The Ibrahim Group started with a 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; market leaders in the Polyester Polymer capacities with nearly 30% share in the world market has supplied the engineering and technology for Ibrahim Fibres polyester plant and has also guaranteed not only its designed capacity but the quality of finished goods to be in compliance with world standards. Furthermore, the plant is equipped with state of the art process control systems and uses SRX process controllers to provide a foundation for real time, efficient and accurate control and monitoring of the process of entire plant. All this is made possible through Computer Integrated Manufacturing (CIM).
Ibrahim Fibres Ltd 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 Ltd - 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.
Ibrahim Fibres Ltd. - Plant II: After the success of the first Polyester plant, Ibrahim Fibres Ltd, in October 2002, 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.
Economic snapshot
The textile industry is an extremely vital industry to ensure the overall well being of the Pakistani economy. As per Kashif Shabbir, President, Rawalpindi Chamber of Commerce and Industry (RCCI), the textile industry, with a contribution of 60 percent in the total exports of Pakistan, has a significant effect on the GNP and GDP figures. According to the export figures for the month of October 2010 released by State Bank of Pakistan, a contribution of around 54.64 percent (Rs 86,170,063) was made to the total exports of goods for that month (Rs 157,711,970). A large chunk of this exports figure comprised of the exports for cotton (Rs 30,107,287). Apart from this, the textile sector is significant in terms of its role in employment generation. It is currently employing around 3.6 million people. For the FY10, the textile industry made a contribution of 30 percent to the overall economic growth.
It is, therefore, important for the government to work towards the development of the textile sector. A major issue that is drastically affecting the textile sector and hence, needs to be addressed is that of energy crisis. This could lead to huge financial losses for the firms operating under this sector due to the inability to meet increased demand for textile products. A loss of around $1 billion per month had to be borne by the textile sector because of the prevalent gas shedding arising from the insufficient number of gas reserves. It is, however, possible that this loss can be reduced through the restoration of gas supply from Sui Northern Gas Pipeline Ltd.
The textile sector is hence a very significant sector which needs to be carefully monitored and for which, structural efforts by the government should be made.
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Recent Results 3Q'2010 2009 % chg
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Pkr '000
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Sales - net 19,298,003,231 22,059,606,789 -12.5%
Cost of goods sold 17,220,553,395 19,748,550,789 -12.8%
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Gross profit 2,077,449,836 2,311,056,000 -10.1%
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Selling and distribution expenses 118,619,647 126,674,952 -6.4%
Administrative expenses 354,469,173 423,594,936 16.3%
Other operating expenses 52,712,290 24,977,054 111.0%
Finance cost 1,001,514,393 1,387,287,978 -27.8%
Other operating income 108,678,354 77,089,140 41.0%
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658,812,687 425,610,220 54.8%
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Share of profit of associate -net 2,291,974,000 1,500,542,000 52.7%
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Profit before taxation 2,950,786,687 1,926,152,220 53.2%
Provision for taxation 421,318,989 300,773,643 40.1%
Profit for the period 2,529,467,698 1,625,378,577 55.6%
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Earnings per share - Basic 8.15 5.23 55.8%
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Recent results
As compared to the 3QFY09, Ibrahim Fibres had a net sales figure of Rs 19,298 million in 3QFY10 which is 17.93 percent higher than Rs 16364 million (3QFY09). This increase in sales is greater than the industry growth of 9.6% in 3QFY10.
As per the table above, the net sales as compared to that in the year 2009 is less by 12.5%. A reason for this is the current energy crisis faced by the textile sector. The finance cost has reduced because of reduction in long term financing and murabaha. There has been an increase in share of profit which leads to an increase in the profit for the period. Also, the profit for the period has increased due to a reduction in selling and distribution expenses, administrative expenses and other operating expenses.
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Recent Results 2009 2008 % chg
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Sales - net 22,059,606,789 21,549,911,937 2.3%
Cost of goods sold 19,748,550,789 19,363,204,183 2.0%
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Gross profit 2,311,056,000 2,186,707,754 5.4%
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Selling and distribution expenses 126,674,952 144,357,038 -14.0%
Administrative expenses 423,594,936 350,467 ,93B 17 3%
Other operating expenses 24,977,054 58,775,438 -135.2%
Finance cost 1,387,287,978 870,922,610 37.2%
Other operating income 77,089,140 56,012,842 27.3%
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425,610,220 818,197,572 -92.2%
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Share of profit of as5ociate - net 1,500,542,000 1,291,307,000 13.9%
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Profit before taxation 1,926,152,220 2,109,504,572 -9.5%
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Provision for taxation 300,773,643 526,800,327 -75.1%
Profit for the period 1,625,378,577 1,582,704,245 26%
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Earnings per share -Basic 5.23 5.10 2.5%
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Financial performance (3Q10)
The graph shows a comparison of the asset management ratio of Ibrahim Fibres Ltd.
The Inventory Turnover increased by 0.07 in the 3QFY10 whereas, the days sales outstanding increased by 0.31. As a result, the operating cycle increased by 0.38 reaching 68.63 days. The increase in inventory turnover is because of a reduction in cost of goods sold (as compared to FY09) whereas the increase in days sales outstanding is due to a reduction in trade debts as well as in the cost of goods sold.
The total asset turnover decreased because of an increase in total assets brought on by an increase in both non-current and current assets. Sales/equity has also decreased because of an increase in equity.
The gross profit margin increased because of a decrease in cost of goods sold. The profit margin also increased because of an increase in profit for the period. Consequently, return on assets also increased because of an increase in both profit for the period and average total assets. Following the same pattern, Return on common equity also increase because of an increase in net profit along with an increase in average common equity.
The debt to asset ratio has decreased because of a reduction in trade debt and an increase in total assets. Similarly, the debt equity ratio has also decreased because of a reduction in debt and increase in common equity. Also, the times interest earned ratio has increased because of a reduction in finance cost.
The current ratio increased because of a greater increase in current assets as compared to that in current liabilities. Similarly, the quick ratio (shown as red bars in the graph) also increased following the same reasoning.
There was no dividend per share because no dividends were paid. Earnings per share increased because of an increase in net profit. Similarly, book value per share also increased because of an increase in total common equity brought by an increase in capital and revenue reserves.
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Ibrahim Fibres Limited - Key Ratios
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PROFITABILITY FY04 FY05 FY06 FY07 FY08 FY09 3'QFY10
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Gross profit margin 11% 9% 11% 10% 10% 10% 10.77%
Profit margin 5% 4% 9% 9% 7% 7% 13.11%
Return on Asset 7% 3% 8% 7% 7% 6% 9.01%
Return on Common Equity 14% 7% 20% 17% 15% 14% 17.56%
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LIQUIDITY RATIO FY04 FY05 FY06 FY07 FY08 FY09 3'QFY10
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Current Ratio 0.83 0.82 0.79 0.86 0.93 0.79 0.86
Quick Ratio 0.37 0.34 0.39
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ASSET MANAGEMENT FY04 FY05 FY06 FY07 FY08 FY09 3'QFY10
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Inventory Turnover(Days) 55 109 55 66 39 65.55 65.62
Day Sales Outstanding (Days) 4 5 3 3 2 2.70 3.01
Operating cycle (Days) 59 114 58 69 42 68.24 68.63
Total Asset turnover 1.31 0.80 0.93 0.79 0.90 0.83 0.69
Sales/Equity 2.69 1.71 2.30 1.79 2.01 1.86 1.34
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DEBT MANAGEMENT FY04 FY05 FY06 FY07 FY08 FY09 3'QFY10
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Debt to Asset 0.93 0.95 0.59 0.56 0.55 0.55 0.49
Debt/Equity (Times) 1.91 2.03 1.46 1.27 1.23 1.23 0.95
Times Interest Earned (Times) 2.70 1.30 1.71 1.31 1.94 1.27 1.60
Long Term Debt to Equity(%) 1.16 1.13 0.70 0.68 0.52 0.69 0.49
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PER SHARE FY04 FY05 FY06 FY07 FY08 FY09 3'QFY10
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Earning per share 2.80 1.40 4.80 4.90 5.10 5.23 8.15
Dividend per share 1.50 0.00 0.00 0.00 1.50 0.00 0.00
Book value 19.60 19.40 24.10 29.30 34.47 38.23 46.40
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Recent performance (FY08-09)
In FY09, the polyester plant of Ibrahim Fibres Limited produced 178,981 tons of PSF as against 188,981 tons during previous year, thereby achieving an average capacity utilisation of 86% as against 91% during previous year. The decrease in production was due to a drop in market demand as a result of international and domestic recessionary pressures. Out of the above production, 21,955 tons of PSF were consumed by the textile plants of Ibrahim Fibres Limited during the year for the production of blended yarns as against 20,124 tons consumed during previous year.
At IFL textile plants' 135,728 spindles remained operational during the year and manufactured 31,134 tons of different counts of blended yarns as against 132,296 spindles manufacturing 28,483 tons of yarns during previous year.
The financial performance of the company in FY09 shows an increase of 2.3% in the net sales. The cause for an increase in the net sales figure was an increase in local sales from 21,447 million to 21,987 million in FY09. Although the export figures report a decrease and discounts and commission report an increase in FY09 from a nil figure in FY08, the increase in local sales provide for the overall increase in the net sales figure. With respect to cost of sales, the FY09 registered an increase of 2% mainly due to the rise in expenditure on fuel, insurance, salaries, wages, staff retirement benefits etc. Thus, the rise in net sales offset the rise in cost of sales leading to an increase in gross profit in FY09 from FY08 of about 5.4%.
Earning before tax and share of profit of associate company, thus registers a decline of 92.2% in FY09 from FY08. A cross sectional analysis reveals that selling and distribution costs registered a decline of 14% mainly because of the decline in freight and forwarding from 77 million to 47 million whereas administrative expenses registered an increase of 17.3% because of several reasons including an increase from 33 million to 43 million for travelling and conveyance, from 10 million to 17 million for fuel and power, from 19 million to 39 million for repairs and maintenance and from 20 million to 37 million for legal and professional costs. Other operating expenses register a decline of 135.5% because of a decline in workers profit participation fund and workers' welfare fund.
Finance cost registered an increase of 37.2% mainly because of an increase in interest of long-term financing from 504 million to 952 million and short-term borrowing from 266 to 346 million. Other operating income, on the positive side, also registers an increase of 27.3% mainly because of scrap sales from 54 million figure in FY08 to 65 million figure in FY09 and balances written back figure of 5 million in FY09 from a nil figure in FY08. Thus, the overall decline in the earning before taxation and share of profit of associate company is primarily because of the rise in administrative and finance costs for the company.
As opposed to FY08, the share of profit of associate company, Allied Bank Limited, increased from 1291 million to 1500 million in FY09 creating a favourable impact on the profitability of Ibrahim Industries Limited. This was due to increase in shareholding from 31.6% to 40.4% in the aforementioned company. Also, the provision for taxation decreased from 526 million to 300 million in FY09, thereby leading to an overall increase in the net income figure from 1582 million in FY08 to 1625 million in FY09. Thus, the overall decline in profitability by 92.2% was offset by these two items in the financial statements causing an overall increase of 2.6% in the net income figure.
Financial performance
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 accordingly for nine months ended June 30, 2005.
The profitability ratios reveal that gross profit margin has averaged around 10% in the last 3 years, after a decline from 11% in FY06. The net profit margin, return on common equity and return on assets follows the same pattern.
In 2005, the lower profitability had shown due to a change in the financial period and the resultant reporting of nine months in 2005. During the year 2006, the company achieved sales of Rupees 17208 million, as against sales of rupees 10323 million during the previous nine months of 2005. This healthy sales trend was also reflected in the profitability of the company which has followed a rising trend. In FY07, the domestic textile industry was severally affected by the difficult business conditions due to weak international market resulting in depressed prices of yarns coupled with increasing cost of inputs at the domestic front. As a result, the Company was not been able to achieve higher levels of productions and sales of PSF and blended yarns. The import of surplus PSF at dumping prices from far eastern countries affected the domestic PSF manufacturers tremendously and IBFL could not maintain its positive sales trends in FY07. The reduction in sales value was due to lower sales volumes achieved during the period causing a decline in profitability ratios. Thus, depressed gross margins had an adverse impact on the overall business results for FY07. As a result all profitability ratios registered a decline in FY07. The trend continued in FY08 because of rise in crude oil prices, rupee devaluation verses US dollar and dumping prices from Chinese and Korean PSF market.
In FY09, the gross profit margin and net profit margin remained same as of previous financial year because of continued international financial crisis and underutilisation of production capacities due to power shortages in the country. Though anti-dumping duty was imposed during the year on import of PSF from China, one of the major Chinese PSF exporters was exempted and it captured a substantial share of domestic PSF market.
With respect to the liquidity ratios, Ibrahim Fibres Limited had a rising trend in its current ratio from FY06 onwards after a declining trend in the previous years. However, in FY09, it again fell to a low level of 0.79.
The decline in liquidity until FY06 happened due to a decline in the cash and cash equivalents of the company, and a simultaneous rise in liabilities arising from the payment of long term loans and morabaha. However, the current asset ratio and cash equivalent balances improved in FY07. In FY08, the company had the highest current asset ratio of 0.93 mainly due to a significant increase in the stock in trade. In FY09, the current asset ratio figure again declined to FY06 level as the stock in trade is at a much lower level of 2009 million as opposed to 4173 million in FY08. Also loans and advances, other receivables and cash equivalents declined at a much faster pace than a decline in current liabilities.
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 6 years under review, falling to a mere 3 days in FY09. This shows 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 FY05 mainly due to a sudden increase in the stores and spares of the company which could not be utilised efficiently due to the dumping of low-priced PSF from the far eastern countries. Since then, it has had an erratic trend ITO rising to 66 days.
Consequently, the operating cycle of IBFL has been quite high owing to the high inventory turnover days of the company and has followed a similar trend. Both TATO and sales/equity ratios have had mixed trend, with both declining in FY09.
The debt to equity ratio of the company has shown a declining trend. It rose to 1.9 and 2.03 during the years FY04 and FY05. This shows that during FY04 and FY05, the company was more debt financed than equity financed. However, the debt to equity ratio fell from FY06 onwards to a figure of 1.23 in FY09, hence showing that the company improved on its leverage financing in the latter financial years. The debt to asset ratio of the company followed a similar trend, rising to 95% in FY05 and then falling to 55 percent in FY09.
Long-term debt to equity ratio further tells a reduction in debts over the period. However, in FY09, it registers an increase to 69% from 52% in FY08. The times interest earned ratio shows an erratic trend in the past six years with the ratio falling to 1.27 times in FY09 mainly because of rise in long-term debt. This depicts that the company has been facing difficulty in fulfilling its leverage obligations during the last few years and needs to improve further on its debt management.
The Earnings per Share (EPS) of the company has been following a positive trend since FY04, with the exception of the year FY05 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, however, increased to a commendable 4.89 rupees in FY07. In FY08, it was 5.10 and in FY09, it is 5.23. The book value per share (BPS) has also maintained a positive over the 6 years under review. It increased to an impressive Rs 38.23 in FY09, owing mainly to rise in long-term debt and a rise in equity of the company arising from an increase in the capital reserves and the revenue reserves. The dividend policy of the company is not stable, with only twice for the last 6 years that the company gave dividends to its shareholders both of which were 15% ie Rs 1.5 per share.
Future outlook
The financial statements of the company implies a declining profitability as well as decreased liquidity ratios in FY09. On the positive side, the debt management ratios and book value per share have shown an improvement.
With respect to future outlook of the company, IFL will have considerable savings of fuel and power cost including the saving of gas that was being consumed for steam production. This is because the gas power generation plant imported from Turbomach, Switzerland, having generation capacity of 15 MW along with steam production capacity of 25 tons/hour started its operation during last quarter of FY09. With the start-up of this gas power generation plant, power consumption of the plants of Ibrahim Fibres Limited, to the extent of capacity of this plant, has been shifted to natural gas generated power which was previously based on 60% furnace oil and 40% natural gas. This plant is therefore, fulfilling the entire steam requirement of the polyester plant of the company.
Due to increased export orders with the revival of the international market after the financial crisis, more availability of power and better law and order situation, the capacity utilization of the company has improved and is expected to further improve in the upcoming years. This will further help improving the demand of PSF and yarns. Furthermore, the prices of PTA and MEG have stabilised to a certain extent. An increase in sales is expected by the management under the aforementioned conditions with higher sales volume and better margins.
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Ibrahim Fibres Limited - Key Ratios
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PROFITABILITY FY04 FY05 FY06 FY07 FY08 FY09
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Gross profit margin 11% 9% 11% 10% 10% 10%
Profit margin 5% 4% 9% 9% 7% 7%
Return on Asset 7% 3% 8% 7% 7% 6%
Return on Common Equity 14% 7% 20% 17% 15% 14%
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LIQUIDITY RATIO FY04 FY05 FY06 FY07 FY08 FY09
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Current Ratio 0.83 0.82 0.79 0.86 0.93 0.79
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ASSET MANAGEMENT FY04 FY05 FY06 FY07 FY08 FY09
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Inventory Turnover(Days) 55 109 55 66 39 66
Day Sales Outstanding (Days) 4 5 3 3 2 3
Operating cycle (Days) 59 114 58 69 42 68
Total Asset turnover 1.31 0.80 0.93 0.79 0.90 0.83
Sales/Equity 2.69 1.71 2.30 1.79 2.01 1.86
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DEBT MANAGEMENT FY04 FY05 FY06 FY07 FY08 FY09
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Debt to Asset 0.93 0.95 0.59 0.56 0.55 0.55
Debt/Equity (Times) 1.91 2.03 1.46 1.27 1.23 1.23
Times Interest Earned (Times) 2.70 1.30 1.71 1.31 1.94 1.27
Long Term Debt to Equity (%) 1.16 1.13 0.70 0.68 0.52 0.69
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PER SHARE FY04 FY05 FY06 FY07 FY08 FY09
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Earning per share 2.80 1.40 4.80 4.90 5.10 5.23
Dividend per share 1.50 0.00 0.00 0.00 1.50 0.00
Book value 19.60 19.40 24.10 29.30 34.47 38.23
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