Ferozsons Laboratories Limited (PSX: FEROZ) reported a net profit of Rs140.5 million for the first quarter of FY25, representing a 22.16% year-on-year (YoY) decrease compared to Rs180.5 million in the same period last year. This decline in profitability, which translates to an earnings per share (EPS) of Rs3.23 against Rs4.15 in Q1 FY24, can be attributed to a combination of lower sales, increased administrative expenses, and a near doubling of finance costs.
Revenue Decline and Cost of Sales
The company’s top-line revenue declined by 7% YoY, falling from Rs3.62 billion in Q1 FY24 to Rs3.35 billion in Q1 FY25. Despite the reduction in revenue, the cost of sales saw an even greater proportional decline of 10.32%, which partially mitigated the impact on the company’s gross profit. As a result, gross profit dropped by only 2.28% to Rs1.3 billion, allowing Ferozsons Laboratories to slightly improve its gross margins due to the sharper reduction in costs compared to sales.
Administrative Expenses and Distribution Costs
The company faced increased operational costs, with administrative expenses rising 7.66% YoY, totaling Rs205.7 million. Selling and distribution expenses, however, saw a YoY decrease of 5.25%, amounting to Rs740 million compared to Rs781.1 million in Q1 FY24. Despite this relief in distribution costs, the rise in administrative costs contributed to the overall profit decline.
Finance Cost Surge
The sharp increase in finance costs was a significant factor in the overall profit contraction. Finance costs nearly doubled, increasing by 99.1% YoY to Rs158.6 million in Q1 FY25 from Rs79.7 million in the same period last year. This surge is likely a consequence of higher interest rates and potentially increased borrowing.
Tax Implications
The company’s tax expenses also saw notable shifts during the quarter. Ferozsons reported a minimum tax differential of Rs4.98 million, marking a 304% increase compared to Rs0.98 million in the same quarter of the previous year. Additionally, the final tax expense saw a significant 801% increase, totaling Rs4.8 million compared to Rs0.53 million in Q1 FY24. In contrast, the company’s overall income tax expenses decreased by 59.5% YoY, standing at Rs49.1 million, helping to offset some of the profit erosion from increased costs.
Bottom Line Performance
Ultimately, Ferozsons Laboratories posted a net profit of Rs140.5 million for Q1 FY25, a 22.16% YoY decline compared to Rs180.5 million in Q1 FY24. This drop reflects the pressure exerted by declining sales, escalating administrative costs, and a substantial increase in finance costs, despite some improvement in gross margins and a reduction in income tax expenses.
Looking Ahead
The financial performance of Ferozsons Laboratories in Q1 FY25 underscores the challenges posed by rising costs and tighter margins in a volatile economic environment. The company’s profitability was negatively affected by higher administrative and finance costs, and while the reduction in income tax provided some relief, it was not enough to offset the overall contraction in profit. Going forward, managing operational expenses and mitigating the impact of finance costs will likely be key priorities for sustaining profitability.
Key Metrics
| Metric | Value/Percentage Change |
|---|---|
| Net Profit | Rs140.5 million |
| Earnings Per Share (EPS) | Rs3.23 |
| Net Sales | Rs3.35 billion |
| Sales Change | -7.35% |
| Cost of Sales | Rs2.05 billion |
| Cost of Sales Change | -10.32% |
| Gross Profit | Rs1.3 billion |
| Gross Profit Change | -2.28% |
| Administrative Expenses | Rs205.7 million |
| Administrative Expenses Change | +7.66% |
| Selling and Distribution Expenses | Rs740 million |
| Selling and Distribution Expenses Change | -5.25% |
| Finance Costs | Rs158.6 million |
| Finance Costs Change | +99.11% |
| Minimum Tax Differential | Rs4.98 million |
| Minimum Tax Differential Change | +304% |
| Final Tax | Rs4.8 million |
| Final Tax Change | +801% |
| Income Tax | Rs49.1 million |
| Income Tax Change | -59.54% |
