Financial Positions of Industries Qatar - Case Study Example

Abstract

The paper explores various factors that report on the background and financial positions of industries Qatar q.s.c (IQ). The company is located in Qatar and is rated among the best companies regarding sales and production. IQ is a multinational corporation with investments in steel industries, petrochemicals, fertilizers and cement. IQ has its shares traded on the Qatar Exchange. It is among the largest traded companies in the country through Market capitalization. This paper examines various factors regarding the enterprise. Some of the factors evaluated comprise of the company’s background, industry analysis of the company, its SWOT analysis. Regarding the SWOT analysis, the Strengths, weaknesses, opportunities and threats of the company are clearly examined. Also, the financial ratio analysis which comprises of the liquidity, profitability, asset and debt management of the studies firm, stock valuation, discounted cash flow analysis, and capital asset pricing model. Finally, a conclusion is made on all the discussed issues in the paper and comment made on the general perspective of the company.

IQ Background information

IQ was incorporated in 2003 as a reformation program in the nation of Qatar. Before then, there existed the QAFCO recognized in 1969; its commencement marked its important initial step in Qatar’s industries long road to divergence. Five years later after the business formation, they inaugurated their first plant and immediately after that they introduced QAPCO and Qatar steel, they both started production in the years1981 and 1978 respectively. Among all the branches of IQ, QAFAC is the recently developed company (Gulfbase, 2016). QAFAC was started in the year 1991, with its commercial operations commencing in 1999. Before 2003, the national oil which is one among the state company had an interest in all of the group companies except the Qatar steel that was safe controlled. Later, the Qatar Petroleum renovated and assumed the Qatar Steel and transferred all its interests to the recently called Industries Qatar. Later that year after an initial public offering, the Industries Qatar was successfully listed on the Qatar Exchange as one of the large enterprises in Qatar (industriesQatar, 2016).

Industries Qatar Subsidiaries and ownership

Industries Qatar is a multinational company and thus has many subsidiaries and associates in various firms and countries. The table provides the company’s subsidiaries and ownership in terms of percentage.

Company

Principal Activity

Nation

Equity

Qatar Petrochemical Company Limited Q.S.C. (“QAPCO”).

Petrochemicals

Qatar and France

80% and 20% respectively

Qatar Fuel Additives Company Limited Q.S.C. (“QAFAC”): 

Fuel

Qatar

100%

Qatar Fertiliser Company S.A.Q. (“QAFCO”): 

Fertilisers

Qatar and Netherlands

75% and 25% respectively

Qatar Steel Company Q.S.C. (“QS”): 

Steel

Qatar

100%

(Gulf Base, 2016)

Management

Board of Directors

Saad Sherida Al-Kaabi

Chairman and Managing Director

Mohammed Nasser Al-Hajiri 

Vice Chairman

Mr. Abdulaziz Mohammed Al-Mannai 

Member

Dr. Mohammed Yousef Al-Mulla 

Member

Mr. Abdulrahman Mohamed Al-Suwaidi 

Member

Mr. Nasser Jeham Al-Kuwari 

Member

Mr. Ali Bin Hassan Al-Muraikhi 

Member

(Gulf Base, 2016)

Equity’s profile

Stock Market

Qatar Exchange

Official Sector:

Industrial

Market Cap Size:

Micro Cap

Paid up Capital

QAR 876, 548,000

Par value per share

QAR 18.00

Outstanding shares (000)

98,520

(Gulf Base, 2016)

Industries Qatar is a micro cap size company.

Swot analysis

The swot analysis looks into the state of the company regarding the positive and negative of the company’s environment both internal and external environment. It assesses the market in which the company works and tries to evaluate the reasons behind the success and failures of the company. Some of the factors discussed in the SWOT analysis comprise of the strengths, weakness, opportunities and threat that the firm has in its daily transactions (Gulfbase, 2016).

Strengths

• IQ has working personnel of more than 3000 individuals all over the world. The high number of staff working for industries Qatar contribute significantly to the high profitability and revenue enjoyed by the company.
• It places it among the top traded businesses on the Qatar Exchange (industriesQatar, 2016).
• It offers its services to diverse markets such as Australia, U.S.A, and India, which leads to greater publicity and rapid growth and expansion,
• Has high levels of service delivery brought about by factors such as competent management, skilled workforce, and quality employee training (IndustriesQuatar, 2016).
• Its operations extend from the metals industry to the petrochemical industry. The diversifications in the operations of the company offer it a wider array of sources of revenue as well as publicity (IndustriesQuatar, 2016).

Weaknesses

• The lack of reliable distribution systems restrains it from accessing the Asian market. The infrastructure and machinery required for the delivery of services and goods in the Asian market are either inadequate or even lacking in some areas, and this reduces the possible returns that could have been enjoyed not to mention increasing expenses incurred in such projects (Gulfbase, 2016).
• It is a volatile industry with fluctuating prices and demand as there are always different preferences and constant innovations in the industry leading to an adverse change in demand and eventually the prices of the goods manufactured (industriesQuatar, 2016).
• The tax structures in the countries served by the companies affect the company’s retained earnings adversely. This leads to the need to increase the prices of some services which ends up cutting down the level of demand (Gulfbase, 2016).

Opportunities

• There are very many available opportunities Industries Qatar. First, the industry is located in a growing economy which offers it the chance to capitalize on the growth through engaging in contracts with both private and public sectors.
• The types of products they offer being an integral part of development, this gives them the advantage of a wide range of demand, leaving them only with the responsibility of proper delivery, advertisement, and the creation of excellent customer relations (Gulfbase, 2016).
• The industry also has the opportunity of offering new products through investment in market and product research and working on newer innovations and inventions that fit the market requirements (industriesQatar, 2016).

Threats

• Industries Qatar is faced with threats such as technological problems. The constant change in technology gives other companies the ability to improve production and surpass that of IQ, thus keeping it in a constant struggle to stay on top (industriesQatar, 2016).
• Increasing rates of interest are a threat to the company’s earnings and subsequent net worth. External business risks also exist, with the presence of other competitors such as Linde AG, Brasken, and BASF SE. Environmental regulations also pose threats to the company leaving it with massive losses especially in the petrochemicals segment (Gulfbase, 2016).

Historical performance

Revenues

An analysis of IQ’s financial statements in the periods spanning 2011-2016 shows a downward trend in its revenues. The growth of income as at 31st December 2013 was at 15% which is the highest growth achieved as compared to similar companies (Gulfbase, 2016).

Net profit

An analysis of IQ’s financial statements in the periods spanning 2011-2016 also shows a decrease in the business’s earnings, with 2016 showing the lowest level of net profit made. There is, however, a notable increase in 2013 at a figure of 8,861,293,000, a 22% increase from the previous year (Gulfbase, 2016).

Debt

Further analysis of the company’s equity shows that both the long term and short term debts are increasing, leading to concern about the business’s level of risk (Gulfbase, 2016).

Income statement analyses

The evaluation of the income statement is concerned about how the company has received returns throughout their history. The major focus is on the periods which the company received fewer profits and the reasons behind the drop in sales. This paper concentrates on the recent years of the enterprise working (Gulfbase, 2016). An analysis of IQ’s financial statements between the periods spanning 2011-2015 shows that year upon year, IQ’s revenues fell 12.44%from 5.97bn to 5.23bn along with an increase in the cost of goods sold contributing to a reduction in net income from 6.34bn to 4.44bn. A 29.91% reduction.The analysis shows its gross margin at 21.81%, net profit margin at 82.80% and its operating margin at 23.11% (IndustriesQuatar, 2016) (Gulfbase, 2016).

Price performance

An evaluation of the price performance of the company shows large fluctuations within the year 2015 and 2016, with a downward trend evidently in play. The highest price being 151.79 and the lowest price being 88.6 and average price 99.90 (Gulfbase, 2016). The observed decline in the market price of the company’s stock can be attributed to various factors such as, Brent oil prices which might be considered as a critical factor since Qatar is an oil-dependent country. However, it should be found that oil prices will impact the macroeconomic variables and thus will have an indirect impact on stock prices which are listed in Qatar Exchange (Gulfbase, 2016).

Growth rates analyses

The evaluation of growth rate tries to look at how the company has been fairing on regarding growth and development. It analyses the years at which the company performed well in the market and the years at which the company performed poorly in the market. In the period of the years between 2011 and 2015, both earnings per share and dividends per share growth dropped 29.91% and 28.57% respectively (Gulfbase, 2016). This particular analysis excludes the extraordinary items that were transacted by the company. However, they both ranked superior to all its industry peers despite the drop that had been experienced. The analysis shows its dividends yield (5 years average) at 5.16%, dividend growth rate in 5 years average at 0.00%, payout ratio at 0.00%, EPS growth at ( 5yr Avg) -4.0931 and EPS (TTM) VS TTM 1 year ago -26.5644 (IndustriesQuatar, 2016).

Cash flow analyses

Cash flow analysis is all about examining the rates of sales that the company made in the particular period within and defined timeframe. The cash reserves in IQ fell by 389.20m in 2015. However, its total cash flow from investments were 2.92bn, indicating that the company earned more from the sale of existing assets than had been spent in the purchase of new assets. Also, the company generated1.52bn in cash from various operations while cash used for financing it totaled 4.83bn (Gulfbase, 2016). The analysis shows its cash flow per share at 7.28, price/cash flow per share at 14.07, book value per share at 51.68 and tangible book value per share at 51.68 (IndustriesQatar, 2016).

Balance sheet analyses

IQ uses little debt in its capital structure as evident from its debt to capital ratio of 3.08%.The study shows its current ratio at 6.28, quick ratio at 5.35, total debt/total equity at 0.0317 and total debt/total capital at 0.0308 (IndustriesQaatar, 2016). From the balance sheet analysis, it is vividly brought out that the company has good records assessed from the balance sheets.

Stock valuation

Stock valuation is a factor of the financial markets. The term refers to the method used in calculating the theoretical values of a particular firm and their assets. As of April 29, 2016, the harmonious forecast amongst analysts covering IQ advice investors to hold their position in the company as the sentiments on the company’s expectations to outperform the market deteriorated on January 4, 2016. As of May 3, 2016, IQ has a stock volume of 97000, with each stock selling at a 103.70-open price, 103.70-high price and 101.20-close price (Gulfbase, 2016).

Industry analysis

An analysis of the domestic industry shows that Qatar is one of the most financially important companies regarding securing the economic state of the Middle East with growth continuing at a moderate pace in 2016. The country’s domestic demand and ambitious government spending on infrastructure and tourism are the main drivers, as well as opportunities for Industries Qatar (Gulfbase, 2016). It is from these factors that the company has managed to grow this much and even hit the international markets. Further analysis on the company shows that Qatar is and has always been an attractive place to investors thanks to its growing economy and well-developed infrastructure, all-encompassing macroeconomic environment, high labor output and a simple tax system that offers low tax rates (IndustriesQatar, 2016).

As stated earlier, Industries Qatar as a major headquarter has various branches within the country. Moreover, the companies under Industries Qatar deal in different products such as petroleum, steel, and fertilizer. This paper briefly looks at this company working under the major Industries Qatar.

The petrochemical industry

This is a favorable industry to be involved in due to the abundance of petroleum in the country, notwithstanding the latest reduction in the level of oil produced in the country. Oil is cheaply available in the country, which is an advantage to IQ. However, it also increases competition and clouds up any opportunities of penetrating the market and making supernormal profits. However, the enormous funds required in undertaking the petroleum mining projects keeps the industry from being flooded, which secures the superiority of the companies already involved in the business (Gulfbase, 2016).

The existence of environmental regulations also poses an enormous challenge to the industries involved in the petrochemical processing. It often leads to the making of losses and the companies incurring a lot of expenditure in the maintenance of the environment in the process of extraction procedures and disposal measures. Frequent healthcare checks are necessary, and the subordinates require insurance by the companies which are an expense to the companies (Gulfbase, 2016).

The market availability is not an issue as demand spans all across the globe. The industry has its demand from both within the country and from outside the country and even outside the continent. This gives the industry a status that very few enjoy, With the resource being so scarce, and demand so great, the price of the products is completely determined by the industries involved in the practice (industriesQatar, 2016).

The end produce of the petrochemical companies such as Industries Qatar, which include polypropylene are fundamental in the construction process and therefore, offer the industry companies the opportunity to engage in contracts with governments especially those of developing countries for the provision of the products required in the construction of infrastructure (Gulfbase, 2016).

The steel industry

This industry is rather more saturated than the petrochemical industry, with more companies involved in the production of steel worldwide. Also, the product is not as scarce and therefore dominating the market is much harder. However, there are fewer hindrances in the case of environmental pollution which reduce the expenses to the company. However, the cost of insuring workers against possible danger still applies (industriesQatar, 2016).

The fertilizer industry

This industry mostly focuses on outside markets because of the low level of agriculture in the country. It, however, is quite profitable due to the extensive use of fertilizers in agriculture (Gulfbase, 2016). It, however, requires the building of the company name and great advertisement. This forces the need for market research and also biochemical research with aims of improving the quality of the fertilizers to gain an advantage in the market (IndustriesQatar, 2016).

Industry analysis conclusion

Industries Qatar is located strategically in the country and also in the capital city Doha. The easy availability of raw materials and demand make it favorable to potential investors with the evident expectations of high levels of performance both domestically and internationally (IndustriesQatar, 2016).

Conclusion

The paper has clearly intensely analyzed various factors surrounding Industries Qatar. Some of the factors clearly presented comprise of the background of the firm, its strengths in the market, weakness, opportunities and threats among many other things such as the cash flow and balance sheet analysis. From the analysis, it can be concluded that Industries Qatar is a profitable company and is expected to continue doing well in the industry if everything will be kept constant or even improved. The firm has remained and will continue being among the leading companies in the petrochemical industry. Considering all the examined factors, the company stands out to be a good company for a potential investor. It is strategically located and also experiences admirable methods of advertisement (Gulfbase, 2016).