Shahtaj Textile Limited

Shahtaj Textile Limited (PSX: STJT) was established as a public limited company in 1990 under the repealed Companies Ordinance, 1984. Two years later in 1992, it began commercial production. The company manufactures and sells textile goods. Its manufacturing facility is located near Lahore.

Shareholding pattern

As at June 30, 2021, over 40 percent shares are held by the directors, CEO, their spouses and minor children. Within this category, a major shareholder is Mrs Amtul Bari Naeem and Muneer Nawaz, the chairman of the company. Over 38 percent shares are with the foreign general public, followed by over 15 percent shares held under associated companies, undertaking and related parties. Within this, Shahtaj Sugar Mills Limited holds majority of the shares. The remaining roughly six percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has experienced a fluctuating topline while profit margins have also followed suit.

In FY18, revenue increased by 12 percent to reach Rs 3.9 billion in value terms. While local sales grew by 30 percent, export sales inclined by 18 percent. A combination of factors contributed to this growth such as improvement in selling prices that were preceded by increases in yarn prices, currency devaluation that encouraged exports, and an increase in volumes. Despite the growth in topline, profitability could not take off as rising raw material prices, energy costs and depreciation resulting from installation of new plant and machinery drive cost of production upwards to consume over 92 percent of revenue. Thus, gross margin reduced to 7.5 percent. Moreover, finance expense also increased as a share in revenue, that reduced 1.73 percent- the lowest seen since FY09.

Revenue in FY19 grew by nearly 22 percent to reach Rs 4.8 billion in value terms. This was the highest growth rate in topline seen in the last seven years. Both export sales and local sales continued to rise, by 8.5 percent and almost 22 percent, respectively. The increase was attributed to “favourable rate variances”. On the other hand, the decrease in RLNG price and power tariff for the export sector contributed to cost of production reducing to 90.6 percent of revenue, allowing gross margin to improve to 9.4 percent. This also trickled to the bottomline with net margin posted at 3.9 percent. This was also supported by other income that grew to Rs 87 million from last year’s Rs 20 million. This was largely a result of an exchange gain arising due to currency devaluation.

In FY20, topline contracted by close to nine percent. Export sales fell by a massive almost 34 percent, while local sales also registered a decline, of 13.7 percent. The loss in revenue was largely attributed to the outbreak of the Covid-19 pandemic that resulted in halt in trade, production processes and business operations. With a marginal change in production cost, gross margin improved slightly to 9.6 percent. However, with other income being entirely eliminated after last year’s notable Rs 87 million, net margin for FY20 fell 1.67 percent.

In FY21, topline bounced back as it posted a growth of 13 percent reaching Rs 4.9 billion. Export sales fell by nearly 31 percent, while local sales registered an increase of close to 22 percent. The overall growth in revenue was attributed to the robust demand coming a year after the first outbreak of the Covid-19. The value-added sector, in particular, received considerable export orders which resulted in more business for fabric in the local market. This also had a positive impact on prices. Thus, the higher volumes and prices allowed gross margin to increase to 11 percent. With operating expenses also making a smaller share in revenue, net margin reached a peak of 4.4 percent, while net profit was also recorded at an all-time high of Rs 217 million.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by over 61 percent year on year. This was attributed to a significant rise in prices, combined with an improvement in volumes. However, gross margin was largely flat year on year at close to 10 percent as there was a marginal change in cost of production. But net margin was somewhat better at 4.6 percent in 1QFY22 compared to 3.7 percent in 1QFY21 due to some support coming from other income that was absent entirely in the same period last year and a decrease year on year in administrative expense as a share in revenue.

In the second quarter of FY22 revenue was again higher year on year, by nearly 69 percent. This was due to an increase in prices, which in turn was a result of higher prices for raw materials. However, production cost was only marginally better, thus keeping gross margin hovering around 10 percent. This also trickled to the bottomline with net margin at nearly 5 percent that was higher compared to 3.3 percent in 2QFY21, as it was also supported by a decrease in administrative expense. With rising input costs, along with interruptions in global supply chains such as vessels and high freight charges, both the local and export industry are facing challenges. On the other hand, the company has planned to install 49 looms that is expected to improve capacity and efficiency.