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, 2022, IBFL has a total outstanding share volume of 310.507 million shares outstanding which are held by 1986 shareholders. Ibrahim Holdings (Private) Limited, the parent company of IBFL holds 90.76 percent of its shares followed by local general public having 4.5 percent stake in the company. The remaining shares are held by other categories of shareholders.
Historical Performance (2018-22)
Except for a nosedive in 2020, IBFL’s topline has followed an inclining trend since 2018. IBFL’s bottomline posted a decline thrice since 2018 i.e. in 2019, 2020 and 2022. In 2020, not only did the company’s bottomline lose its footing but it also registered a net loss. IBFL’s margins which were descending until 2020, posted a vigorous turnaround in 2021 only to tumble in the subsequent year. The detailed performance review of each of the years under consideration is given below.
In 2019, IBFL’s topline posted a 23 percent year-on-year jump. While PSF sales tumbled by 7 percent year-on-year to clock in at 291,825 MT in 2019, yarn sales posted a 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 greatly reduced. Cost of sales grew by 26 percent year-on-year on account of increase in the raw material prices coupled with Pak Rupee depreciation. Moreover, the prices of crude oil remained under pressure due to change in USA and OPEC policies, resulting in lower prices of PSF and its feedstock. This pushed the gross profit down by 14 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 3 percent uptick in selling and distribution charges. Administrative expense also registered a 7 percent year-on-year growth in 2019, mainly driven by directors’ remuneration as well as employee payroll expense. On account of lower provisioning against WPPF and also because of a high base effect created by a loss on the disposal of property, plant and equipment in 2018, other expense slumped by 17 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 20 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 steep spike of 58 percent in 2019 not only because of discount rate hike but also because of a massive rise in the running finance related borrowings during the year. This resulted in a 53 percent drop in net profit to clock in at Rs.998.49 million in 2019 with an NP margin of 1.5 percent versus 3.9 percent in 2018. EPS also slid from Rs.6.78 in 2018 to Rs.3.22 in 2019.
IBFL’s topline dipped by 29 percent year-on-year in 2020. The company sold 210,021 MT of PSF and 24,533 MT of yarn which was 28 percent and 27 percent lower respectively when compared to the off-take registered by the company in 2019. The topline was primarily impacted by the decline in local sales during the year. Conversely, export sales remained sturdy and 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 the consumers, the situation was further worsened by the outbreak of COVID-19 in the second half of 2020, pushing the local sales down by 29 percent year-on-year. Crude oil prices massively fell during the year owing to wipeout of demand. This had a spillover effect on the PSF and its feedstock prices. Gross profit dwindled by 49 percent year-on-year in 2020 with GP margin inching down to 4.1 percent. Lower sales volume meant lower freight and forwarding charges, resulting in a 10 percent year-on-year dive in distribution and marketing expense in 2020. Administrative expense grew by 9 percent year-on-year in 2020 on account of high payroll expense despite the fact that the number of employees considerably dropped from 3846 in 2019 to 1337 in 2020. IBFL didn’t book any provisioning against WPPF in 2020 which translated into an 81 percent plunge in other expense during 2020. Other income also plummeted by 55 percent year-on-year in 2020 due to significantly lower scrap sales. Operating profit slumped by 70 percent year-on-year in 2020 with OP margin slipping down to 1.7 percent. To add to ado, finance cost posted a hefty 171 percent rise in 2020 due to high discount rate for the most part of the year coupled with borrowings obtained during the year particularly long-term financing facilities under 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 50 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 to clock in at 267,037 MT and a 125 percent growth in the sales volume of yarn to clock in 70,607 MT. 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 539 percent in 2021, with GP margin reaching its optimum level of 17.7 percent. Distribution and administrative expense grew by 13 percent and 41 percent respectively. High freight and forwarding and high payroll expense were the main culprits behind tall operating expenses incurred in 2021. Other expense multiplied by 21 times in 2021 due to high provisioning booked against WWF and WPPF. Other income also majorly grew by 174 percent during on account of higher scrap sales and gain on the disposal of property, plant and equipment during the year. Operating profit grew by around 12 times in 2021 with OP margin jumping up to 14.7 percent. Finance cost slid by 42 percent year-on-year in 2021 which was the result of 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 9.3 percent and an 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 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 scenario and devastating floods in the country. Commodity super cycle in the global market owing to Russia Ukraine crisis coupled with steep deprecation of Pak Rupee and high indigenous inflation pushed up the cost of sales and resulted in a GP margin of 11.7 percent in 2022. Higher freight and forwarding charges due to surging fuel cost and increased sales volume played an important role in suppressing the operating profit during the year. Administrative expense also spiked on the back of higher payroll expense on account of inflation. The OP margin turned out to be 9.2 percent in 2022. Then higher finance cost on account of excessive monetary tightening and elevated borrowing culminated into a net profit of Rs.5310,545 million in 2022 with an NP margin of 4.6 percent and an EPS of Rs.17.10.
Recent Performance (1HCY23)
During 1HCY23, IBFL’s topline posted a 6.3 percent drop. However, due to elevated commodity prices, high inflation in the local economy and rapidly declining value of Pak Rupee, cost of sales grew by 2.7 percent during 1HCY23. This pushed the gross profit down by 44.7 percent and translated into a GP margin of 11.1 percent in 1HCY23 from 18.9 percent during the same period last year. Operating expense grew by 28 percent year-on-year in 1HCY23 due to primarily due to increased payroll expense as well as freight and forwarding charges on account of high inflation. Other expense dropped by 55 percent year-on-year in 1HCY23 maybe because the company booked lesser provisioning against WWF and WPPF during the year. Other income also massively dropped by 81 percent year-on-year in 1HCY23. All these factors kept the operating profit under pressure which tumbled by 52.5 percent in 1HCY23. OP margin shrank from 16.2 percent during 1HCY22 to 8.2 percent in 1HCY23. Finance cost expanded by 340 percent resulting in a 70 percent decline in net profit in 1HCY23. Net profit stood at Rs.1761.245 million in 1HCY23 with an EPS of Rs.5.67 versus Rs.18.69 recorded in the same period of last year. NP margin also dwindled from Rs.18.69 in 1HCY22 to Rs.5.67 in 1HCY23.
Future Outlook
PSF prices are expected to stay high on the back of crude oil output cuts by Saudi Arabia and Russia as per the OPEC directives. This will offset the effect of lower crude oil demand from China. However, demand destruction on account of global recession and challenging domestic environment is expected to squeeze the sales of IBFL. Furthermore, high cost of sales as well as elevated cost of borrowing is also expected to keep the bottomline and margins under pressure.