International Industries Limited

International Industries Limited (PSX: INIL) was incorporated in Pakistan in 1948. The principal activity of the company is the manufacturing and sales of galvanized steel pipes, API line pipes, precision steel tubes as well as polymer pipes and fittings. Besides serving the local market, INIL has a footprint in around 60 countries across the globe.

Pattern of Shareholding

As of June 30, 2024, INIL has a total of 131.882 million shares outstanding which are held by 4177 shareholders. Directors, CEO, Sponsors, and their family members have the majority stake of 42.985 percent in the company followed by the local general public holding 22.89 percent shares of INIL. Government financial institutions, NIT, and NBP-related companies account for 18.64 percent shares of INIL while public, private, and other companies own 5.03 percent shares. Banks, DFIs, and NBFIs hold 3.45 percent shares of INIL followed by Modarabas & Mutual funds holding 2.96 percent shares. Around 1.68 percent of the company’s shares are held by foreign companies, 1.13 percent by its associated companies, and 1.05 percent by insurance companies. The remaining shares are held by other categories of shareholders.

Financial Performance Trail (2019-24)

The topline and bottom line of INIL have been fluctuating over the period under consideration. The topline inched up in 2019 followed by a plunge in 2020. It then rode an upward trajectory until 2022 followed by a sharp decline in 2023. In 2024, INIL’s net sales picked up. Conversely, the bottom line posted growth only in 2021 and 2023. The company registered a net loss in 2020. INIL’s margins dropped until 2020 except for year-on-year growth posted by its OP margin in 2019. This was followed by a rebound in margins in 2021. In 2022, gross and net margins eroded while operating margins progressed. In 2023, all the margins considerably recovered with operating and net margins boasting their optimum values. In 2024, gross margin ticked up while operating and net margins dwindled (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.

INIL posted a marginal uptick of 0.2 percent year-on-year in its topline in 2019. During the year, overall LSM activity plunged by 2.9 percent year-on-year with the iron and steel sector registering an 11 percent fall. The steel sector took the brunt of lackluster demand from the real estate, construction, and automobile sectors due to high inflation and discount rates which took its toll on the purchasing power of consumers. Export sales were also down due to protectionism in the key export markets of INIL. Cost grew by 2.34 percent year-on-year in 2019 which pushed down the gross profit by 14.48 percent year-on-year. GP margin also plunged to 10.88 percent in 2019 from 12.75 percent in 2018. Operating expenses almost stood at the same level as 2018. Conversely, other expenses slumped by 42.97 percent in 2019 on the back of considerably lower profit-related provisioning, business development expenses, and donations. Other income mounted by 96.17 percent in 2019 on account of hefty dividend income from its subsidiary company International Steels Limited (PSX: ISL) as well as sizeable exchange gain recognized. INIL also booked a loss allowance on trade debts worth Rs.5.77 million in 2019 versus a reversal of Rs.10 million booked in the previous year. Nil’s operating profit improved by 16.47 percent in 2019. OP margin also climbed to 11.62 percent in 2019 from 10 percent in 2018. Finance costs magnified by 109.26 percent in 2019 on account of an upward revision in the discount rate as well as increased short-term borrowings. This pushed down the bottom line by 0.44 percent in 2019 to clock in at Rs.1574.71 million with EPS of Rs. 11.94 versus EPS of Rs.13.2 recorded in 2018. NP margin remained intact at 6.1 percent in 2019.

INIL’s topline took the hardest hit in 2020 whereby it nosedived by 27 percent year-on-year due to the lockdown imposed on account of COVID-19 which badly impacted the volumes of the company both locally and internationally. During the year, LSM eroded by 10.17 percent while the steel and iron industry took a 17.36 percent dive in the local economy. The global economy also faced a slowdown and volatility in steel prices. INIL’s cost of sales slipped by 24 percent year-on-year in 2020 due to low capacity utilization and curtailed operations. GP margin dropped to 7.23 percent in 2020 while gross profit registered a downfall of 51.48 percent. 28.77 percent lesser selling and distribution expense incurred in 2020 was the result of low freight and forwarding charges as sales volumes remained lackluster. Advertising and marketing activities were also cut back during 2020. Administrative expenses rose by a paltry 0.98 percent during 2020. Other expenses provided the much-needed breather as it slid down by 68.79 percent year-on-year in 2020 on account of lower provisioning done for WWF and WPPF. Conversely, other income didn’t turn out to be favorable and shrank by 66.5 percent year-on-year in 2020 due to a drastic drop in exchange gain and dividend income from the subsidiary company, ISL. All these factors pushed down the operating profit by 73.21 percent year-on-year in 2020 with a steep decline in OP margin which clocked in at 4.26 percent in 2020. Finance costs grew by 33.98 percent in 2020 due to monetary tightening in the initial quarters of FY20. This shoved the bottom line into the loss zone. INIL reported a net loss of Rs.694.20 million in 2020 with a loss per share of Rs.5.26 in 2020.

In 2021, INIL posted a staggering 52.6 percent year-on-year growth in topline which came on the back of volumetric growth of 25 percent and 71 percent in local and export sales respectively. During the year, LSM improved by 8.99 percent with steel and iron sectors rebounding by 1.66 percent. Cost of sales also magnified by 41.91 percent due to record high prices of steel. Yet high sales volume and improved prices of INIL’s products resulted in 189.76 percent year-on-year growth in gross profit. GP margin boasted a strong rebound and climbed up to 13.73 percent in 2021. 83.78 percent higher distribution expense was the consequence of high inflation as well as a rise in ocean freight charges due to higher export sales. Administrative expenses also surged by 28.26 percent in 2021 due to increased payroll expenses on account of inflationary pressure. High provisioning done for WWF and WPPF as well as generous donations drove up the other expense by 514.129 percent in 2021. Exchange gain slightly shrank due to appreciation in the value of the Pak Rupee in 2021; however, high dividend and rental income from the subsidiary company saved the day for INIL as its other income flew up by 81.7 percent year-on-year in 2021. The company also reversed the loss allowance of Rs.52.57 million on trade debts in 2021 booked in the previous years. Operating profit multiplied by a stunning 272.85 percent in 2021 which translated into OP margin of 10.42 percent. Finance costs plunged by 38.97 percent as the discount rate was reduced during the year. INIL posted a net profit of Rs.2314.56 million in 2021 with an NP margin of 8 percent and EPS of Rs.17.55.

In 2022, the topline posted a robust year-on-year growth of 30.82 percent. Locally, the off-take slid by 10 percent year-on-year due to uncertain economic and political environment as well as misuse of tax exemptions by FATA/PATA region players. Conversely, export volume grew by 9 percent year-on-year in 2022 on the back of improved access to the European region which counterbalanced low sales in Afghanistan and Srilanka on account of political turbulence in those territories. Historic high prices of steel coupled with the depreciated Pak Rupee resulted in a 32.93 percent year-on-year rise in the cost of sales. Gross profit grew by 17.49 percent in 2022 but GP margin slipped to 12.33 percent. The company undertook rigorous cost control measures and pushed down its administrative expense by 9.77 percent in 2022, however, selling and distribution expenses grew by 73.17 percent year-on-year due to higher export sales volumes which pushed up the freight charges. Other income posted handsome growth of 209.26 percent in 2022 on account of dividend income from the subsidiary company and robust exchange gain due to Pak Rupee depreciation while other expenses moved down by 34 percent due to lower profit-related provisioning, donations, and business development expenses. Operating profit expanded by 60.52 percent in 2022 and OP margin also ticked up to 12.8 percent. However, the joy proved to be short-lived as a 56.39 percent spike in finance cost due to a high discount rate and added borrowings as well as a high tax rate due to the imposition of super tax shoved the bottom line down by 6.87 percent year-on-year in 2022 to clock in at Rs. 2155.67 million. NP margin also plunged to 5.7 percent in 2022 while EPS was recorded at Rs.16.35.

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After two consecutive years of topline growth, INIL’s topline was 29.24 percent down in 2023. On account of economic and political instability, shut down of auto industries due to import restrictions and slow construction and infrastructure-related activity; LSM shrank by 10.26 percent in 2023 versus LSM growth of 10.6 percent recorded in 2022. The steel and iron industry also contracted by 4 percent in 2023 versus growth of 16.6 percent registered in 2022. As a consequence, local sales volume dampened by 38 percent. Export sales didn’t impress either and underperformed compared to the previous year. Curtailed demand and sales volume reduced the cost of sales by 29.6 percent year-on-year which resulted in a rise in GP margin to 12.8 percent in 2023. Distribution expense shrank by 45.75 percent in 2023 considerably because of lower freight charges on account of lesser off-take. Administrative expenses inched up by a mere 1.96 percent in 2023 due to higher payroll expenses on account of inflationary pressure. Other expenses plummeted by 29.58 percent in 2023 due to lesser provisioning done for WWF and WPPF. Other income slid by 5.28 percent in 2023 on the basis of lesser dividend income from the associated company and lesser exchange gain. Operating profit declined by 4.63 percent year-on-year in 2023, yet OP margin climbed up to 17.23 percent. 46.54 percent higher finance cost was the result of the high discount rate. The company managed its cash flows and working capital quite well during the year and didn’t require additional borrowings. This is evident in its strong liquidity position (see the graph of Liquidity ratios). The company’s gearing level also improved from 60 percent in the past six years to 55 percent in 2023. INIL’s net profit grew by 5.44 percent in 2023 to clock in at Rs.2272.94 million with EPS of Rs.17.23 and NP margin of 8.5 percent.

In 2024, INIL’s net sales posted a marginal year-on-year growth of 9.02 percent. Import restrictions continued during the year resulting in a 37.4 percent contraction in the automobile industry. Iron & steel industry also shrank by 2.2 percent in 2024 due to weaker demand from auto and construction-related industries. INIL’s local sales volumes slid by 2.3 percent in 2024, however, sales proceeds inched up by 12 percent during the year. Export sales proceeds posted a marginal growth of 4 percent in 2024 due to dampened demand in the construction sector of the company’s key export markets. High energy and conversion costs resulted in an 8.56 percent spike in the cost of sales in 2024. This resulted in 12.19 percent growth in gross profit in 2024 with GP margin slightly inching up to 13.15 percent. Distribution expense inched down by 3.39 percent in 2024 due to lower sales volume resulting in thinner freight & forwarding charges. Administrative expenses spiked by 21.86 percent on account of higher payroll expenses, vehicle, travel & conveyance charges as well as legal & professional charges incurred during the year. Other expenses slid by 19.89 percent in 2024 due to lower profit-related provisioning and donations. Other income was also dampened by 56.26 percent in 2024 due to lower dividend income from International Steels Limited and IIL Australia Pty. Limited as well as exchange loss incurred during the year. Operating profit dwindled by 28.95 percent in 2024 with OP margin falling down to 11.23 percent. Finance costs dropped by 14.97 percent in 2024 due to better working capital management. This resulted in a decline in the company’s gearing ratio from its historic level of 60 percent in the previous years to 42 percent in 2024. INIL’s net profit slumped by 35.19 percent to clock in at Rs.1472.13 million in 2024. This translated into EPS of Rs.11.17 and NP margin of 5.04 percent in 2024.

Recent Performance (1HFY24)

In the first half of FY25, INIL’s net sales posted a 28.61 percent year-on-year decline due to sluggish construction activity, misuse of tax exemptions granted to the FATA/PATA region and fall in international steel prices due to trade barriers, and sluggish international growth. High energy and conversion costs didn’t allow INIL’s cost of sales to plunge by the same magnitude as its sales. This resulted in a 52.68 percent decline in gross profit in 1HFY25 with the GP margin clocking down to 10.1 percent from the GP margin of 15.3 percent recorded in 1HFY24. Operating expenses largely remained intact at last year’s level in 1HFY25. Other expenses fell by 84.53 percent in 1HFY25 due to lower profit-related provisioning done during 1HFY25. Conversely, other income inched up by 18.65 percent in 1HFY25 due to higher dividend income from the subsidiary company. During the period under consideration, INIL recorded a reversal of loss allowance worth Rs.15.104 million on trade receivables. This was against the charge of loss allowance worth Rs.49.31 million recorded in 1HFY24. Operating profit shrank by 51.24 percent in 1HFY24 with OP margin recorded at 8.9 percent versus OP margin of 13.1 percent recorded in 1HFY24. Finance cost slid by 58.12 percent in 1HFY25 due to lower discount rates as well as efficient cash management. During the period under consideration, INIL reduced its external debt exposure by Rs.3.8 billion. Net profit tapered off by 55.2 percent to clock in at Rs.387.48 million in 1HFY25 with EPS of Rs.2.94 versus EPS of Rs.6.56 recorded in 1HFY24. NP margin also thinned down from 5.2 percent in 1HFY24 to 3.3 percent in 1HFY25.

Future Outlook

While monetary easing, declining inflation, and strengthening Pak Rupee provide great impetus for the resumption of construction activities in the country, sales volumes of the steel industry may gradually recover during the ongoing fiscal year due to lower PSDP allocation and petite GDP growth. In the global market too, the demand is expected to remain sluggish due to weak demand from key markets like China. This will also put downward pressure on steel prices.

On the brighter side, the company’s solar energy project of 4MW capacity is now operational. Besides, the company is striving to diversify its product mix by venturing into high-value stainless steel and uPVC segments.