Fateh Industries Limited (PSX: FIL) was incorporated in Pakistan as a public limited company in 1986. The principal activity of the company is the manufacturing and selling of footwear of all kinds.
Pattern of Shareholding
As of June 30, 2024, FIL has a total of 2 million shares outstanding which are held by 123 shareholders. Directors, CEO, their spouses, and minor children have the majority stake of 81.93 percent in the company followed by NIT & ICP holding 1.17 percent shares. Banks, DFIs, and NBFIs account for 1.05 percent of the outstanding shares of FIL. The remaining shares are held by other categories of shareholders.
Historical Performance (2020-24)
Except for a year-on-year increase in 2022 and 2023, FIL’s topline dropped in all the years under consideration. The company registered a net loss in all the years except 2020. FIL’s gross margin which had been ticking up until 2020 dropped for the successive two years followed by an uptick in 2024. Its operating and net margins posted a positive figure only in 2020 (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.
In 2020, FIL’s topline ticked down by 11 percent year-on-year to clock in at Rs.27.40 million. The main source of revenue for the company was local sales of shoes which constituted 58.15 percent of the total sales mix of FIL. This was followed by export sales of wastage wool accounting for 50.63 percent of FIL’s topline. The company made no export sales of shoes in 2019; however, this category was recorded at Rs.0.11 million (or 0.4 percent of net sales) in 2020. Cost of sales inched down by 11.6 percent in 2020, resulting in a 3.65 percent downtick recorded in FIL’s gross profit. GP margin clocked in at 7.23 percent in 2020 versus GP margin of 6.68 percent recorded in 2019. Administrative expenses mounted by 28.96 percent in 2020 which mainly came on the back of traveling, conveyance, and entertainment charges as well as utility charges incurred during the year. Selling expenses surged by 36 percent in 2020 on account of freight on export as well as clearing & forwarding charges incurred during the year. Other expenses plunged by 86.33 percent in 2020 due to the high-base effect as the company booked allowance for ECL worth Rs.3.56 million in the previous year. What proved to be the real game changer for FIL in 2020 was a robust other income of Rs.168.02 million recorded during the year. This was the result of export sea freight compensation received and the reversal of provision for ECL recorded during the year. FIL also earned a foreign exchange gain of Rs.14.81 million in 2020 versus a foreign exchange loss of Rs.3.78 million recorded in the previous year. All these factors translated into an operating profit of Rs.178.38 million in 2020 versus an operating loss of Rs.10 million in the previous year. Finance costs (which only comprised bank charges) grew by 275.10 percent in 2020. FIL posted a net profit of Rs.175.71 million in 2020 versus a net loss of Rs.10.53 million recorded in 2019. EPS stood at Rs.87.86 versus a loss per share of Rs.5.26 posted in 2019. NP margin clocked in at 641.28 percent in 2020.
In 2021, FIL’s topline further shrank by 50.50 percent to clock in at Rs.13.56 million. This was due to the fact that the company made no export sales of shoes or waste wool during the year on account of the recession in the international market. Besides, its local sales also ticked down in 2021. The cost of sales dropped by 52 percent in 2021. In absolute terms, gross profit slumped by 30.27 percent in 2021, however, the GP margin improved to 10.19 percent. Administrative expenses surged by 12.78 percent in 2021 due to higher rent, rates & taxes as well as fee & subscription charges incurred during the year. No selling expense was incurred during the year. Other expenses multiplied by 269 percent in 2021 due to provision booked for stock obsolescence. Other income eroded by 99.43 percent in 2021 due to the high-base effect as the company received export sea freight compensation in 2021. Foreign exchange gain also declined by 98.24 percent in 2021. FIL recorded an operating loss of Rs.4.01 million in 2021. Finance costs declined by 98 percent in 2021. The company recorded a net loss of Rs.4.22 million in 2021. This translated into a loss per share of Rs.2.11.
In 2022, FIL recorded an uptick of 4.58 percent in its topline which stood at Rs.14.18 million. This came on the back of increased local sales. No export sales were made during 2022. The cost of sales escalated by 10.73 percent in 2022 due to inflationary pressure and elevated electricity tariffs. This resulted in a 49.64 percent slump in gross profit in 2022 with GP margin ticking down to 4.91 percent. Administrative expenses plummeted by 70.86 percent in 2022 due to a considerable decline in rent, rates & taxes incurred during the year. Other expenses ticked up by 2.41 percent in 2022 due to advances written off during the year. Other income improved by 24.14 percent in 2022 due to higher rental income recognized. FIL registered an exchange loss of Rs.2.44 million in 2022. Operating loss was recorded at Rs.3.90 million in 2022, down 2.62 percent year-on-year. Finance costs also contracted by 17.43 percent in 2022. All these factors culminated in a net loss of Rs.4.09 million in 2022, down 3.16 percent year-on-year. Loss per share stood at Rs.2.05 in 2022.
FIL recorded a 16.29 percent improvement in its net sales which stood at Rs.16.50 million in 2023. While the company didn’t make any export sales for the third year in a row, topline growth was the result of an uptick in local sales of shoes. High cost of sales on the back of elevated prices of raw materials, Pak Rupee depreciation, and high energy tariff squeezed FIL’s gross profit by 22.13 percent in 2023. This translated into a GP margin of 3.29 percent in 2023 – the lowest GP margin recorded over the period under consideration. Administrative expenses contracted by 8.47 percent in 2023 as the company didn’t incur any traveling, conveyance, or entertainment expenses during the year. Besides, rent, rates & taxes also took a dip in 2023. Other expenses tumbled by 64.91 percent in 2023 as the company didn’t book any provision for stock obsolescence during the year. Moreover, no advances were written off in 2023. Other income improved by 156.90 percent in 2023 due to higher rental income recognized during the year. Foreign exchange loss picked up by 191.36 percent to clock in at Rs.7.10 million in 2023. FIL recorded an operating loss of Rs.5.44 million in 2023, up 39.26 percent year-on-year. Finance costs dipped by 48 percent in 2023. FIL recorded a net loss of Rs.5.65 million in 2023, up 38 percent year-on-year. This translated into a loss per share of Rs.2.82 in 2023.
In 2024, FIL’s topline nosedived by 17.19 percent to clock in at Rs.13.66 million. No export orders were received during the year coupled with a downtick recorded in local sales. This was owing to shrunken pockets of consumers on account of prolonged periods of elevated inflation. The cost of sales dipped by 17.58 percent in 2024. This resulted in a 5.72 percent plunge recorded in gross profit in 2024. However, the GP margin slightly ticked up to clock in at 3.74 percent in 2024. Administrative expense posted a marginal year-on-year growth of 2.11 percent in 2024 on the back of higher rent, rates & taxes as well as increased fee & subscription charges incurred during the year. Other expenses magnified by 692.39 percent in 2024 as the company booked a hefty provision worth Rs.4.728 million for the obsolescence of inventory. Other expense, to a great extent, was offset by 33.2 percent growth recorded by other income in 2024 which was due to higher rental income recognized during the year. The company recorded a foreign exchange gain of Rs.1.01 million in 2024 as against the exchange loss recorded in 2023. Operating loss slid by 77.43 percent to clock in at Rs.1.23 million in 2024. Finance costs (bank charges) surged by 37.55 percent in 2024. FIL posted a net loss of Rs.1.93 million in 2024, down 65.78 percent year-on-year. This translated into a loss per share of Rs.0.97 in 2024.
Recent Performance (1HFY25)
The company’s topline deteriorated by 97.85 percent to clock in at Rs.0.17 million in 1HFY25. While the company failed to grab any export orders, its local presence is also fading. Cost of sales dropped by 96.43 percent in 1HFY25 resulting in a gross loss of Rs.0.21 million, down 92 percent year-on-year. Administrative expense mounted by 314.52 percent in 1HFY25 to clock in at Rs.1.94 million probably due to higher rent, rates, and taxes incurred during the period. Other expenses ticked up by 13.33 percent in 1HFY25 most likely on account of provision booked for stock obsolescence. Other income dipped by 61.79 percent in 1HFY25 maybe on account of lesser rental income recognized during the year. The company recorded a foreign exchange gain of Rs.0.50 million in 1HFY25, up 215.37 percent year-on-year. Operating loss mounted by 83.78 percent to clock in at Rs.0.75 million in 1HFY25. Finance cost (bank charges) dipped by 60.32 percent in 1HFY25. FIL registered a net loss of Rs.0.755 million in 1HFY25, up 82.81 percent year-on-year. This translated into a loss per share of Rs.0.38 in 1HFY25 versus a loss per share of Rs.0.21 posted in 1HFY24.
Future Outlook
As of December 31, 2024, FIL’s accumulated loss stood at Rs.91.075 million. Its current liabilities exceed its current assets by Rs.102.21 million. This casts significant doubt on the ability of the company to continue as a going concern. However, the management is committed to providing financial support whenever required.
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