Gul Ahmed Textile Mills Limited

Gul Ahmed Textile Mills Limited (PSX: GATM) was set up as a private limited company in 1953. Two years later, in 1955, it was converted into a public limited company. The company manufactures yarn, it processes and stitches. Thus, it is present in the entire value chain. The company also retails through its stores, by the brand name “Ideas”.

Shareholding pattern

As at June 30, 2020, over 77 percent shares are held in investment companies and mutual funds. Of this, Gul Ahmed Holdings (Private) Limited holds 67 percent of the shares. The ‘individuals’ category own close to 14 percent shares. The directors, CEO, their spouses and minor children together own less than 1 percent of the shares. The majority within the category are held by the Chairman, Mohomed Bashir. Insurance and joint stock companies own over 3 percent and 4 percent shares, respectively. The remaining roughly 2 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company’s topline has mostly been increasing, with the exception of a few years, while the profit margins have been slightly fluctuating over the years, only decreasing significantly more recently in FY20.

During FY17, at over 24 percent Gul Ahmed Textile Mills witnessed one of the highest growths in topline seen since FY12. This was contributed by both increases in export as well as local sales. On the basis of better quality of products, exports to European countries rose by more than 30 percent. However, the higher revenue did not translate into higher profitability as cost of production consumed 82 percent of revenue, compared to over 77 percent in FY16. This was a result of increase in cost of inputs, particularly cotton. Moreover, increase in minimum wages also contributed to this rise. Although distribution expense made a lower share in revenue and contribution of other income was also higher, it was not sufficient to raise margins. Thus, net margin was also lower year on year at 2 percent.

The company’s revenue continued to grow in FY18, at 13 percent, with both local and export sales registering a rise. The textile industry, in general, performed better with exports for the industry rising by 8 percent to reach around $13.5 billion. The company’s export orders were maintained while demand increased in the local and retail sector. Therefore, it witnessed an improved gross margin during the year; combined with an increased other income due to foreign currency exchange gain, the effect also tricked down to the net margin that improved to 4.6 percent, and the bottomline reach its highest thus far, at over Rs 2 billion.

Growth rate reached another high in FY19, at over 26 percent. Both export and local sales witnessed an increase by 12 and 50.6 percent, respectively. With cost of production increasing in line with the revenue, gross margin remained relatively flat, increasing only marginally to almost 21 percent. Moreover, the share of operating expenses in revenue continued to fall gradually, while other income contributed over Rs 1 billion towards the bottomline. Although finance expense rose slightly due to a rise in interest rates, the increase in revenue exceeded it. Thus, the company recorded its highest net margin at 6.3 percent, while the bottomline stood at Rs 3.6 billion- also the highest.

After growing consecutively for three years, topline in FY20 contracted by nearly 6 percent. Most of this decline was seen in local sales that reduced by over 21 percent. Moreover, the decline was mainly seen in the third quarter of FY20 when the countries globally began to impose lock downs seeing the gravity of the pandemic Covid-19. Shipments were held and the company’s operations were halted for nearly two months. It reopened under strict conditions and limited hours. With the month of Ramadan also falling in this period, which is already sees a low productivity, gross margin fell to nearly 17 percent. The previously significant contribution by other income mainly on the back of exchange gain, nearly disappeared in comparison during FY20. Thus, Gul Ahmed Textile Mills posted a loss of Rs 479 million- the first time since FY12.

Quarterly results and future outlook

Revenue in the first quarter was higher by over 38 percent. Increase in sales was seen in the spinning division, retail and distribution and processing, home textile and apparel. Gross margin at nearly 18 percent was lower year on year; it was also lower than that seen in 2QFY21. The company believes that the severe rainfall the country witnessed along with currency appreciation prevented the company from earning an even higher revenue.

By the second quarter, strict restrictions regarding business and retail hours were somewhat relaxed. However, the second wave of Covid-19 continued to impact the local market scenario as local sales saw a 6.6 incline, while export sales grew by 58 percent. Cumulatively, 1HFY21 saw an almost 36 percent rise in revenue year on year. Moreover, other income contributed Rs 634 million in the second quarter alone, that also helped to sustain profitability for 1HFY21 year on year.

Some of the positive factors for the textile industry is that it is focusing on exporting value added products and consuming non-value-added products internally. On the other hand, the challenges it faces are of shortage in cotton production and yarn, and availability of cheap energy that keeps product prices competitive.