Ibrahim Group started with cloth trading business in the industrial city of Faisalabad. Backed by sheer goodwill and experience in marketing, in 1980, manufacturing of own blended yarn was initiated by establishment of Ibrahim Textile Mills Limited.
With long-term considerations and a simple principle of "no compromise on quality", two more textile spinning companies: A.A. Textiles Limited in 1982 and Zainab Textile Mills Limited in 1987 were established.
A power generation company - Ibrahim Energy Limited - was incorporated in 1991 to improve the efficiency of the existing manufacturing companies. All these manufacturing companies have now been merged into Ibrahim Fibres Limited. Zimmer AG Germany, the market leaders in the polyester polymer capacities with nearly 30% share in world market, has supplied the engineering and technology for Ibrahim Fibres polyester plant and has also guaranteed not only the designed capacity, but the quality of finished goods as per the world standards.
Furthermore, the plant is equipped with state-of-the-art process control systems and uses SRX process controllers to provide foundation for real time, efficient and accurate control and monitoring of the process of the entire plant. All this is made possible through Computer Integrated Manufacturing (CIM). The polyester plant is proficient in producing different variants of PSF including coloured, bright, optical bright, hollow, fire retardant and other polyesters for specific applications.
Ibrahim Fibres Ltd - Plant I Ibrahim Fibres polyester plant-I initiated in 1994, and has been operational since December 1996. The plant has a capacity to manufacture 70,000 tons of PSF annually. Plant-II: After the success of the first polyester plant, in October 2002, Ibrahim Fibres Ltd built a new polyester fibre plant adjacent to the first plant to enhance the synergy of operations. The plant is designed to produce 140,000 tons of PSF per annum. The group diversified into the financial services by floating First Ibrahim Modaraba and also established a leasing company - Ibrahim Leasing Limited. Later, the First Ibrahim Modaraba was merged into Ibrahim Leasing.
Under the scheme of reconstruction proposed by the State Bank of Pakistan, Consortium of Ibrahim Leasing Limited, Ibrahim Group and its sponsors acquired more than 75% shares of Allied Bank Limited. Management and control of the bank was handed over to Ibrahim Group on August 19, 2004. At present Ibrahim Group is holding more than 80% shares of the bank. After the acquisition of the bank, Ibrahim Leasing Limited has been merged into Allied Bank Limited.
In 2005, the company changed its accounting period from "year ended September 30" to "year ended June 30". Consequently, the data for 2005 has been reported for nine months ended June 30 2005.
The year 2008 has been a difficult one for all the industries of the country, particularly those companies that used oil as an essential part of their product. The oil prices rose heavily throughout the year. The price of crude oil during the year under review increased from US $68 per barrel in July 07 to US $134 per barrel in June 08, exhibiting a rise of 97%. As the prices of crude oil rose, prices of PSF feedstock, being a derivative of the crude oil chain, also shot up dramatically. However, the effect was more pronounced in price of MEG due to its short supply as a result of plant breakdowns in the Middle East, as observed in the second and third quarters. PTA also followed the ascent along with increase in crude oil prices. The domestic market, on the other hand, witnessed a decrease in demand due to the import of PSF from China and Korea at dumping prices.
Another major factor for the low local demand was the depreciation of the rupee against the dollar, which was also diminishing against other currencies, particularly the euro, pound and yen. This compounded the devaluation against euro, pound and yen and created major burden of interest rates on the cash flows of the companies. Subsequently, the local prices have to be adjusted so as to counter the variation in PSF feedstock prices and rupee devaluation.
The company achieved a sales volume of 171,588 tons of PSF/polyester chips in the year 2008, compared to 146,849 tons during the previous year, showing an increase of 17%. The textile plants achieved sales of 30,382 tons of different counts of blended yarn as compared to 24,684 tons during previous year, showing a 23% increase in sales.
The average capacity utilisation of the company was 91% as compared to 81% of last year. The company achieved sales of Rs 21,550 million as against sales of Rs 16,323 million in the previous year, giving an increase of 32%. The gross profit earned during the year is Rs 2,187 million as against Rs 1,631 million during the previous year, an increase of 34% over the previous year. This increase in gross profit was mainly due to higher volume of sales/production.
The proportionate share of the company in profits of its associated company, Allied Bank Limited, amounted to Rs 1,291 million for the year under review as against Rs 1,480 million for the previous year. The book value of investment in the bank was Rs 45.61 per share as on June 30, 2008 as against market value of Rs 85.27 per share prevailing on the same date. After accounting for the proportionate share in profits of associated company as above, the company during FY08, earned profit after tax of Rs 1,583 million as compared to Rs 1,515 million during the previous year, showing an increase of 4.5%. The company has recommended a cash dividend of 15% for the current year.
The company has maintained a steady stream of profits during the years, with profits only declining in FY05 and FY07. In FY05, the low profitability was showed due to a change in the financial period and the resultant reporting of nine months in 2005. In FY07, there was a reduction in sales value due to lower sales volumes achieved during the period. The gross profit earned during FY07 is Rs 1,630 million and profit after tax is Rs 1,515 million as against Rs 1,946 million and Rs 1,483 million respectively during the corresponding period of last year. Thus depressed gross margins had an adverse impact on the overall business results for FY'07 although the net profits were higher.
As a result all profitability ratios registered a decline in FY07. ROA and ROE ratios have been declining over the years since FY06. In FY07 and FY08, the net profits remained low as compared to the rise in total assets and equity. The liquidity position of the company has been depicting a worrisome trend. The current ratio had declined subsequently in four years, falling from 0.86 in 2003 to 0.79 in 2006. The decline in liquidity can be attributed to a decline in the cash and cash equivalents, and a simultaneous rise in liabilities arising from the payment of long-term loans and modaraba. However, the situation improved in FY07 and FY08.
In FY08 current assets rose primarily due to the raw materials at hand and by the sales tax and custom duty refundable, while the current liabilities rose with the rise in payables and the short term borrowings undertaken by the company. Though the current ratio has been increasing for the past 2 years, yet most of it is attributed to raw materials and still the current ratio is below 1.00, indicating that the current liabilities of the company far exceed the current assets.
The company has been quite efficient with its days' sales outstanding as depicted by the low values of the DSO. The DSO has remained below 10 days during all the 6 years under review, falling to a mere 3 days in 2006 and 2007 and went to only 2 days in 2008, showing that IBFL is very efficient in collecting payments from its creditors. However, the inventory turnover in days has been quite high for the company, showing that the company has not been very efficient with the management of its inventory.
The ITO rose to a swooping 109 days in 2005 mainly due to a sudden increase in the stores and spares of the company, which could not be utilised efficiently due to dumping of low-priced PSF from the Far Eastern countries. This again occurred in 2008, when the company had an increased supply of raw materials that were not processed as the local demand of PSF feedback fell due to the import of products from China and Korea at dumping prices and the diminishing value of rupee, hence raising the inventory turnover. Consequently, the operating cycle of IBFL has been quite high owing to the high inventory turnover days of the company.
On the other hand, the TATO and the sales/equity ratios have increased in FY08, reflecting the increase in sales incurred by the company during the year. Still the asset management ratios, particularly the inventory turnover and the TATO ratio have been volatile over the years, and the company needs to keep them under constant so as to bring about a more steady level of asset management of the company. The debt to equity ratio of the company has shown an erratic trend. It rose during the years 2004 and 2005, showing that during these years, the company was more debt financed than equity financed. The major reasons for it could be that the debt was undertaken to use for acquiring the control of Allied Bank in 2004.
In 2005, the reason would be the in year-end month of the company and the effects it had on the days of the long-term debts. However, debt to equity ratio has been declining since FY06, hence showing that the company improved on its leverage financing in the latter years. Long-term debt to equity ratio further tells a reduction in debts over the period at a trend similar to that of debt to equity ratio. The debt to assets ratio, on the other hand, has shown more of a steady rate over the years, especially since FY06. The TIE ratio has been volatile over the years, going up and down with the finance costs incurred by the company.
In FY08, it again rose from 1.31 to 2.01, having a combined effect of low finance costs and increased operating profit. The finance payments of the company should be more steady and reflective of better finance planning and payments over the future years. The earnings per share (EPS) has been in close harmony with the net profit of the company. It has been following a positive trend since 2003, with the exception of the year 2005 when it showed a decline compared to the previous year.
This can be attributed to a readjustment of the financial period of the company to year ended June 30, hence resulting in nine months reporting of the year 2005. The EPS otherwise has maintained a steady rising trend since 2005. The book value of the company has also been increasing over the years, reflecting the increase in equity base of the company, mainly due to rising revenue reserves. Also the market price of the stock has shot up after 2006 and has remained steady in 2008. The P/E ratio has posted a trend driven by both EPS and average market price of the company, which remained below the 100-index benchmark for most of the period during FY08.
FUTURE OUTLOOK
Unrelenting surge in the international oil prices drove the feedstock prices, meanwhile sluggish demand from the downstream textile sector in major markets including China and US is forcing PSF producers to cut operating rates and fading their ability to fully respond to cost pressures through PSF price hikes. The company as well as the entire industry has been facing the need to find more cost cutting processes for their production purposes. In this regard, IBFL has already started to replace its ring spinning and cone winding equipment at the textile plants with new, state of the art equipment, to increase average production while maintaining costs.
The future plans of the company include the setting up of a gas power generation plant imported from Switzerland that will have a capacity of 15 MW along with steam generation capacity of 25 tons per hour. The installation process will be affected during the second quarter and operation will start during the third quarter of the next financial year. After installation, this plant will switch 15 MW of the existing power generation capacity to 100% natural gas, which is currently based on 60% heavy fuel oil, and 40% natural gas. This plant will also meet the entire steam requirement of the polyester plant. It would result in a considerable saving of fuel and power cost including saving of gas that is currently being consumed for steam generation.
In the Budget FY08-09, the government reduced the import duty on PSF from 6.5% to 4.5%, while duty on import of PTA (raw material) was lowered from 15% to 7.5%. Lowering of protection on PSF will lead to higher imports, which serve about 12% of local demand at present. Moreover, since local PSF price is linked with its international counterpart, subsequent prices will also be lower than otherwise would have been the case (with 6.5% duty). However, local manufacturers including IBFL plan to maintain at least the prevailing prices at PKR 111/kg in the face of soaring feedstock costs, hence impact on margins would be neutral. While reduction in duty on PTA would be profit-neutral for IBFL, it would be cash flow-positive in that a lower amount would now stand as receivable from the govt. This would reduce its working capital requirements and improve the cash cycle. The company will need to look for ways to maintain its domestic sales and to be able to compete with the international companies in the domestic market, in terms of both sales and prices.
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Ibrahim Fibres Limited - Financials
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INCOME STATEMENT 2003 2004 2005 2006 2007 2008
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Turnover 11,475 16,378 10,323 17,208 16,323 21,550
Gross Profit 1,190 1,803 939 1,946 1,631 2,187
Operating Profit 966 1,565 757 1,643 1,214 1,748
Profit Before Tax 628 1,250 591 1,848 1,769 2,110
Net Profit 481 872 423 1,483 1,515 1,583
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BALANCE SHEET 2003 2004 2005 2006 2007 2008
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Total Equity 5,223 6,096 6,035 7,496 9,116 10,704
Current Liabilities 3,580 4,597 5,422 4,281 5,368 7,571
Non-current Liabilities 1,910 7,050 6,846 6,700 6,184 5,581
Current Assets 3,066 3,829 4,437 3,368 4,617 7,011
Non-current Assets 8,260 8,639 8,438 15,109 16,051 16,845
Total Assets 11,326 18,680 19,376 18,477 20,668 23,857
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LIQUIDITY 2003 2004 2005 2006 2007 2008
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Current Ratio 0.86 0.83 0.82 0.79 0.86 0.93
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ASSET MANAGEMENT 2003 2004 2005 2006 2007 2008
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Inventory Turnover 60 55 109 55 66 82
Days Sales Outstanding 9 4 5 3 3 2
Operating Cycle 69 59 114 58 69 84
Total Asset Turnover 1.01 1.31 0.8 0.93 0.79 0.90
Sales/Equity 2.20 2.69 1.71 2.30 1.79 2.01
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DEBT MANAGEMENT 2003 2004 2005 2006 2007 2008
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Debt to Asset Ratio 0.48 0.93 0.95 0.59 0.56 0.55
Debt to Equity Ratio 1.05 1.91 2.03 1.46 1.27 1.23
Long Term Debt to Equity 0.37 1.16 1.13 0.89 0.68 0.52
Times Interest Earned 1.3 2.7 1.3 1.71 1.31 2.01
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PROFITABILITY 2003 2004 2005 2006 2007 2008
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Gross Profit Margin 10.4% 11.0% 9.1% 11.3% 10.0% 10.1%
Profit Margin 4.2% 5.3% 4.1% 8.6% 9.3% 7.3%
Return on Assets 4% 7% 3% 8% 7% 7%
Return on Equity 9.2% 14.3% 7.0% 19.8% 16.6% 14.8%
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MARKET VALUE 2003 2004 2005 2006 2007 2008
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Book Value 1.68 1.96 1.94 2.5 2.94 3.45
EPS 1.5 2.8 1.4 4.8 4.9 5.1
Average Market Price 28.2 40.4 38.53 37 51.35 53.99
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