Ittefaq Iron Industries Limited's net sales fell 26.2% to Rs8.28 billion in the fiscal year ending on June 30, 2023 from Rs11.22 billion in the earlier fiscal. The decrease in sales was because of the significant devaluation of the Pakistani rupee, leading to an excessive increase in raw material costs. The principal activity of the company is manufacturing iron bars and girders. The steelmaker's gross profit dropped a substantial 72.03% to Rs142.38 million in FY23 from Rs509 million in FY22. The gross profit margin compressed to 1.72% from Rs4.53% in FY22.

Meanwhile, administrative and general expenses increased by 20.86% to Rs106.7 million in FY23 from Rs88.32 million previously. This was the result of increasing electricity and petroleum prices in addition to higher rates of corporate tax.
The company's profit-before-tax showed a significant decline of 165.44%, posting a loss of Rs145.4 million in FY23 compared to a profit of Rs222.2 million in FY22. The company's net profit contracted by 140.4%, with after-tax loss amounting to Rs94.4 million against net profit of Rs234 million in FY22 due to an increase in taxes. As a result, the net profit margin plunged to negative 1.14% in FY23 from positive 2.09% in FY22. Similarly, earnings per share clocked in at negative Rs0.65 in FY23 compared to positive Rs1.62 previously.

Historical trends The financial performance of the company over the years has been volatile. The company recorded a maximum net turnover of Rs11.22 billion in 2022 and a minimum of Rs3.38 billion in 2020. This was due to the economic impact of Covid-19 pandemic. Gross profit ranged between the lowest of Rs18 million in 2020 and the highest of Rs645 million in 2021. The company sustained an operating loss of Rs128 million in 2020. In 2020 and 2023, the company witnessed net losses of Rs239 million and Rs94 million, respectively. This shows that the company faced challenges such as a rise in costs due to currency devaluation, high-interest rates, and persistent inflation.

Profitability ratios analysis The gross margin fluctuated from 2019 to 2023, ranging from 0.52% to 10.42%, due to changes in costs and sales. Net margin experienced negative percentages of 6.29% in 2020 and 1.14% in 2023. The company posted the highest net profit margin of 4.3% in 2021. The operating profit margin remained positive over the years, except in 2020, with a negative value of 3.78%. The company's return on assets remained negative at 3.32% in 2020 and 1.3% in 2023, with the highest positive value of 3.58% in 2021. A similar pattern was followed by earnings per share, posting a maximum value of Rs1.85 in 2021.

Liquidity ratios analysis The current ratio evaluates the extent to which the company's current assets may be used to pay off its short-term liabilities. The company had sufficient liquidity to cover its current liabilities, as shown by its current ratio, which stayed above 1.2 from 2019 to 2023. In 2019, the current ratio was the highest at 2.6, and the lowest in 2022 at 1.78.

Credit: Independent News Pakistan (INP)