International Industries Limited, a top 25 KSE Listed Company; was incorporated in 1948 as Sir Sultan Chinoy and Co Ltd, a trading company which ventured into the business of manufacturing welded steel pipes and tubes in 1965.
The IIL is now in the business of producing and marketing of GI pipe, steel tubes and pipes, API line pipe and polyethylene line pipes throughout the world.
Major consumers of IIL products are the auto industry, oil & gas, water supply and sanitation, power and energy, telecom, builders, steel industry and NGOs.
The company continues to remain the market leader in all segments within the country having a market share of about 50% in GI pipe and 40% in CR tubes. The company strives to manufacture and sell products of the highest international quality and build on its position as the market leader, with sales growing from Rs 15 million in 1976 to more than Rs 11 billion in the fiscal year 2006-07.
The company has a manufacturing capacity of 300,000 tons of small diameter steel pipes, which sold in over 30 countries across the six continents. Till today, the company remains the leading exporter of welded steel pipes and tubes from Pakistan. It is certified to various standards of QMS, EMS, OHSAS 18001:1999; and has API Accreditation to Q1-5L and Q1-15LE and the exponential growth of its exports is a strong endorsement of its resolve to maintain the quality of products comparable to those manufactured internationally.
FINANCIAL PERFORMANCE (FY04-FY07):
The fiscal year 2006-07 saw sales exceed 172,000 tons per annum with export sales valued at Rs 2.0 billion (over $32 million). Sales have exhibited a consistent growth over the years, however, the FY07 net sales growth of 18% registered a slight decline vis-à-vis that of FY06 26% growth.
Despite the upward pressure on increased zinc and steel prices, domestic volume sales increased by 16% over the previous year. In the export market, only 1% increase was witnessed in volume sales primarily due to the fact China exported to the European markets at extremely competitive prices. Hence the company decided to abandon these markets and concentrate the South Asian and Middle East markets.
On costs side, salaries, wages and benefits remained high in FY07, mainly on account of additional staff appointed to run the plants added during the year. Increased fuel prices further caused freight rates to increase, which resulted in reduction of the margins.
In FY07, the company has earned an after tax profit of Rs 613 million which is 15% higher than Rs 533 million of the previous year. This was achieved despite the additional impact of Rs 33 million on account of borrowings for capital expenditure.
Overall, the gross margin remained flat whereas net margin declined in FY07 compared to FY06, on account of above-mentioned reasons. Further, the ROA and ROE also registered a decline in FY07 vis-à-vis last year due to lower net income growth compared to increase in assets base (due to planned capital expenditure) and shareholders equity (due to increase in paid-up capital).
Commenting on the liquidity position, one can clearly see FY07 current ratio sliding back to FY04 level of 1.17 from 1.21 in FY06, mainly on account of extraordinary increase in short term debts in CL, which overshadowed an increase in CAs. This was for the financing of increased operational activities.
Quick ratio, giving a better picture, improved slightly in FY07 from FY06 level, pointing to the fact that short-term investments were mainly responsible for maintaining increase in QA vis-à-vis increase in CL in FY07.
Talking about the assets utilization, one can see an increase in both ITO and DSO in FY07 by 28 and 6 days respectively, thus increasing an overall operating cycle by 34 days. This is attributable to higher trade debts and inventory in FY07 with regard to sales compared to previous year.
Owing to increasing assets base due to capital expenditure, TATO registered a decline in FY07 in contrast to sales/equity ratio, which showed slight improvement on account of higher sales growth than the equity issuance.
International Industries today, has equity of over Rs 2.3 billion. The company's D/E and LTD/E ratios have shown an increase in FY07 mainly due to additional borrowing for the planned capital expenditure. This is further augmented by the trend of debt ratio which has increased from 62% in FY06 to 73% in FY07.
Amid rising interest rate regime, one can clearly see a drastic impact on company's interest covering ability which has declined from 11.7 times in FY04 to 3.2 times only in FY07. This means the company needs to further improve its operating profits so as to offset the rising mark-up charges on its redeemable capital and short term borrowing, which have increased considerably in the later years.
Sustained productivity, timely decisions in buying raw materials at the right price, obtaining the best available selling prices, sound financial measures and curtailing expenses wherever possible enabled an increase in earning per share in FY07. The BVPS of the company has increased consistently over the last 4 years, showing the strength in its balance sheet. However, the P/E multiple has plunged in FY07 on account of lower market price. The DPS has remained almost constant over the years, showing good returns and prudent dividend policy of IIL.
FUTURE OUTLOOK:
In FY06, the company has diversified into manufacturing of polyethylene pipes. The trial orders were well received in the market in terms of quality with pipes supplied to the gas companies and to UNICEF. Moreover, a second extruder was also installed, so as to capitalize on the demand for polyethylene pipes. In future, the management needs to be cost conscious and monitor and control the expenditure to avoid the margins from being eroded.
Amid record high zinc prices, rising prices of steel, inflation, rising interest rates and changes of tariffs, it seems difficult to maintain the sales growth. Intense competition from new market entrants is yet another potential risk. On the other hand, expected infrastructure development and opportunities in building construction are upside drivers. The IIL aims not only to depend on the local market but to capture opportunities available in regional markets. Considering its past ability to maintain market leadership and performance standards, one can expect an overall positive outlook for the company.
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International Industries Limited - Key Ratios
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PROFITABILITY FY04 FY05 FY06 FY07
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Gross profit margin 14% 18% 17% 17%
Profit margin 9% 5% 7% 6%
Return on Asset 9% 8% 10% 7%
Return on Common Equity 27% 22% 27% 26%
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LIQUIDITY RATIO FY04 FY05 FY06 FY07
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Current Ratio 1.17 1.19 1.21 1.17
Quick Ratio 0.29 0.25 0.49 0.51
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ASSET MANAGEMENT FY04 FY05 FY06 FY07
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Inventory Turnover(Days) 171 133 96 125
Day Sales Outstanding (Days) 35 26 28 34
Operating cycle (Days) 206 159 125 159
Total Asset turnover 1.07 1.44 1.46 1.13
Sales/Equity 3.09 4.15 3.84 4.14
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DEBT MANAGEMENT FY04 FY05 FY06 FY07
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Debt to Asset 66% 65% 62% 73%
Debt/Equity (Times) 1.90 1.89 1.62 2.67
Times Interest Earned (Times) 11.71 5.88 5.02 3.20
Long Term Debt to Equity(%) 18% 19% 14% 45%
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PER SHARE FY04 FY05 FY06 FY07
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Earning per share 5.20 4.93 7.05 8.10
Price earning ratio 23.59 24.86 17.38 15.13
Dividend per share 0.00 3.25 3.57 2.83
Book value 19.31 22.62 26.42 30.94
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