Ibrahim Fibre gearing up for the future

Industrial spending numbers in the economy have tracked the trajectory of the domestic economy in recent months. LSM numbers fell 2.07 percent year-on-year in the four months ending October. Yet, while analysts forecast the doom and gloom, there are some shining stars that have an eye on the opportunities in industrial demand and are making the most of them.
Ibrahim Fibre Limited (IBFL) is a leading polyester staple fibre (PSF) manufacturer in the country. It has recently conducted landmark transaction that will allow it to expand its PSF manufacturing capacity to 1,250 tons per day, from the current level of 650 tons per day.
PSF is a substitute for cotton yarn. With raw cotton touching all-time highs, consumers have traded down from the premium 100 percent cotton products - ensuring solid demand for the synthetic fibre..
"The last two years, particularly 2010 have been particularly good for the industry and therefore demand for PSF has been steadily increasing," said Syed Asif Hasan, Director at Ibrahim Fibres.
A consortium of banks led by MCB Bank (MCB) finalised the €110 million (Rs15.18 billion) letter of credit last week that will enable the firm to acquire the German machinery required for the capacity increase.
Interestingly, Citibank, IFC and ADB have each provided guarantees that cover the risk of MCB, just in case the obligor is unable to make good on its payments.
On a side note, it speaks to the MCBs financial credibility. "When deciding whether to support a transaction, the primary consideration is on the LC issuing banks, as multilaterals only provide bank risk but not corporate risk," ADBs Biao Huang told BR Research in emailed comments.
But its unlikely that such guarantees will come into play. Ibrahim Fibres has managed a healthy financial position with significant investments in Allied Bank, one of the top five banks in Pakistan.
Its business has strengthened in the last two years, primarily based on price increases in PSF and its continued demand in the local spinning industry.
The project is expected to bring economies of scale in PSF business of the company, which is already the dominant player in the market.
On a monthly basis, the market size of PSF is about 43,000 tons with nearly 10,000 tons being imported every month to meet domestic shortfall; Ibrahim Fibres produces a little more than 54 percent of the total domestic production.
"Most companies are working at nearly full capacity, but there remains a supply and demand gap in the PSF space, with this expansion we hope to bridge that gap," Naeem Mukhtar, CEO IBFL told BR Research.
The expansion is expected to be completed in 20 to 24 months, according to company sources. Once completed it is likely to curtail the imports of PSF and thereby strengthen the local textile industry.