Kohinoor Textile Mills Limited

Kohinoor Textile Mills Limited (PSX: KTML) was established under the Companies Act, 1913. The public limited company manufactures yarn and cloth, processes and stitches the cloth. The company is present in the global market although in the last few years, local sales have exceeded export sales.

Shareholding pattern

As at June 30, 2021, over 41 percent shares are held under the associated companies, undertakings and related parties that includes Mercury Management Inc. and Hutton Properties Limited. About 29 percent shares are with the directors, CEO, their spouses and minor children, within which majority are held by Mr. Taufique Sayeed Saigol, the CEO of the company. The local general public owns over 14 percent shares followed by 12.6 percent shares held in modarabas and mutual funds. The remaining roughly 3 percent shares are with the rest of the shareholder categories.

Historical operational performance

Kohinoor Textile Mills has mostly seen a growing topline over the years, with the exception of FY12 when it contracted by over 7 percent. Operating and net margins, on the other hand, have followed a downward trajectory with a slight incline in FY21, while gross margin has been gradually increasing after FY18.

Revenue in FY18 grew by a relatively growth rate of 2.5 percent to near Rs18 billion in value terms. While export sales declined by over 17 percent, local sales picked to increase by 18.3 percent. On the other hand, cost of production grew marginally to 86 percent, compared to 85 percent in FY17, keeping gross margin more or less flat at close to 14 percent. But the year on year decrease in operating margin was more pronounced at 14 percent due to a notable decrease in other income. This also reflected in the net margin that was significantly lower at 9.3 percent compared to last year’s 13.5 percent.

In FY19 the company saw the highest growth rate seen since FY13, at 19 percent. While both export sales and local sales registered a growth of 9.8 percent and 25 percent, respectively, local sales over the years have exceeded export sales to dominate the total revenue pie. This is noted by local sales contributing Rs14 billion, while export sales stood at Rs6.9 billion. On the other hand, it was the spinning division that contributed majority of this increase. Additionally, the company also changed its product mix to produce counts that catered to registered buyers. This was done in response to the government’s efforts to document the economy. Cost of production fell to 83 percent, attributed to timely raw material procurement that allowed gross margin to increase to 16.8 percent. But operating and net margin fell to 12.7 percent and 8.2 percent, respectively due to a decrease in other income that reduced to Rs609 million versus over Rs1 billion seen since FY15. The decrease in other income came from a decrease in dividend income.

Revenue growth in FY20 was again relatively subdued at close to 3 percent to reach almost Rs22 billion. However, this increase was attributed to a growth in export sales by 32 percent, whereas local sales declined by 11.6 percent. Moreover, spinning division continued to dominate the total revenue pie, but growth was seen in the weaving and home textile divisions. With cost of production further reducing to nearly 82 percent of revenue, gross margin grew to over 18 percent. However, this did not trickle down to the net margin that was recorded at almost 7 percent- the lowest seen since FY13. The decline was due to a rise in operating expenses and finance expenses as a share in revenue.

Revenue growth in FY21 stood at an all-time high of 37 percent with topline reaching a peak of almost Rs30 billion. Both export sales and local sales posted double digit growths of 30 percent and 41.2 percent, respectively. Spinning division was again, the main growth driver due to high selling rates encouraged by demand, while weaving division also witnessed a year-on-year improvement. The company is planning capacity enhancement in anticipation of increase in demand. However, home textile division could not perform as well due to increase in freight costs and yarn prices. Moreover, there was lower demand from institutional customers due to travel ban and hotel closures. But with cost of production falling to an all-time low of 79.5 percent, gross margin peaked at over 20 percent that also reflected in the higher net margin of 9.2 percent, while net profit was at an all-time high of Rs2.7 billion.

Quarterly results and future outlook

Revenue in 1QFY22 was higher by 12.5 percent year on year attributed to weaving division while spinning division was affected by high raw material prices while the processing and cut and sew divisions faced the challenge of lack of available containers and high freight rates. In addition to higher revenue, cost of production was significantly lower in 1QFY22 at nearly 74 percent allowing net margin to improve to 12.5 percent versus 7.25 percent in 1QFY21.

Revenue in 2QFY22 was also higher year on year, by 53.6 percent due to expected improvement in the spinning division owing to rising cotton prices and high demand. Similar trend was also seen in the weaving and home textiles division. Cost of production fell further to almost 71 percent of revenueversus 80 percent in 2QFY21. Thus, cumulatively 1HFY22 saw a net profit Rs2.8 billion versus Rs1 billion in 1HFY21.

Demand for the spinning division is expected to decline that can affect the third quarter results. Moreover, high costs and low availability of international shipping space is expected to affect demand in the finished goods division as well as imports of cotton. The fourth quarter will see some improvement as Europe and North America eases its lockdowns.