Economy hanging by a thread, IIL results reveal

Corporate results season is in full swing at the KSE. Though, overall mixed results have failed to create sparks at the bourse, all eyes are on corporate earnings to determine the future direction of the economy.
With that in mind, the performance of International Industries Limited (IIL), manufacturer and marketer of a variety of metal products (pipes), is a good case to gauge industrial demand, given its wide customer portfolio, which ranges from the auto industry to water supply, sanitation and furniture manufacturers.
At first glance, robust bottom-line growth in FY10 paints an optimistic picture, as IILs profits surged threefold to Rs1,026 million against Rs375 million last year. But in essence, it is attributed to improvements in gross profit margins and lower financial charges.
The companys total sales volume rose about 13 percent in FY10 to 175,000 metric tons; out of which, it exported 50,000 tons as against 39,000 tons exported in fiscal year 2009. As the increase in selling price was higher than rise in input costs, the company managed to increase its gross margins by around 7 percentage points.
Domestic sales, however, which hold a major chunk in the companys total sales pie, remained damp - rising a meager 8 percent in FY10. Though, this points towards a slight improvement in demand, it is not strong enough to deem that Pakistans industrial sector is back on track.
The outcome of IILs local sales chimes with dreary LSM data. Manufacturing of iron and steel products and petroleum products fell by 13 percent and 7 percent, respectively, during first eleven months of FY10 against the same period a year ago.
Moreover, a recent hike in the discount rate, higher energy tariffs, rising commodity prices along with a weak financing climate pose serious threats to the industrial sector.
On top of that, the floods and stormy rains across the country also bode ill for the sectors output growth as it will erode agriculture sectors output, which in turn, can potentially retard the demand for automobiles.
Still, whether the industrial sector improves or not, the water catastrophe is not half bad for the construction material producer, as huge infrastructure requirements will likely keep demand for cement and steel products afloat.

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International Industries Ltd

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Rs (mn)                     FY10        FY09      %chg

Sales                     13,472      12,319        9%

Cost of goods sold        11,249      11,152        1%

Gross profit               2,223       1,167       90%

GM                            17%          9%      74%

Operating exp                519         427       22%

Other operating charges      227          56      305%

Financial charges            257         535      -52%

Profit after tax           1,026         375      174%

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Source: KSE Announcement