First Imrooz Modaraba

First Imrooz Modaraba (PSX: FIMM) was established in 1993 under the Modaraba Companies Modaraba Ordinance, 1980. It primarily undertakes domestic and international trading activities.

Shareholding pattern

As at June 30, 2022, close to 80 percent shares are held under the category of “individuals’, while about 20 percent are with the modaraba company. The remaining less than 1 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has seen a fluctuating topline, while profit margins have more or less remained stable, roughly between FY17 and FY20, after which they have declined slightly until FY22.

In FY18, revenue registered a growth of over 22 percent to reach close to Rs 900 million in value terms. The modaraba largely caters to the textile sector of the country. With several companies in the textile sector posting profits as they benefitted from currency depreciation, its impact can be seen in the growing topline of First Imrooz Modaraba. As cost of sales remained close to 84 percent, gross margin also remained flat at 16 percent. However, net margin was slightly lower at 3.45 percent, from last year’s 4.5 percent due to a higher taxation figure.

Revenue declined in FY19 by over 21 percent. This can be attributed to the modaraba not engaging in volume-based deals due to the general economic slowdown in the country, coupled with high rates of interest and inflation, as well as a depreciating currency. Despite the lower revenue, gross margin increased to nearly 19 percent. On the other hand, operating expenses grew as a share in revenue, due to inflation in the economy. Thus, operating margin increased only marginally to 9.5 percent, from last year’s 9 percent. The increase in net margin was also marginal, from 3.45 percent in the previous year, to 3.5 percent in the current period. However, in terms of value, net profit was lower at Rs 25 million in FY19, compared to Rs 31 million in FY18.

Topline continued to decline in FY20, again by over 21 percent. The modaraba limited its operations, and served the healthcare and pharmaceutical sector, as the Covid-19 pandemic spread throughout the country, resulting in strict lockdowns and halt in operations and production in a lot of sectors. Despite this, gross margin grew to reach a peak of 22.7 percent due to a prominent decrease in cost of production that reduced to below 80 percent of topline, for the first time since FY10. Coupled with a considerably lower tax expense in value terms, net margin also peaked at 6.3 percent.

In FY21, the company posted an incredible growth in topline as it almost doubled year on year in value terms to over Rs 1 billion. This was attributed to significant growth in sectors the modaraba caters to. This also had a positive impact on the company’s financials. But with cost of sales again consuming 80 percent of revenue, gross margin declined to 20 percent. However, operating expenses reduced as a share in revenue, allowing operating margin to increase, but net margin was again lower year on year, due to significant modaraba company’s management fee, as well as a higher taxation expense. Thus, net margin stood at 5.9 percent for the year. In value terms though, bottomline was at its highest at Rs 64 million.

Topline continued to grow in FY22, albeit at a slower rate compared to last year. It witnessed a growth of almost 28 percent, reaching Rs 1.4 billion in value terms. This was again attributed to good growth witnessed in the sectors the company operates in. This led to an increase in sales volumes for the modaraba that translated into a higher topline. However, the higher revenue did not reflect in gross margin as the latter fell to 13.2 percent- the lowest seen since FY14. This was due to cost of sales consuming almost 87 percent of revenue, level last seen a decade ago. The increase in costs was a result of adverse foreign exchange rates, high inflation and freight costs. Combined with a higher taxation expense, net margin decreased to an all-time low of 1.7 percent, while bottomline stood at Rs 24 million.

Quarterly results and future outlook

Revenue in the first quarter of FY23 was higher by almost 4 percent year on year, to Rs 222 million in value terms. However, cost of sales exceeded revenue that is attributed to “foreign exchange conversion based on quarter end rate”. In addition, the general macroeconomic environment, the uncertainty, currency depreciation and cost-push inflation have also adversely affected profitability, not just limited to the modaraba, but several sectors in the economy. Moreover, in the same period last year, the company earned an additional Rs 10 million under “reversal of doubtful debt” that was entirely absent in the current period. Thus, the company incurred a net loss of Rs 39 million, compared to a net profit of Rs 292 million in 1QFY22.

Given the prevalent political uncertainty, inflation and currency depreciation, the modaraba expects an adverse impact on future results, but holds a positive outlook in the long-term.