IMAGE Pakistan Limited: A Journey from 1990 to 1QFY24 - Resilience, Growth, and Future Prospects

In 1990, Image Pakistan Limited (PSX: IMAGE) was established as a public limited company in Pakistan.

IMAGE Pakistan Limited: A Journey from 1990 to 1QFY24 - Resilience, Growth, and Future Prospects

Formerly, the business was called Tri-star Polyester Limited. In 2021, the corporation renamed itself. The business produces and markets ready-to-wear clothing, polyester filament yarn, and embroidered fabric.

Pattern of Ownership

As of June 30, 2022, 6572 shareholders owned 131.640 million of IMAGE's outstanding shares. The CEO, directors, spouses, and minor children own 31.48 percent of the corporation, while the local public owns the remaining 55.65 percent. IMAGE's 8.02 percent share count is made up of other firms. IMAGE is owned by mutual funds and modarbas to the tune of 3.72 percent. Other groups of owners own the remaining shares.

Cash Management (2018–23)

Considerable growth has occurred in each of the years under review. The bottom line, on the other hand, deviates from this pattern, declining in 2019 and 2020 before rising since 2022. Over the course of the year, its margins have fluctuated, with operating and gross margins declining from their peak in 2018 to their lowest point in 2023. Net margin likewise reached its peak in 2018, but it peaked in 2020.

Value-added embroidered fabric helped IMAGE, formerly known as Tri-star Polyester Limited, report a 20 percent year-over-year growth in topline in 2019. The polyester filament yarn business was discontinued during the year. The gross profit in 2019 increased by a pitiful 9% year over year due to high sales costs, but the GP margin decreased to 51.4 % from 56.86 % in 2018. 2019 saw a staggering 153 percent increase in distribution and selling expenses year over year, mostly due to increases in rent and utilities costs. Despite a significant increase in staff from 269 in 2018 to 357 in 2019, administrative expenses were mostly contained and increased by a meager 3 percent year over year. With an operating profit margin of 19.24 percent in 2019 compared to 31.53 percent in 2018, operating profit decreased by 27% year over year. 2019 saw a 35% annual increase in finance costs due to a rise in the discount rate during the year. Markup on the declining Musharka lending facility makes up the majority of the company's financing costs. Due to the write-back of some of the company's liabilities, other income received during the year helped to somewhat offset the increase in finance costs. But in 2019, the bottom line dropped by 32% year over year to Rs. 52.67 million, with an EPS of Rs. 0.93 as opposed to Rs. 1.5 the year before. The net profit margin had a significant decline from 24% in 2018 to 13.62 percent in 2019.

2020 saw a severe impact from the worldwide epidemic on both the local and global economies. The lockdown in Pakistan started at the start of the spring-summer season, which is typically when seasonal clothing and fabric purchases peak. The lockdown prevented IMAGE's retail locations from opening from March to June, but the e-sales success allowed the top line to expand by 4% year over year. The lockdown's reduced costs resulted in an 8% increase in gross profit year over year in 2020, with a slight increase in the GP margin to 53.26 percent. Operating expenses increased as a result of higher salaries and wages as well as higher advertising costs to promote online sales. As a result, the operational profit decreased by 12% on an annual basis. In 2020, the OP margin likewise decreased to 16.16 percent. In 2020, the company's finance costs increased by just 2% annually due to the reduction of its declining musharka finance facility and the acquisition of further loans from affiliated parties. In 2020, net profit decreased by 57% year over year to Rs. 22.41 million with an earnings per share of Rs. 0.39. In 2020, the NP margin shrank to 5.56 percent.

In 2020, there was little foot traffic at the stores; nevertheless, in 2021, not only did physical sales increase significantly, but online sales also surpassed the previous year's total because of the company's persistent efforts to improve the ease and seamlessness of its online sales. The business received additional momentum for its online sales in 2021 when it was accepted as the first Pakistani vendor on Amazon, giving it access to clients in the US, UK, and Canada. Although the top line performed admirably in 2021, showing a 148 percent year-over-year increase, the GP margin significantly decreased to 44.12 percent as a result of rising raw material costs. The year-over-year increase in advertising, rent, and utility costs was the main cause of the 107% increase in distribution expenses. Since there were 541 employees in 2021 compared to 206 in 2020, the increase in payroll costs was the main cause of the 11% annual growth in administrative expenses in 2021. Operating profit increased by 206% year over year in 2021, with OP margin reaching 19.88 percent, despite increasing operating expenses. Despite the discount rate being revised downward during the year, the company's increasing outstanding debt caused finance costs to grow by 45% in 2021 compared to the previous year. In 2021, the bottom line recorded an astounding 414 percent year-over-year gain, totaling Rs. 115.10 million and an EPS of Rs. 2.02. Additionally, the NP margin increased dramatically to 11.49 percent in 2021.

In order to boost in-store sales, the corporation renovated its existing stores and opened new ones in strategic locations within major cities in 2022. These store optimization efforts defined the year. Additionally, the business grew its web store. This resulted in a 37% topline rise in 2022 year over year. In order to cover the high cost of sales resulting from rising raw material prices, devaluation of the Pakistani rupee, and increased fuel and energy expenses, the company also made considerable revisions to its prices. As a result, IMAGE's gross profit increased by 59% year over year, and its GP margin significantly improved to 51.22%. In 2022, distribution expenses increased by 97% year over year due to an increase in the budget for advertisements, sales force salaries, higher rent, maintenance, and energy costs. In 2022, administrative expenses experienced a staggering 117% annual increase due to increased payroll costs, with HR spending reaching a total of 639. The cost of travel, IT, subscription fees, and mounted fees all contributed to the increase in administrative expenses in 2022. Although operating profit increased by 6% year, the OP margin decreased to 15.36% in 2022. In addition, the company recorded a loss of Rs. 34.36 million due to the booking of provisions against NIT units. Because it took on fewer borrowings, the company managed to cut its financing costs by 12% even though the discount rate increased. In 2022, IMAGE had the lowest gearing ratio, at 5%.With EPS of Rs. 2.06, the bottom line increased by 51% over the course of the year to Rs. 174.05 million in 2022. The NP margin also increased to 12.66 percent in 2022.

In 2023, IMAGE's net sales increased by 50% year over year thanks to strong in-store and online sales. IMAGE's sales growth is becoming more stable as it expands into new market sectors including semi-formals and formals, in addition to new geographic areas. Even though the company sources the majority of its raw materials locally, it is protected from recent import restrictions and the depreciating value of local currency, which have negatively impacted the performance of many local businesses. Nevertheless, the company was not spared from the effects of the towering indigenous inflation, which increased its cost of sales by 81 percent year over year in 2023. In 2023, gross profit increased by 20% year over year, while the GP margin fell to 41.08 percent, the lowest level in six years. In 2023, the cost of distribution increased by 15% annually due to rising rent, utility, E-commerce, and sales force salary expenses. In 2023, the number of employees expanded to 878, resulting in a 2 percent annual increase in administrative expense and payroll expense. In 2023, operating profit increased by 44% year over year, but operating profit margin fell to 14.68 percent. 2023 saw a 21% annual increase in finance costs as a result of a record-high discount rate. In 2023, net profit increased by 19% year over year to Rs. 207.80 million, with earnings per share of Rs. 1.91. In 2023, the NP margin fell to 10.07 percent.

Current Results (1QFY24)

IMAGE's topline increased by 32% year over year to start 2024 on a strong note. This was the outcome of the phenomenal global e-commerce industry, which is producing higher margins in spite of the weakening of the Pakistani rupee. Due to the company's import of new embroidery machines, which significantly enhanced production and decreased cost, the cost of sales climbed by just 4% annually. With a stronger GP margin from 46% in 1QFY23 to 57% in 1QFY24, gross profit increased by 64% year over year. During the period under review, distribution and administrative expenses increased by 16 percent and 9 percent, respectively. This was presumably due to greater inflation, E-commerce expenses, advertising and marketing costs, and payroll expenses. In 1QFY24, operating profit showed an incredible 158 percent turnaround. Amazingly, the OP margin increased as well, rising from 16 percent in 1QFY23 to 31 percent in 1QFY24. Due to a higher discount rate and an increase in long-term loans that were ostensibly for the import of machinery, finance costs climbed by 156% year over year in the first quarter of FY24. In the first quarter of FY24, the bottom line increased by 166% year over year to Rs. 132.78 million, with an EPS of Rs. 1.01, up from Rs. 0.5 in the same time the previous year. Between 1QFY23 and 1QFY24, the NP margin more than quadrupled, from 13 percent to 26 percent.

Future Prognosis

IMAGE has devised a range of tactics to safeguard itself against the political and economic challenges that are plaguing the regional economy. First off, despite the significant depreciation of the Pakistani Rupee, the company's topline and margins will remain strong due to its rapidly expanding export market and e-commerce sales. Second, using local raw materials will shield its profits and bottom line from outrageous cost increases brought on by the depreciating local currency. Thirdly, any significant increase in financing costs brought on by monetary tightening will be avoided by a capital structure dominated by equity. Additionally, the target market for IMAGE has a high level of disposable income and is relatively unaffected by economic challenges. These elements, along with extensive improvements to the product quality and shopping experience for customers in both physical and online retail settings, will guarantee strong sales and profit margins in the near future.