Ibrahim Fibres Limited (PSX: IBFL) was established as a public limited company. It is in the business of manufacturing and sale of polyester staple fibre and yarn. Its manufacturing units are located in Faisalabad in the province of Punjab. Ibrahim Holdings (Private) Limited is the parent company of Ibrahim Fibres Limited.
Ibrahim Holdings (Private) Limited- the holding company, it holds 90 percent of the shares in Ibrahim Fibres Limited. Of the remaining 10 percent shares, about 5 percent is distributed with the local general public while about 4 percent is held under the category of foreign companies.
Historical operational performance
The company, for the most part, has witnessed positive growth in its topline. Profit margins, on the other hand, bottomed out between FY14 and FY16, before peaking in FY17 and again declining.
In FY15, the company saw its greatest decline in revenue, by a little over 22 percent. This was attributed to a decline in crude oil prices which adversely affected the petrochemical chain, including the PSF industry. The third quarter saw the worst effects. The situation was further worsened by dumping of PSF from China which further drove down prices and affected the capacity utilization of the company. In the last two years, cost of production also increased to consume 97 percent of the revenue. If not for the share of profit from associate, the company would have incurred a loss given the close to Rs 2 billion finance cost.
Revenue further reduced by 7 percent in FY16. The situation of oversupply in the international market kept crude oil prices subdued. This continued to affect the petrochemical industry. The company, although managed to increase sales volumes of PSF/Polyester chips, however given the price situation, this could not be translated into higher revenue. Cost of production persisted at 97 percent of revenue, leaving profitability to be supported by the profit from associate. Reduction in finance cost also aided in improving profit margins to some extent; the former came about as a result of a decline in mark up on long term financing, that nearly halved.
Topline recovered as it grew by nearly 15 percent in FY17. This was attributed to the better energy supply situation which enhanced business activity in the textile arena. This in turn generated demand for industrial inputs for the textile sector which meant a healthy turnout of Polyester Staple Fibre (PSF). Better sales volumes were also a result of tariff protection on foreign dumping, which supported the domestic industry. In addition to an improvement in the topline, cost of production also declined to consume 94 percent of the revenue. However, primarily profit margin spiked due to a sudden jump in other income which arose due to disposal of the company’s investment to its holding company, Ibrahim Holdings Private Limited. This resulted in a gain on disposal of investment of almost Rs 6 billion.
The company saw the highest growth in its revenue in seven years at 35 percent in FY18. Several factors contributed to this growth. Consistent energy supplies helped to maintain business activity in the textile sector, which resulted in demand generation for PSF. Tariff and non-tariff protection measures also supported the industry. More importantly, crude oil prices increased steadily throughout the year which led to inventory gains. Cost of production also reduced to nearly 92 percent of the revenue. The company also managed to curtail its previously exorbitant finance cost which helped to improve profit margins. Thus, despite the absence of share of profit from associate, Ibrahim Fibres Limited posted a Rs 2 billion net profit for the year.
Despite the changes that came with a change in the government and the resultant uncertainty, the company grew its topline by nearly 23 percent in FY19. However, this could not be translated into higher profit margins. With crude oil prices remaining under pressure, PSF prices followed a downward trend. Sales volumes were also lower for PSF, while the textile plants saw an increase. Cost of production increased to take up 94 percent of the revenue. This increase was mostly brought about an increase in raw material expense. With other factors seeing minimal changes, profit margins reduced year on year.
Quarterly results and future outlook
The company saw revenue declining by close to 16 percent in 9MFY20 year on year. This can be attributed to the gradual decline in crude oil prices. In addition, production was also comparatively lower for the year. However, cost of production reduced which helped to improve operating margins. However, the effect was negated due to an inflated finance cost which more than doubled year on year.
In addition to the ongoing pandemic, the decline in crude oil price was the lowest seen in two decades which can spell havoc for the company in the last quarter. The effect of this can only be negated by government’s efforts to a certain extent. Despite the uncertainty, the company hopes to see some recovery in the next financial year.