Image Pakistan Limited (PSX: IMAGE) was incorporated in Pakistan as a public limited company in 1990. The company was formerly known as Tri-Star Polyester Limited. The company changed its name in 2021. The company is engaged in the manufacturing and sale of embroidered fabric, polyester filament yarn, and ready-to-wear garments.

Pattern of Shareholding

As of June 30, 2024, IMAGE has a total of 230.370 million shares outstanding which are held by 6685 shareholders. The local general public has a majority stake of 44.76 percent in the company followed by Directors, the CEO, their spouse, and minor children holding 35.81 percent shares. Other companies account for 8.78 percent shares while Modarabas and Mutual funds have a share of 9.03 percent in IMAGE. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-24)

The top line of IMAGE has shown incredible growth over the period under consideration. The bottom line, however, slid in 2019 and 2020 and then rode an upward trajectory since 2021. The company’s margins have been oscillating over the period with gross margins and operating margins falling from their optimum level in 2018 to their lowest ebb in 2023. In 2024, gross and operating margins slightly ticked up. Net margin also boasted its optimum level in 2018, however, it bottomed out in 2020. This was followed by two years of recovery and then a decline in 2023 and 2024 (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.

In 2019, IMAGE (formerly known as Tri-star Polyester Limited) posted 20.11 percent year-on-year growth in its topline which came on the heels of value-added embroidered fabric while the polyester filament yarn business was discontinued during the year. The high cost of sales allowed the gross profit to grow by a meager 8.51 percent year-on-year in 2019 with GP margin falling to 51.4 percent from 56.86 percent in 2018. Distribution expenses posted an enormous 153 percent year-on-year rise in 2019 which was mainly on account of an increase in rent expense and utility expense. Administrative expenses largely remained in check and grew by a marginal 3 percent year-on-year even though IMAGE undertook a considerable increase in its workforce from 269 employees in 2018 to 357 employees in 2019. Operating profit slid by 26.7 percent year-on-year in 2019 with OP margin clocking in at 19.24 percent in 2019 versus OP margin of 31.53 percent recorded in the previous year. Finance cost grew by 34.93 percent year-on-year in 2019 on the back of an increase in discount rate during the year. The company’s finance cost mainly comprises of markup on diminishing Musharka finance facility. The rise in finance cost was partially offset by other income of Rs.11.76 million recorded during the year. This was the result of liabilities written back during the year. IMAGE’s bottom line slid by 32.30 percent year-on-year in 2019 to clock in at Rs.52.67 million with EPS of Rs. 0.93 versus EPS of Rs.1.5 posted in the previous year. NP margin also massively dropped from 24.16 percent in 2018 to 13.62 percent in 2019.

In 2020, the local as well as global economy was hit hard by the global pandemic. In Pakistan, the lockdown began at the onset of the spring-summer season when seasonal buying of fabric and garments is usually at its peak. Due to the lockdown, the retail outlets of IMAGE couldn’t open during March-June, however, the topline attained 4.23 percent year-on-year growth, thanks to the e-sales performance. Curtailed cost due to lockdown rendered 8 percent year-on-year growth in gross profit with GP margin also ticking up to 53.26 percent in 2020. Operating expenses grew by 20.52 percent in 2020 on the back of an increase in advertisement expenses to boost online sales as well as salaries and wages. This pushed the operating profit down by 12.45 percent year-on-year in 2020. OP margin also dropped to 16.16 percent in 2020. Finance cost grew by a mere 2.23 percent year-on-year in 2020 as the company reduced its diminishing musharka finance facility and acquired more loans from associated parties. Net profit slid by 57.46 percent year-on-year in 2020 to clock in at Rs.22.41 million with EPS of Rs.0.39. NP margin thinned down to 5.56 percent in 2020.

Poor customer traffic in the outlets in 2020 due to COVID-19 was reversed in 2021 whereby not only physical sales grew massively but online sales also outshone the last year’s figure owing to the company’s continuous effort to make its online sales more seamless and hassle-free. The company became the first approved Pakistani seller on Amazon in 2021 which provided further impetus to the e-sales of the company and allowed the company to have access to customers in the UK, the US, and Canada. While the topline did a splendid job in 2021 boasting a 148.49 percent year-on-year rise, the GP margin considerably shrank to 44.12 percent due to a hike in raw materials prices. Distribution expenses soared by 106.75 percent primarily on the back of an increase in advertisement expenses, rent expenses, and utilities expenses incurred during the year. Administrative expenses grew by 10.75 percent year-on-year in 2021 primarily due to higher payroll expenses as the number of employees grew from 206 in 2020 to 541 in 2021. Despite higher operating expenses, operating profit was able to boast 205.66 percent year-on-year growth in 2021 with OP margin rising to 19.88 percent. Although downward revisions were made in the discount rate during the year, finance cost expanded by 44.68 percent year-on-year in 2021 on the back of increased outstanding debt of the company. IMAGE’s bottom line posted a stunning year-on-year growth of 413.69 percent in 2021 to clock in at Rs.115.10 million with EPS of Rs. 2.02. NP margin also significantly improved to 11.49 percent in 2021.

2022 was characterized by store optimization activities whereby the company opened its stores in the prime locations of the key metropolitan cities and refurbished the existing ones to add further momentum to its in-store sales. The company also expanded its online store. This culminated in a year-on-year topline growth of 37.19 percent in 2022. The company also significantly revised its prices to absorb the high cost of sales on the back of skyrocketing raw material prices, Pak Rupee depreciation as well as elevated fuel and energy charges. This enabled IMAGE to register 59.25 percent year-on-year growth in its gross profit with GP margin considerably improving to 51.22 percent. Distribution expenses were hiked by 96.70 percent year-on-year in 2022 on the back of a rise in the advertisement budget coupled with an increase in salaries of the sales force, higher rent expense, maintenance, and utility expenses. The administrative expense also surged by a whopping 116.51 percent year-on-year in 2022 on the back of higher payroll expenses as the employee count rose to 639 in 2022. Mounted fees and subscription charges, traveling, and IT costs also played their role in driving up administrative expenses in 2022. Operating profit managed to achieve 5.97 percent year-on-year growth but OP margin tapered off to 15.36 percent in 2022. The company also made other losses worth Rs. 34.36 million as it booked provisions against NIT units. Despite the discount rate ticking up, the company was able to reduce its finance cost by 11.55 percent in 2022 on the back of lesser borrowings. IMAGE posted a gearing ratio of 7.45 percent in 2022 versus a gearing ratio of 19.05 percent recorded in 2021 (see the graph of gearing ratio and finance cost). The bottom line posted growth of 51.21 percent during the year to stand at Rs.174.05 million in 2022 with EPS of Rs.2.06. NP margin improved to 12.66 percent in 2022.

With robust in-store and online sales, IMAGE registered 50.21 percent year-on-year growth in its net sales in 2023. As IMAGE taps new geographical markets as well as new segments such as formals and semi-formals, its sales growth becomes more sustainable. While the majority of raw materials consumed by the company are locally sourced which keeps it insulated from the depreciating value of local currency and the import restrictions that marred the performance of many local companies, however, towering indigenous inflation and elevated energy tariffs didn’t spare the company and increased its cost of sales by 81.42 percent year-on-year in 2023. While gross profit rose by 20.48 percent year-on-year in 2023, GP margin clocked in at its 6-year lowest level of 41.08 percent. Distribution expenses hiked by 14.93 percent year-on-year in 2023 on the back of mounting rent expenses, utilities expenses, E-commerce expenses as well as sales force’s payroll expenses. Administrative expenses stayed intact in 2023. Operating profit burgeoned by 45.16 percent year-on-year in 2023; however, OP margin slumped to 14.84 percent. Finance cost magnified by 21 percent year-on-year in 2023 due to a record high discount rate. Net profit grew by 19.39 percent year-on-year to clock in at Rs.207.80 million in 2023 with EPS of Rs.1.91. NP margin dropped to 10.07 percent in 2023.

Image posted year-on-year topline growth of 42.75 percent in 2024. This was on account of an increase in both the volumes and value of the company’s products. High inflation and energy tariff resulted in a 37 percent spike in the company’s cost of sales in 2024, however, with upward price revision; the company was able to drive its gross profit up by 50.92 percent in 2024 with GP margin climbing up to 43.43 percent. 48.62 percent year-on-year surge in distribution expense in 2024 was the result of increased advertising expenses and shop rentals. Administrative expenses also escalated by 42.82 percent in 2024 due to higher payroll expenses due to inflationary pressure and also because the number of employees increased from 878 in 2023 to 881 in 2024. Operating profit strengthened by 58.11 percent in 2024 with OP margin ticking up to 16.44 percent. Other expenses grew by 32.7 percent in 2024 due to higher profit-related provisioning. Finance costs also mounted by 150.58 percent in 2024 due to a higher discount rate even though the outstanding liabilities dropped during the year. This translated into the lowest gearing ratio of 4.29 percent recorded in 2024. The bottom line grew by 37.61 percent to clock in at Rs.285.95 million with EPS of Rs.1.99 and NP margin of 9.7 percent.

Future Outlook

IMAGE has identified various strategies to keep itself insulated from economic and political headwinds. Firstly, enthusiastically growing export market and e-commerce sales will keep its topline and margins robust. Secondly, local raw material sourcing will protect its bottom line and margins from exorbitant cost hikes due to the declining value of the local currency. Thirdly, an equity-dominated capital structure will prevent any massive hike in finance costs due to monetary tightening. Furthermore, IMAGE’s target market is largely immune from economic pressures and has high disposable income. These factors coupled with widespread improvement in the customer experience in terms of product quality as well as shopping experience - both in physical and online sales - will ensure vigorous sales and margins in the coming times.