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Presentation

on
Financial Analysis Of
“Ibrahim Fibers Ltd.”
Presentated to:-
Sir Hamza Mukhtar
presented by:-
Umar Khalil 2007-ag240
Farhat Naz 2007-ag-611
Analysis approach
Top to bottom

• Economy Analysis

• Industry Analysis

• Firm Analysis
Pakistan’s Economy
Economic Growth:
In current year pakistan’s economic growth is decreased as
compare 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 which
govt. sets to achive is 7.2%. There are different factors causes this
decrease in growth which are:

Domestic factors like

heightened political tensions


unstable law and order situation
energy crises
war against terrorism
supply shocks

external factors like

international financial crisis


unprecedented rise in global food and energy
prices
Growth of Pakistan
Comparison of growth in South
Asia
Other Key Figures
(Economy of Pak.)

• GDP Growth
spurred by gains in the industrial and service sectors, remained in
the 6-8% range in 2004-06. In 2005, the World Bank named Pakistan
the 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
– ¾ of the growth from services sector
– ¼ of the growth from producing sector
Other key figures (count.)
(Economy Of Pak.)
• Inflation
Remains 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 has
reached as high as 25.0%. The central bank is pursuing tighter monetary policy
while trying to preserve growth.
– Over all inflation is 17.2%
– CPI-based inflation during July-April 2007-08 averaged 10.3 percent as
against 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 at
17.9 %

• High global prices of food, fuel and other commodities driven by a weaker
Pakistani rupee, high import prices and gradual removal of fuel, food and power
subsidies along with monetary overhang on account of excessive borrowing from
the SBP to finance fiscal deficit have been mainly responsible for sharp pick up in
prices this year. These factors will continue to exert upward pressure on overall
prices in the next two/three years.
Other key figures (count.)
(Economy Of Pak.)
• Monetary Policy
Monetary policy stance of the SBP has undergone considerable changes
over the last seven years, gradually switching from an easy monetary
policy to the current aggressive tight monetary policy stance depending
on the inflationary situation in the country. During FY08, the SBP
continued with a tight monetary policy stance, thrice raising the discount
rate and increased the Cash Reserve Requirement (CRR) and Statutory
Liquidity Requirement (SLR). In the light of a continued inflationary
buildup and increasing pressures in the foreign exchange market, the
SBP announced a package of monetary measures on May 21, 2008 that
includes;

(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 of
credit 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
Interest Rates In Pakistan
Other key figures (count.)
(Economy Of Pak.)
Capital Markets:
Pakistan’s stock market has emerged as one of the fastest
growing markets in emerging economies in recent years. Local and
foreign investors’ confidence in the investment environment of Pakistan
has boosted the index to peak highs
Pakistan’s benchmarked stock market index - the Karachi Stock Exchange
- KSE-100 index has increased from 1,521 points on June 30, 2000 to
12,130.5 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
PAKISTAN TRADE POSITION
Exports
Overall exports recorded a growth of 10.2 percent during the
first ten months of the current fiscal year against a growth of
3.6 percent in the same period last year

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


billion
– 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 items’ posted 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.
Pakistan Trade Position
Imports
– Current fiscal year 2007-08 on account of an unprecedented rise in oil import bills and some one-off elements in
the shape of imports of wheat and fertilizer. As a result, Pakistan’s trade and current account deficits have
widened substantially in this year contributing to serious macroeconomic imbalances
– Correction of imbalances through shaving off aggregate demand by appropriate policies should be the top most
priority of the government
– Imports during the first ten months (July-April) of the current fiscal year (2007-08) grew by 28.3 percent to $32.1
billion
– Imports of food group were up by 48.6 percent Imports of food group accounted for 11 percent of total imports
but 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
Imports & Exports
Manufacturing
Manufacturing is the second largest sector of the
economy. This sector has recorded its weakest growth in a
decade during fiscal year 2007-08. Overall manufacturing
posted a growth of 5.4 percent during the first nine months
(July-March) of the current fiscal year against the target of
10.9 percent and last year’s 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 year
2007-08
– The relatively slower pace of expansion this year perhaps
exhibits signs of moderation on account of higher
capacity utilization, difficulties in textile and other
important sectors such as fertilizer, soap and detergent,
vegetable ghee and cooking oil, automobile sector, paper
and paper board, and billets
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 percentage
points - declining from 15.6 percent to 14.2 percent
• Private sector investment was broad based. The energy sector has played
a 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%)


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, accounted for over 2/3


Banking, And Oil And Gas Exploration of FDI inflows in the
country
INDUSTRY ANALYSIS
INDUSTRY ANALYSIS
IMPORTANCE OF INDUSTRY IN PAKISTAN:
The share of textile industry in the economy along with its
contribution to exports, employment, foreign exchange earnings, investment
and value added makes it the single largest manufacturing sector for
Pakistan. It contributes around 8.5 percent to GDP, employs 38 percent of
the 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-ups
and bed wear are the most important export products with an export value of
about $1.35 billion each. Knitwear, ready made garments and cotton yarn
also have important shares in total exports.
Overall, the US and the EU are Pakistan’s largest trading partners
accounting for 25 percent and 20 percent share of Pakistani exports
respectively. Other major importers include China, UAE and Saudi
Arabia.
INDUSTRY IN PAKISTAN cont…
• At Present, the industry consists of large-scale
organized sector and a highly fragmented cottage /
small-scale sector. The organized sector comprises
integrated textile mills i.e.
– spinning units with
– Shuttle-less looms
– down stream industry
• Weaving
• Finishing
• Garments
• Towels & Hosiery
Total Number Of Units (2005)
Ginning 1221
Spinning 445
Weaving
Large 140
Small 425
Power Looms 20600
Finishing
Large 106
Small 625

Garments                                       5000
Large 600
Knitwear 700
Towels 400
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.


IBFL as compare to industry

1. 2nd highest in paid up capital in overall


industry of synthetic and rayon the 1st one in
DEWAN SALMAN

2. Leader in production and sales volume

3. Market share is about 43.25%, 2nd is ICI


having share of 27.35%

4. Having highest equity as compare to firm in


this industry

5. Profit leader in industry


IBFL As Compare To Industry
Average
             
NET TOTAL RETURN RETUR OPERATIN PLOW INTERES
PROFIT ASSET ON N G BACK T
MARGIN TURNOVE TOTAL ON PROFIT RATIO COVERA
R ASSETS EQUITY MARGIN GE
RATIO
IBRAHIM FIBRES 9.28% 78.98% 14.95% 16.62% 14.952% 100.00% 2.91

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


AVERAGES
Problems to the industry
1. Lack of infrastructure
2. Political un-stability
3. State of war
4. Energy crises
5. Dumping imports from China and
Korea
6. International financial crises
IBFL as compare to industry
Industry analysis conclusions;

1. There is a good trend in market and


government is also want to enhance the
share of this sector
2. As compare to the other industry Ibrahim
Fibers have great financials which shows is
strengths and operational efficiency.
3. In overall industry there is negative trend as
shown above but there is potential in market
which 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 to
overcome and take step for the betterment of
this sector.
Firm Analysis
Firm Analysis
Company 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 Faisalabad
after partition of India in 1947 and re-established his ancestral business of cloth trading by
the name of “Ibrahim Agencies”. What is known in business today as Ibrahim Group with
diversified business interests from Spinning to PSF, Financial Institutions to Banking and
Energy, 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 the
group, joined in this family business. It was then, that he took initiative to integrate the
business 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 group
was widely reputed and respected in marketing of cotton and blended yarns

Backed by this goodwill and experience in marketing, in 1980, manufacturing of


own blended yarn was initiated by establishment of Ibrahim Textile Mills Limited. With
long term considerations and a simple principle of “no compromise on quality”two more
textile spinning companies; A.A. Textiles Limited in 1982 and Zainab Textile Mills Limited
in 1987 were established. A power generation Company Ibrahim Energy Limited was
incorporated in 1991 to improve the efficiency of the existing manufacturing companies.
All these manufacturing companies have now been merged into Ibrahim Fibres Limited
• 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 utilizing
blend of state of the art technologies.
• To accomplish excellent results through increased earnings which can benefit all
the stakeholders.
• To be a responsible employer and to take care of the employees in their career
planning and reward them according to their abilities and performance.
• To fulfill general obligations towards the society, being a good corporate citizen
Board of Directors
• Sheikh Mukhtar Ahmed
Chairman
• Mohammad Naeem Mukhtar
Chief Executive Officer
• Mohammad Waseem Mukhtar
• Iqbal Begum
• Ghazala Naeem
• Bina Sheikh
• Shahid Amin
Firm Analysis

• 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
Firm Analysis
(creditor point of view)
• Liquidity analysis / solvency analysis
– Current ratio
Year 2008 2007 2006 2005 2004 2003
C.R 0.9 0.9 0.8 0.8 0.8 0.9
Firm Analysis
(creditor point of view)
• Liquidity analysis / solvency analysis
– Current ratio (count.)
• The current ratio is more consistent over the years
which shows that company have efficient management
to look after the current assets over its liabilities.
• inventory portion is very huge. If we calculate quick
ratio then the result should 0.4 as against 0.9 of
current ratio. But with creditor perspective it is a good
sign.
• The liquidity position of the company is well
maintained as better as compared to the slandered
mentioned in prudential regulations and in a position
to pay its obligations.
Firm Analysis
(creditor point of view)

• Efficiencies ratios;
– Fixed asset turnover ratio
• Is increased consistently and 0.8 time increased
relative 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
Firm Analysis
(creditor point of view)

• Efficiencies ratios;
– Capacity utilization
• Plant capacity and actual production
208600 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 at
91%
• There is a potential in plant to produce more at
9%

• These figures shows the operational efficiency and


proper utilization of resources. And potential
increasing trend which further add values to the
Firm Analysis
(creditor point of view)

• Efficiencies ratios;
– Total assets turnover
• There is an increasing trend in T.A.T by 14% as
compare with last year
• This year ratio is 0.90 Times and 0.78 Times last year
respectively.
– Reasons

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


• The main reason for this is the huge increase in sale
volume
• Inflationary effects on sales
• Addition in plant capacity
Firm Analysis
(creditor point of view)

• 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 company
converting its most of her sales on cash basis.

• These shows the best financials of the company and its


health
Firm Analysis
(creditor point of view)

• Efficiencies ratios;
– Capacity utilization
• Plant capacity and actual production
208600 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 at
91%
• There is a potential in plant to produce more at 9%

• These figures shows the operational efficiency and


proper utilization of resources. And potential
increasing trend which further add values to the
business.
Firm Analysis
(creditor point of view)

• Profitability
– Gross profit margin
• Consistent G.P Margin from last 6 years
• The relative change in Gross Profit as compare to last
year is 34%
– Reasons
• Comparative huge change in sale as compare to
cost
• Inflationary effects on sales
• Addition in plant capacity
• Achieve the Economies of scale
Firm Analysis
(creditor point of view)
• 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
Firm Analysis
(creditor point of view)

• Profitability
– Net Profit Margin
• Profit increase 4.5% then last year
• But overall N.P Margin decreases about 2% that is
7.3% from 9.3%
– Reasons
• A relative decrease in profit from associates about
12.7%
• But the profit of mother company is increased by
184%
Firm Analysis
(creditor point of view)

• Profitability
– Return on Equity
• R.O.E is about 14.8% and if we excludes the profit
from 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 DU


POUNT 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
Firm Analysis
(creditor point of view)

• 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
Firm Analysis
(creditor point of view)
• 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
Firm Analysis
(creditor point of view)
• Debt coverage ratio
– Return on Total Capital Employed
• Good sign in that finance cost is deceased because
company 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 credit
in this firm
Firm Analysis
(creditor point of view)
• Capital Structure
• Debt -to-equity ratio is 0.5 times which shows the
company should be equity oriented because it
gradually decrease the portion of debt from its capital
employed
• now the equity portion in capital is two time higher
then debt
– Reasons
• The reason for decrease in the capital structure is to
avoid the huge amount of finance cost in this
current scenario because the interest rates are
increased due to financial
Firm Analysis
(Investment point of view)
• Salas Variability
• there is increasing trend in sales current sales are
21550 which is 32% from last year
• Coefficient of variation of Sales = 24 %

– Results
• There is variation in sales about 24% which is
normal so the business risk which relate to sales is
normal and the firm is better for investment
• There is increasing in trend sales as taking 2003 as
base and when we correlate this with coefficient of
variation of sales its is positive so we say the sale
condition is excellent.
Firm Analysis
(Investment point of view)
• 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 of
earning point of view but company is investing in
new avenues which add values to the business and
good sign to invest in firm
• Price earning ration indicates that if company
increase the Rs. 1 in its earning the investor will pay
Rs.7.2 more from its market value.
• It shows that firm plough back its 69% of earning
Firm Analysis
(Investment point of view)
• 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
Comments
As a finance manager we consider all possible aspects of the
economy, industry and of firm. There is a positive potential in
the market and industry regarding investment point of view.
The financial health of the company as compared with its
competitor and industry is very good and the firm is leader in
sales, profit and investment sectors. So as investor and
manager point of view we invest or finance the firm because
of 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