Faisal Spinning Mills Limited

Faisal Spinning Mills Limited (PSX: FASM) was established as a public limited company in 1985 under the repealed Companies Ordinance, 1984. The company manufactures and sells yarn, greige fabric, dyed fabric and home textile products.

Shareholding pattern

As at June 30, 2021, over 50 percent shares are held in associated companies, undertakings and related parties. Within this category, majority of the shares are held by Admiral (Private) Limited. About 39 percent shares are owned by the directors, CEO, their spouses and minor children. Within this category, major shareholders are: Mrs. Samia Bilal, Mr. Hamza Shakeel and Mr. Muhammad Amin. The general public owns 8.5 percent shares, while the remaining over 2 percent shares are with the rest of the shareholder categories.

Historical operational performance

Faisal Spinning Mills have largely seen a growing topline with the exception of FY15. Profit margins in the last six years have grown until FY19, declined in FY20, before experiencing a sharp incline in FY21.

Revenue in FY18 grew by over 12 percent to reach Rs 11.8 billion. This was largely attributed to a growth in local sales that posted a growth of 51 percent, while export sales remained more or less flat year on year. Segment-wise, majority of the growth was seen coming from local sales of fabric. A lot of the textile companies saw a growth in export revenue attributed to currency depreciation but this was not the case with Faisal Spinning Mills. This is likely due to a contraction in demand for products from the spinning segment. With cost of production reducing marginally to almost 89 percent, gross margin increased to 11 percent. This also reflected in the net margin that was recorded at a higher 4.9 percent.

In FY19, the company saw the largest growth in topline at 18.5 percent to cross Rs 14 billion in value terms. This growth was attributed to a growth in export sales of fabric and yarn particularly. This allowed gross margin to reach a high of 13.4 percent as cost of production reduced to over 86 percent. Moreover, finance expense grew significantly in value terms, consuming 2 percent of revenue. However, it was offset by the rise in share of profit of associated undertaking that increased from Rs 68 million in the previous year to Rs 117 million in FY19. Thus, net margin was posted at 6.5 percent- a level last seen in FY13.

Momentum of double-digit growth halted in FY20 as revenue posted a growth of 6 percent to reach close to Rs 15 billion. Export sales registered a growth of over 15 percent while local sales remained flat year on year. But the higher revenue could not translate into higher profitability as cost of production consumed over 90 percent of revenue, bringing gross margin down to 9.5 percent. Net margin was also recorded at a lower 3.5 percent, but the decrease year on year was less pronounced due to some support from other income that was generated through reversal of ECL, and some reduction in finance expense.

Topline growth bounced back in FY21 as it posted a growth of 14.6 percent with revenue reaching Rs 17 billion in value terms. Both local sales and export sales saw increases, by 10 percent and 16 percent, respectively. The country also saw increase in exports, particularly to the UK by 33 percent, crossing $2 billion for the first time. Moreover, cost of production for Faisal Spinning Mills fell to 85 percent, a level last seen in FY13. Thus, gross margin rose to 14.6 percent for the year. Although there were increases in operating and finance expenses as a share in revenue, it was also offset by the unprecedented rise in other income arising primarily from gain on disposal of fixed assets. Other income increased from Rs 46 million in FY20 to Rs 842 million in FY21. Moreover, share of profit of associated undertaking also increased to an all-time high of Rs 397 million. Thus, net margin reached a peak of 13.8 percent.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by over 78 percent year on year. This can be attributed to the continuing growing demand since business activities resumed to some normalcy. Additionally, orders were also redirected to Pakistan since the regional competitors grappled with a dire Covid-19 situation that helped grow the country’s exports. Moreover, cost of production as a share in revenue was also significantly lower year on year. This was further supported by a notably higher share of profit that allowed net margin to reach to 14.3 percent compared to almost 2 percent in 1QFY21.

The second quarter of FY22 also saw higher revenue year on year, by 80 percent. Again, cost of production was significantly lower year on year. Coupled with share of profit of associated undertaking, net margin was recorded at 16.3 percent for the quarter. While the industry is undertaking expansion and capacity enhancement, the industry’s exports are expected to rise further but the rise in oil prices due to the Russia-Ukraine war can affect the industry.