Crescent Fibres Limited (PSX: CFL) was incorporated in Pakistan as a public limited company in 1977. The company is engaged in the manufacturing and sale of yarn.

Pattern of Shareholding

As of June 30, 2023, CFL has a total of 12.418 million shares outstanding which are held by 1430 shareholders. Directors, CEO, their spouses, and minor children have the majority stake of 43.72 percent in the company followed by the local general public holding 41.76 percent of its shares. NIT & ICP accounts for 6.91 percent of CFL’s shares while associated companies, undertakings, and related parties hold 3.07 percent of shares. Around 1.84 percent of the company’s shares are held by joint stock companies and 1.05 percent by Banks, DFIs, and NBFIs. The remaining shares are held by other categories of shareholders.

Historical Performance (2019-23)

CFL’s top line and bottom line slid twice over the period under consideration i.e. in 2020 and 2023.CFL’s margins strengthened until 2022 followed by a decline in 2023. The detailed performance review of the period under consideration is given below.

In 2019, CFL’s net sales grew by 19.15 percent year-on-year. This was mainly on account of higher product prices which led to improved GP margin of 7.76 percent in 2019 versus GP margin of 6.39 percent recorded in 2018. In absolute terms, gross profit grew by 44.67 percent in 2019. Distribution expense inched up by 4.57 percent in 2019 due to higher local freight & insurance charges incurred during the year. The administrative expense also climbed up by 11.41 percent in 2019 due to higher payroll expenses on account of inflationary pressure and an increase in number of employees from 1028 in 2018 to 1047 in 2019. Other income expanded by 13 percent in 2019 mainly due to higher rental income. Gain on the valuation of investment property; gain on the sale of fixed assets and interest on bank deposits also contributed to driving up other income in 2019. Other expenses multiplied by 27.55 percent in 2019 due to higher profit-related provisioning and loss on revaluation of investment. Operating profit rose by 65 percent in 2019 with OP margin jumping up from 3.92 percent in 2018 to 5.43 percent in 2019. Finance costs surged by 53.82 percent in 2019 on the back of higher discount rates. CFL’s net profit posted 66.63 percent year-on-year growth in 2019 to clock in at Rs.113.194 million with EPS of Rs.9.12 versus EPS of Rs.5.47 recorded in 2018. NP margin also picked up from 1.53 percent in 2018 to 2.14 percent in 2019.

In 2020, CFL’s net sales slid by 5 percent year-on-year due to reduced demand due to COVID-19 and a downtick in the prices of final products. Cost of sales declined by 5.22 percent in 2020 which resulted in 2.7 percent shrinkage in gross profit. GP margin slightly grew to 7.95 percent in 2020. 1.1 percent decline in distribution expense in 2020 was the result of lower freight & insurance charges due to suppressed sales volume. Conversely, administrative expenses escalated by 10.27 percent in 2020 due to higher payroll expenses while a number of employees went down to 1039. Other income multiplied by 125.51 percent in 2020 due to liabilities worth Rs.32.385 million written back during the year, higher rental income, and elevated return on bank deposits recorded during the year. In 2020, the company also booked an allowance of Rs.26.342 million on ECL. Other expenses slumped by 44.9 percent in 2020 as no loss on revaluation of investment was recorded during the year. Operating profit inched up by 2.71 percent in 2020 with OP margin rising up to 5.87 percent. Finance costs escalated by 16 percent in 2020 due to increased short-term borrowings and elevated discount rates for most part of the year. Net profit tumbled by 3.91 percent in 2020 to clock in at Rs.108.77 million with EPS of Rs.8.76 and NP margin of 2.17 percent.

CFL’s topline expanded by 21.25 percent in 2021 as a result of demand recovery post-COVID-19. Prices of the final product also greatly improved during the year resulting in a staggering rise in GP margin to 13.86 percent. In absolute terms, gross profit strengthened by 111.36 percent in 2021. Distribution expense was hiked by 12.13 percent due to higher local freight & insurance charges on account of elevated sales volume. 3.88 percent year-on-year uptick in administrative expense in 2021 was on account of higher payroll expense which was partially offset by lower traveling & conveyance charges incurred during the year. Employee headcount also increased to 1062 in 2021. Other income slid by 3.69 percent in 2021 due to the high base effect as CFL wrote off liabilities in the previous year. The company booked a 43.46 percent lower allowance for ECL in 2021. Other expenses magnified by 268.45 percent in 2021 due to higher profit-related provisioning booked during the year. CFL recorded 140 percent higher operating profit in 2021 with OP margin clocking in at 11.63 percent. Finance costs tumbled by 19 percent in 2021 due to monetary easing as well as a better liquidity position which resulted in a decline in external borrowings. CFL’s gearing ratio fell from 43 percent in 2020 to 18 percent in 2021. Net profit increased by 317.61 percent in 2021 to clock in at Rs.454.239 million with EPS of Rs.36.58 and NP margin of 7.46.

CFL recorded the highest topline growth of 32.95 percent in 2022. This was the consequence of greater sales volume and higher prices. Gross profit swelled by 43.54 percent in 2022 with GP margin attaining its highest level of 14.96 percent. Distribution expense ticked down by 4.66 percent in 2022 on account of bulk orders. Administrative expenses surged by 17.35 percent in 2022 on account of higher payroll expenses as well as elevated traveling & conveyance charges incurred during the year. This was due to higher fuel charges and inflationary impact while a number of employees was cut down to 1058 in 2022. Other income declined by 28.52 percent in 2022 as no gain was recorded on the revaluation of investment property, extinguishment of original GIDC liability, and sale of investment in 2022. CFL booked a 32.5 percent lesser allowance for ECL in 2022. Conversely, other expenses mounted by 47.82 percent in 2022 due to higher provisioning done for WWF and WPPF. CFL posted a 43 percent stronger operating profit in 2022 with the highest OP margin of 12.51 percent. Finance cost soared by 19.88 percent in 2022 due to monetary tightening and increased utilization of short-term financing lines. The gearing ratio also inched up to 20 percent in 2022. Net profit enhanced by 44.14 percent to clock in at Rs.654.722 million in 2022 with EPS of Rs.52.72 and NP margin of 8.1 percent.

After the year of a global pandemic, 2023 was the first year when CFL posted a plunge in its topline. This time around, the decline was more intense to the tune of 15.44 percent. Not only did CFL’s net sales slide, but its GP margin drastically fell to 0.43 percent in 2023 versus the highest level of 14.96 percent recorded in the previous year. Sluggish demand resulted in curtailed capacity utilization which drove up the cost of fixed overhead per unit and didn’t allow the overall cost of sales to drop by more than 1 percent in 2023. In absolute terms, gross profit slumped by 97.59 percent in 2023. Distribution expense grew by a massive 56.42 percent in 2023 on account of higher local freight & insurance charges due to higher fuel prices. 6.28 percent increased administrative expense incurred in 2023 was the consequence of higher payroll expense, directors’ remuneration, and vehicle running & maintenance charges incurred during the year. Due to demand destruction and curtailed capacity utilization, CFL cut down its workforce by 36 employees to bring down the tally to 1022 employees. A massive rise of 1345.23 percent in other income in 2023 was attributable to fair value gain on investment property designated as “held for sale” due to tighter operations. Allowance for ECL also multiplied by 249.85 percent to clock in at its highest level of Rs.35.174 million in 2023. Other expense was tapered off by 87.45 percent in 2023 as no provisioning was done for WPPF along with much lesser provisioning for WWF done during the year. Operating profit thinned down by 37.7 percent in 2023 with OP margin clocking in at 9.21 percent. OP margin for 2023 was lesser than the OP margin recorded in the previous year, however, much bigger than the GP margin for the current year due to hefty other income. Finance cost magnified by 105.3 percent in 2023 due to elevated discount rates and increased borrowings. The gearing ratio was pushed up to 25 percent in 2023. CFL posted a 42.59 percent weaker net profit in 2023 to the tune of Rs.375.095 million with EPS of Rs.30.27 and NP margin of 5.5 percent.

Recent Performance (9MFY24)

CFL’s net sales grew by 7.34 percent during 9MFY24. While demand continued to be slow, topline growth was the result of higher product prices in accordance with external cost pressures as well as higher fixed costs due to lower capacity utilization. CFL recorded a gross loss of Rs.93.718 million in 9MFY24 versus a gross profit of Rs.184.261 million recorded during the same period last year. Distribution expense for the period was 2 percent less than 9MFY23 due to lower sales volume while administrative expense continued to spike owing to inflationary pressure. Other income continued to expand during 9MFY24 supposedly due to higher revaluation gain on investment property which may be sold by the end of 2024. The company recorded an operating loss of Rs.200.508 million in 9MFY24 versus an operating profit of Rs.48.146 million recorded during the same period last year. Finance cost slid by 0.85 percent in 9MFY24 due to a decline in borrowings on account of halted production activities. The company recorded a net loss of Rs.400.376 million and a loss per share of Rs.32.24 in 9MFY24 versus a net loss of Rs.141.029 million and a loss per share of Rs.11.36 posted during the same period last year.

Future Outlook

Subdued external demand will continue to take its toll on the topline of CFL. Lower demand may not allow the company to attain price rationalization resulting in weaker margins and an unpleasant bottom line.