inflation numbers as well as a stable currency. However, the influx of imported PSF due to incentives provided to the importers by the local government didn’t allow IBFL to achieve price rationalization. This resulted in a 35.5 percent lower gross profit recorded by the company during 1HCY24 with the GP margin standing at 6.52 percent versus the GP margin of 11.49 percent recorded during a similar period last year. Selling & distribution expenses multiplied by 19.3 percent in 1QCY24 due to higher freight & forwarding charges incurred. Administrative expenses ticked up by 4 percent which might be due to inflation as until last year, the company was cutting down its workforce. Lower profit-related provisioning resulted in a 60.6 percent decline in other expenses in 1QCY24. Other income also weakened by 37.2 percent in 1QCY24. IBFL recorded a 45.7 percent thinner operating profit in 1QCY24 with an OP margin of 4.09 percent versus an OP margin of 8.57 percent posted by the company in 1QCY23. Finance costs mounted by 143.4 percent in 1QCY24 due to a higher discount rate. The company paid off its outstanding borrowings considerably during the period. Net profit tapered off by 80.8 percent in 1QCY24 to clock in at Rs.362.458 million with EPS of Rs.1.17 versus EPS of Rs.6.08 posted by the company in 1QCY23. NP margin slumped from 6.35 percent in 1QCY23 to 1.07 percent in 1QCY24.
Future Outlook
Modest recovery is seen in the local economy in general and the textile sector in specific. This bodes well for the turnover and margin of the PSF sector. However, cut-throat competition from imported yarn and PSF may impede the local manufacturers from grabbing a significant portion of market share in the absence of efficient inventory management, cost rationalization and concerted marketing efforts.
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