Feroz1888 Mills Limited had released its second earning report of FY2025 on 28 Feb 2025 in which they explain their economic downturn, future outlook and financials. Feroz1888 mills limited one of the most rare business model and export oriented business in Pakistan. Let discuss about economic downturn. IMF International Monetary Fund had revised the economy outlook in which they forecasting the GDP growth of 3% in 2025 and 4% in 2026 . But because of inflation and increasing interest rate current economy had brutally effect the textile sector. Country had suffering the energy crises because of high trade deficit of Pakistan. Employment rate has quiet improving because of shifting to oversees. In this report there are some industry overview about how the textile sector export in 2024 remaining half year sales if USD 16,339 million increased from previous half year of 2023 USD 14,549 million which is 11% increasing global export. When it compare on YoY they have 9.7% increase. Company have also suffering the large amount outstanding and increasing advanced income tax which will definitely transferred to high requirement of cash flow which settle to a finance cost.
Financial Analysis
Company have decreased its sales from 20.4 % QoQ and 27% YoY. Operating Profit in Q2 is PKR 454.8 million where it decreased from 15% QoQ and 31% on YoY because of some high energy cost and taking some benefits of operating income. The operating margin in Q2 is 3.6% which is also decreased from 7.1% as compared to previous quarter. All percentage of decreasing income reflects company are suffering to generate return very stressfully. This quarter business not generate enough sales and there expenses have still constant. Net Profit of the Q2 is in negative which means that company have high necessary expenses in their business radar as compared to Q1 net profit is PKR 2.6 million where margin is 0.01%.
Another analysis on cash flow of company. Both quarter have negative operational cash flow which means that company hasn’t generate cash through business during periods. Q1 FY2025 Operating Cash Flow is PKR 3.9 billion and Q2 FY2025 is PKR 7.1 billion. Other part have some stunning side that company used their short term investment for balance the cash equation in Q1 and Q2 PKR 2.6 billion and PKR 1.2 billion respectively. Last thing that help to understanding the company have take high short term loans in both quarters which cover the insolvency in business. Our analysis on operational cash flow decreasing reason is that company didn’t handle the balance between their buyers and seller where they have high cash outflow in receivable in the same time they have also high cash outflow in payables.
Valuation ?
The business model is complex and running in stress zone so we have two pricing valuation method and compare to its peers which give the idea what are the path of company:
1- P/E : 64x ( Half Year P/E is still same)
2- EV / EBITDA : 187x ( Half Year EV / EBITDA is 54x)
Feroz1888 mills Limited is highly overvalued when it compared to its peer company like Interloop and Soraj Textile Limited because investors have paying more than its earning or it potential
Conclusion :
There is no doubt that Feroz1888 mills limited have unique and outstanding business model with some competitive advantages in Pakistan but currently company have facing some critical issues like sales not enough generating, cost increase because of energy crises, export income taxes raises etc. Even quarterly numbers are not reflecting the management confidence.
