As we mentioned earlier in “Tile and Ceramic Industry in Iran” article, it is one of the interesting investment opportunities in Iran, although it faces some difficulties in recent years. Irana Tile Company was one of the most active and prospering companies in Iran. However, in recent years it does not operate as previous and as a result this can provide for investors who are seeking for any investment opportunities in this sector because of its reliable infrastructure in this company and also potential opportunities available.
In the below graph the production and sale of tile and ceramic in recent 15 years for this company has been shown:
Contrary to the fact that this industry is experiencing depression because of some problems such as unpleasant conditions in construction industry in Iran, some companies has had a good performance as you could see in the remainder (More information on this issue is available in Tile and Ceramic Industry in Iran article). As a result, it sounds interesting to explore Irana Tile Co. in order to understand why this company as the oldest tile company in Iran could be an investment opportunity (Its tick in Tehran Stock Exchange is CHIR1).
At first, I use CHIR1’s different activity ratios to gauge its ability to convert various asset, liability and capital accounts into cash in recent 15 years.
As you can see in the figure above, all of the factors show that this company does not run as efficient as before. Its operating cycle has had an upward trend, as a result, it shows that the company’s ability to convert its asset into cash or sales has been decreased. In fact, activity ratios become more meaningful after comparing to other companies’ activity ratios that are operational in this industry in the following diagram. Sina, Pars and Alvand Tile Companies could be examples of prosperous ones.
As it is shown, Irana tile was a good company in past years comparing to others, but in recent years, it has been reversed. CHIR1’s high operating cycle against others shows how its efficiency has been faced some difficulties, this matter mostly emerges from its credit sale to its customers in other words its customers do not have enough cash to buy the products. Irana Tile lost its market share because of old fashioned products and out of date equipment. In previous years, its products had been exported to several countries such as Turkey, Oman, UAE, Pakistan, India, Bangladesh and Syria.
Asset turnover could be another informative diagram. It shows that Irana used its assets efficiently in order to generate revenues in past years however its business became less efficient in selling products based on its assets since 2008:
These two diagrams could show us that albeit the condition was not so good in construction, some companies such as Sina Tile was not as less efficient as Irana.
The other important factors are profitability and capital structure ratios. In the below diagram these ratios for Irana Tile company has been shown:
The ROE (Return On Equity) for last year is zero emerged from its negative equity due to accumulated loss, in fact, ROE would not have any special interpretation for it. Its loss and equity was 313,117 and (147,879) million Rials respectively.
The company had not been produced tile and ceramic since December 2015 because of its out of date equipment as well as lack of demand. And also about interest coverage ratio, Irana had a good managing operation in the past in order to cover its interest, but nowadays the company can’t afford to pay back interest because of its operational loss.
These factors show how the company’s managements’ abilities has been a decreased over the time.
To wrap it all, in spite of the fact that the company’s performance has been decreased over last 15 years, who can turn a blind eye to its positive points: (1) the good access to raw materials as well as (2) low cost of energy in Iran and also (3) good demand opportunity not only in neighboring countries like Iraq, but also in others such as Syria and (4) having the competence employees and the last but not the least is (5) its unique products. If there is a good management in this company, coming back to its golden era in this industry will be possible in near. The most significant point is liquidity need both as a resource to buy better equipment in order to produce in better qualities as well as quantities and to pay back its huge loan. As a result, it could be a good opportunity for investors in order to take over the company to challenge its mentioned downsides and promote its efficiency.