Project on Ibrahim Fibers Ltd

8/9/2019 Project on Ibrahim Fibers Ltd

1/53


2/53

PresentationPresentationonon

Financial Analysis OfFinancial Analysis Of

Ibrahim Fibers Ltd.Ibrahim Fibers Ltd.


3/53

Presentated to:-Presentated to:-

Sir Hamza MukhtarSir Hamza Mukhtar

presented by:-presented by:-

Umar KhalilUmar Khalil 2007-ag2402007-ag240

Farhat NazFarhat Naz 2007-ag-6112007-ag-611


4/53

Analysis approach

Top to bottom

Economy AnalysisEconomy Analysis

Industry AnalysisIndustry Analysis

Firm AnalysisFirm Analysis


5/53

Pakistans Economy


6/53

Economic Growth:Economic Growth:

In current year pakistans economic growth is decreased ascompare to the previous year by 1%. The growth figure are 5.8%

as well as the last year growth was 6.8%. This year target whichgovt. sets to achive is 7.2%. There are different factors causes thisdecrease in growth which are:

Domestic factors like

heightened political tensionsunstable law and order situationenergy criseswar against terrorismsupply shocks

external factors like

international financial crisisunprecedented rise in global food and energy

prices


7/53

Growth of Pakistan


8/53

Comparison of growth in SouthAsia


9/53

Other Key Figures(Economy of Pak.)

GDP Growthspurred by gains in the industrial and service sectors, remained inthe 6-8% range in 2004-06. In 2005, the World Bank named Pakistanthe top reformer in its region and in the top 10 reformers globally.

GDP Growing Average Of 7% P.A From Last 5 Years

Overall agriculture growth is 1.5% this year

of the growth from services sector

of the growth from producing sector


10/53

Other key figures (count.)(Economy Of Pak.)

InflationRemains the biggest threat to the economy, jumping to more than 9% in 2005.In 2008, following the surge in global petrol prices inflation in Pakistan hasreached as high as 25.0%. The central bank is pursuing tighter monetary policywhile trying to preserve growth.

Over all inflation is 17.2%

CPI-based inflation during July-April 2007-08 averaged 10.3 percent asagainst 7.9 percent in the same period last year

Food inflation is 25.5%

inflationary trend include house rent is 11.4%

Transport and communication also contributed a heavy chunk by peaking at17.9 %

High global prices of food, fuel and other commodities driven by a weakerPakistani rupee, high import prices and gradual removal of fuel, food and powersubsidies along with monetary overhang on account of excessive borrowing fromthe SBP to finance fiscal deficit have been mainly responsible for sharp pick up inprices this year. These factors will continue to exert upward pressure on overallprices in the next two/three years.


11/53


Monetary PolicyMonetary policy stance of the SBP has undergone considerable changesover the last seven years, gradually switching from an easy monetarypolicy to the current aggressive tight monetary policy stance dependingon the inflationary situation in the country. During FY08, the SBP

continued with a tight monetary policy stance, thrice raising the discountrate and increased the Cash Reserve Requirement (CRR) and StatutoryLiquidity Requirement (SLR). In the light of a continued inflationarybuildup and increasing pressures in the foreign exchange market, theSBP announced a package of monetary measures on May 21, 2008 thatincludes;

(i) an increase of 150 bps in discount rate to 12 percent(ii) an increase of 100 bps in CRR and SLR to 9 percent and 19 percent,respectively for banking institutions

(iii) introduction of a margin requirement for the opening of letter ofcredit for imports (excluding food and oil) of 35 percent, and

(iv) establishment of a floor of 5 percent on the rate of return on profit

and loss sharing and saving accounts


12/53

Interest Rates In Pakistan


13/53


Capital Markets:Pakistans stock market has emerged as one of the fastest

growing markets in emerging economies in recent years. Local andforeign investors confidence in the investment environment of Pakistan

has boosted the index to peak highsPakistans benchmarked stock market index - the Karachi Stock Exchange- KSE-100 index has increased from 1,521 points on June 30, 2000 to12,130.5 points on May 30, 2008.

But latest financial crunch also effects the market index.

The major effects are by:

Political uncertainty, less than

satisfactory security environment

disturbed law and order situation on the domestic front

international financial market crisis


14/53


15/53

PAKISTAN TRADE POSITION

ExportsOverall exports recorded a growth of 10.2 percent during thefirst ten months of the current fiscal year against a growth of3.6 percent in the same period last year

In absolute terms, exports have increased from $ 13.8 billion to $ 15.3billion

exports of food group were up by 22.4 percent

Petroleum group exports registered an increase of 38 percent

exports of other manufactures and other itemsposted a handsome

growth of 33.2 percent 59.5 percent, respectively. Textile manufactures 57 percent of total exports performed poorly as

it registered a decline of 2.5 percent.


16/53

Pakistan Trade PositionImports

Current fiscal year 2007-08 on account of an unprecedented rise in oil import bills and some one-off elements inthe shape of imports of wheat and fertilizer. As a result, Pakistans trade and current account deficits havewidened substantially in this year contributing to serious macroeconomic imbalances

Correction of imbalances through shaving off aggregate demand by appropriate policies should be the top mostpriority of the government

Imports during the first ten months (July-April) of the current fiscal year (2007-08) grew by 28.3 percent to $32.1billion

Imports of food group were up by 48.6 percent Imports of food group accounted for 11 percent of total importsbut contributed 16.3 percent in the overall growth of imports in the current fiscal year

Imports of machinery increase of 6.9 reaching to $4.2 billion

Imports of the petroleum group witnessed an extraordinary surge at 47 percent

imports of consumer durables registered a decline of 1.6 percent

raw material, accounting for 16.6 percent of total imports


17/53

Imports & Exports


18/53

ManufacturingManufacturing is the second largest sector of the

economy. This sector has recorded its weakest growth in adecade during fiscal year 2007-08. Overall manufacturingposted a growth of 5.4 percent during the first nine months(July-March) of the current fiscal year against the target of10.9 percent and last years achievement of 8.2 percent.

19 percent of GDP Large-scale-manufacturing (LSM), accounting for almost

70 percent of overall manufacturing, registered a less-than-satisfactory growth of 4.8 percent in fiscal year2007-08

The relatively slower pace of expansion this year perhapsexhibits signs of moderation on account of highercapacity utilization, difficulties in textile and otherimportant sectors such as fertilizer, soap and detergent,vegetable ghee and cooking oil, automobile sector, paper

and paper board, and billets


19/53

Investment In Pakistan After reaching a record level of 22.9 percent of GDP in 2006-07, total

investments declined to 21.6 percent

Fixed investment decreased to 20 percent of GDP from 21.3

private sector investment however, registered a decline of 1.4 percentagepoints - declining from 15.6 percent to 14.2 percent

Private sector investment was broad based. The energy sector has playeda key role in attracting private sector investment

Pakistan succeeded in attracting $3.6 billion worth of foreign investment in

the first ten months of the current fiscal year as against $5.9 billion

Almost 57 percent of FDI has come from three countries

U.A.E (15.4 %) UK (8.7%)

Norway (4.4%) Switzerland (4.1%)

Hong Kong (3.5%) Japan (2.9%)


20/53

Foreign Investment

Communications Sector 30.4%

Financial Businesses 22.6%

Energy Including Oil And Gas And Power 16.6%

Trade 4.9%

The Three Groups, Namely Communication,Banking, And Oil And Gas Exploration

accounted for over 2/3of FDI inflows in the

country


21/53

INDUSTRY ANALYSIS


22/53

INDUSTRY ANALYSIS

IMPORTANCE OF INDUSTRY IN PAKISTAN:IMPORTANCE OF INDUSTRY IN PAKISTAN:The share of textile industry in the economy along with itscontribution to exports, employment, foreign exchange earnings, investmentand value added makes it the single largest manufacturing sector forPakistan. It contributes around 8.5 percent to GDP, employs 38 percent ofthe total manufacturing labor force, and contributes between 60-70 percent

to total merchandise exports.Pakistan is one of the largest textile exporters in the world. The

variety of products ranges from cotton yarn to knitwear. Garment made-upsand bed wear are the most important export products with an export value ofabout $1.35 billion each. Knitwear, ready made garments and cotton yarnalso have important shares in total exports.

Overall, the US and the EU are Pakistans largest trading partnersaccounting for 25 percent and 20 percent share of Pakistani exportsrespectively. Other major importers include China, UAE and SaudiArabia.


23/53

INDUSTRY IN PAKISTAN contINDUSTRY IN PAKISTAN cont

At Present, the industry consists of large-scaleorganized sector and a highly fragmented cottage /small-scale sector. The organized sector comprisesintegrated textile mills i.e.

spinning units with

Shuttle-less looms

down stream industry

Weaving

Finishing

Garments

Towels & Hosiery


24/53

Total Number Of Units (2005)Ginning 1221

Spinning 445Weaving

Large 140

Small 425

Power Looms 20600

Finishing

Large 106

Small 625

Garments 5000

Large 600

Knitwear 700

Towels 400


25/53

Total Capacities

Spinning: 1900 Million Kgs Yarn

Weaving: 5600 Million Sq. Mtr.Fabric

Finishing: 3500 Million Sq. Mtr

Garments: 650 Million PCs.

Knitwear: 350 Million PCs.

Towels: 55 Million Kgs.


26/53

IBFL as compare to industry

1. 2nd highest in paid up capital in overallindustry of synthetic and rayon the 1st one inDEWAN SALMAN

2. Leader in production and sales volume

3. Market share is about 43.25%, 2nd is ICIhaving share of 27.35%

4. Having highest equity as compare to firm inthis industry

5. Profit leader in industry

IBFL As Compare To Industry


27/53

NET

PROFITMARGIN

TOTALASSET

TURNOVER

RETURN

ONTOTALASSETS

RETUR

NON

EQUITY

OPERATIN

GPROFITMARGIN

PLOWBACKRATIO

INTERES

TCOVERA

GERATIO

IBRAHIM FIBRES 9.28% 78.98% 14.95% 16.62% 14.952% 100.00% 2.91

INDUSTRYAVERAGES

-8.61% 78.48% -5.58% -14.54% -5.582% 92.72% -361.21

IBFL As Compare To IndustryAverage


28/53

Problems to the industry

1. Lack of infrastructure

2. Political un-stability

3. State of war4. Energy crises

5. Dumping imports from China and

Korea6. International financial crises


29/53

IBFL as compare to industryIndustry analysis conclusions;

1. There is a good trend in market andgovernment is also want to enhance theshare of this sector

2. As compare to the other industry Ibrahim

Fibers have great financials which shows isstrengths and operational efficiency.

3. In overall industry there is negative trend asshown above but there is potential in marketwhich attract the investor which further add

values in the financial of this industry.4. There is direct negative impact of political

conditions on this industry but govt. want toovercome and take step for the betterment ofthis sector.


30/53

Firm Analysis


31/53

Firm AnalysisCompany Information: The group started with a cloth trading business in the industrial city of Faisalabad.

Late Haji Sheikh Mohammad Ibrahim, founder of the Ibrahim Group, settled in Faisalabadafter partition of India in 1947 and re-established his ancestral business of cloth trading bythe name of Ibrahim Agencies. What is known in business today as Ibrahim Group withdiversified business interests from Spinning to PSF, Financial Institutions to Banking andEnergy, started off as a mere cloth trading agency just half a century ago.

It was middle of the fifties, when Sheikh Mukhtar Ahmed, present Chairman of thegroup, joined in this family business. It was then, that he took initiative to integrate thebusiness vertically upwards adding up yarn trading as an additional line of business.Turning out to be a milestone in the future progress, it did not take long before the groupwas widely reputed and respected in marketing of cotton and blended yarns

Backed by this goodwill and experience in marketing, in 1980, manufacturing ofown blended yarn was initiated by establishment of Ibrahim Textile Mills Limited. Withlong term considerations and a simple principle of no compromise on qualitytwo moretextile spinning companies; A.A. Textiles Limited in 1982 and Zainab Textile Mills Limitedin 1987 were established. A power generation Company Ibrahim Energy Limited wasincorporated in 1991 to improve the efficiency of the existing manufacturing companies.

All these manufacturing companies have now been merged into Ibrahim Fibres Limited


32/53

Vision:To be a Sustainable, growth oriented company and achieve scale to remain

competitive, in the barrier free global economy.

Mission statement:

To build the company on the sound financial footing with better productivity,

excellence in quality and improved efficiency at lower operating costs by utilizingblend of state of the art technologies.

To accomplish excellent results through increased earnings which can benefit allthe stakeholders.

To be a responsible employer and to take care of the employees in their careerplanning and reward them according to their abilities and performance.

To fulfill general obligations towards the society, being a good corporate citizen


33/53

Board of Directors

Sheikh Mukhtar AhmedChairman

Mohammad Naeem MukhtarChief Executive Officer

Mohammad Waseem Mukhtar

Iqbal Begum

Ghazala Naeem

Bina Sheikh

Shahid Amin


34/53


We conduct this analysis in (2) parts Creditor point of view

Liquidity Analysis/Solvency Analysis

Profitability & Efficiency

Leverage

Investor point of view Business Risk

Financial Rick

Dividend Payout

Price Earning Ratio


35/53

Liquidity analysis / solvency analysis

Current ratio


(creditor point of view)(creditor point of view)

Year 2008 2007 2006 2005 2004 2003

C.R 0.9 0.9 0.8 0.8 0.8 0.9



36/53



Liquidity analysis / solvency analysis Current ratio (count.)

The current ratio is more consistent over the yearswhich shows that company have efficient managementto look after the current assets over its liabilities.

inventory portion is very huge. If we calculate quickratio then the result should 0.4 as against 0.9 ofcurrent ratio. But with creditor perspective it is a goodsign.

The liquidity position of the company is wellmaintained as better as compared to the slanderedmentioned in prudential regulations and in a positionto pay its obligations.



37/53



Efficiencies ratios; Fixed asset turnover ratio

Is increased consistently and 0.8 time increasedrelative to last year currently it is at 2.9 times

It shows the operational efficiency of the business. Reasons

In extent to better result F.A.T there are two reasons

Proper utilization of resources & journey towards the

economies of scale which the asset efficiency Inflationary effects on sales



38/53



Efficiencies ratios; Capacity utilization

Plant capacity and actual production208600 M.Tons

actual production 189930 //

Plant utilization is increased by 10% as compare to lastyear

Last year plant utilization is 81% and this year it is at91%

There is a potential in plant to produce more at9%

These figures shows the operational efficiency andproper utilization of resources. And potential

increasing trend which further add values to thebusiness.



39/53



Efficiencies ratios;Total assets turnover

There is an increasing trend in T.A.T by 14% ascompare with last year

This year ratio is 0.90 Times and 0.78 Times last yearrespectively. Reasons

In extent to better result T.A.Tthere are two reasons

The main reason for this is the huge increase in sale

volume Inflationary effects on sales

Addition in plant capacity



40/53



Efficiencies ratios; Days Inventory Outstanding/ Days Sales Out

Standing Days inventory out standing is 62.93 days

Days sales out-standing is 2.1 days Debtor turn over ratio is currently at 176.3 times and

consistently increasing which shows the companyconverting its most of her sales on cash basis.

These shows the best financials of the company and itshealth



41/53



Efficiencies ratios; Capacity utilization

Plant capacity and actual production208600 M.Tons

actual production 189930 // Plant utilization is increased by 10% as compare to last

year

Last year plant utilization is 81% and this year it is at91%

There is a potential in plant to produce more at 9%

These figures shows the operational efficiency andproper utilization of resources. And potentialincreasing trend which further add values to the

business.



42/53

Profitability Gross profit margin

Consistent G.P Margin from last 6 years

The relative change in Gross Profit as compare to lastyear is 34%



Reasons

Comparative huge change in sale as compare tocost

Inflationary effects on sales

Addition in plant capacity Achieve the Economies of scale

Fi A l i


43/53

Profitability

Profit Before Taxation

Firms profit increase relatively 184% as compare to

last year (excluding share of profit from associates)



Reasons

The doubled increase in other operating income

Huge contribution of G.P toward this about 34% It shows that firm is going well


44/53

Profitability Net Profit Margin

Profit increase 4.5% then last year

But overall N.P Margin decreases about 2% that is7.3% from 9.3%



Reasons

A relative decrease in profit from associates about12.7%

But the profit of mother company is increased by184%



45/53



Profitability Return on Equity

R.O.E is about 14.8% and if we excludes the profitfrom associates then it will educe to 7.6%

R.O.E is decreased by 1.8% from last year Reasons

To explore the effect we use the approach of DUPOUNT analysis of return on equity

R.O.E NP MARGIN TAT EQUITY MULTIPLYE

R

14.8% 7.3% 90% 22.2

16.6% 9.3% 79% 22.6


46/53

Profitability Return on Total Capital Employed

Currently at 10.7% increased from last year 30%

relatively from last year Having fluctuated trends which means sales and

capital employed are not consistent.



Reasons

Increase in investment in associate Huge amount in stock in trade

Heavy amount of trade debts &

Increasing trends in sales


47/53

Profitability Return on Total Capital Employed

Currently at 10.7% increased from last year 30%relatively from last year

Having fluctuated trends which means sales andcapital employed are not consistent.



Reasons

Increase in investment in associate

Huge amount in stock in trade Heavy amount of trade debts &

Increasing trends in sales


48/53

Debt coverage ratio Return on Total Capital Employed

Good sign in that finance cost is deceased becausecompany rely on its equity investment

This is ratio 1.4Times



Reasons

The reason of this increase is the decrease in

finance cost of the firm This is better sign to increase the potential of creditin this firm


49/53

Capital Structure Debt -to-equity ratio is 0.5 times which shows the

company should be equity oriented because itgradually decrease the portion of debt from its capitalemployed

now the equity portion in capital is two time higherthen debt



Reasons

The reason for decrease in the capital structure is to

avoid the huge amount of finance cost in thiscurrent scenario because the interest rates areincreased due to financial


50/53

Salas Variability there is increasing trend in sales current sales are

21550 which is 32% from last year

Coefficient of variation of Sales = 24 %


(Investment point of view)(Investment point of view)

Results There is variation in sales about 24% which is

normal so the business risk which relate to sales isnormal and the firm is better for investment

There is increasing in trend sales as taking 2003 asbase and when we correlate this with coefficient ofvariation of sales its is positive so we say the salecondition is excellent.


51/53

Earning Variability Coefficient of variation of earning = 43 %

Price earning ratio = 7.2

Earnings per share = 5.10

Dividend payout ratio = 31%



Results

The company business risk is high as variation ofearning point of view but company is investing innew avenues which add values to the business and

good sign to invest in firm

Price earning ration indicates that if companyincrease the Rs. 1 in its earning the investor will payRs.7.2 more from its market value.

It shows that firm plough back its 69% of earning


52/53

Leverage Company rely 78% approximately on fixed cost



Results

This is the fact the earning variability is very high. Also is the operating leverage is very high so the

financial risk is also high

C t


53/53

CommentsAs a finance manager we consider all possible aspects of the

economy, industry and of firm. There is a positive potential inthe market and industry regarding investment point of view.

The financial health of the company as compared with itscompetitor and industry is very good and the firm is leader insales, profit and investment sectors. So as investor and

manager point of view we invest or finance the firm becauseof these factors:

1. Increasing sales trend

2. Adequate liquidity

3. Comfortable business risk

4. Potential in market

5. High profit and performance

6. Good capital stracture

Documents

Project on Ibrahim Fibers Ltd