Gul Ahmed Textile Mills

Gul Ahmed group has been operating as a textile trader since the 1900s. However, the group commenced its manufacturing operations as Gul Ahmed Textile Mills (PSX: GATM) in 1953. It turned into a public limited entity in 1955. GATM is a composite textile mill engaged in the manufacturing and sale of textile products. Besides having a strong presence in the manufacturing sector, the company has a foothold in the retail business too. The retail business started in Karachi and stretched to more than 40 stores across the country offering products ranging from fashion and clothing to home accessories. GATM is a subsidiary of Gul Ahmed Holdings (Private) Limited.

Pattern of Shareholding

As of June 30, 2024, GATM has a total of 740.059 million shares outstanding which are held by 7693 shareholders. Around 69 percent of the shares are held by associated parties, undertakings, and related parties. Within this category, Gul Ahmed Holdings (Private) Limited leads with a shareholding of 55.86 percent in GATM. Individuals account for 16.30 percent of shares which also includes a 7.4 percent stake of the company’s Directors, CEO, and their spouse. Financial institutions account for 7.9 percent of shares of GATM while investment companies & mutual funds hold 5.17 percent of shares. Around 1.29 percent of shares are held by insurance companies. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-24)

GATM’s topline has been riding a growth trail over the period under consideration except 2020. Conversely, its bottom line slid twice during the period i.e. in 2020 and 2023. The company posted a net loss in 2020. GATM’s margins took a significant dip in 2020, 2023 and 2024. In the remaining years, the margins largely followed an upward trajectory except for a marginal dip in gross margin in 2019 and 2021 (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.

In 2019, GATM’s topline grew by 25.56 percent year-on-year. Owing to satisfactory demand in the local and export market, the company’s spinning unit achieved a capacity utilization of 94.18 percent which was equivalent to 44,871 kilograms while its weaving unit registered a capacity utilization of 88.5 percent equivalent to 148,564 sq. meters. Cost of sales grew by 25.67 percent year-on-year in 2019, resulting in a 25.13 percent increase in gross profit while GP margin slightly dipped from 21 percent in 2018 to 20.92 percent in 2019. The company foresaw the depreciation of the Pak Rupee and invested in building raw material inventory. This increased its working capital borrowings; however, helped the company to maintain its GP margin amid no considerable price increase by its customers. Distribution and administrative expenses hiked by 17.96 percent and 15.88 percent respectively in 2019 mainly on account of increased payroll expenses and higher freight charges. The company also increased its workforce from 13,076 employees in 2018 to 14,862 employees in 2019. A tremendous rise in exchange gain due to Pak Rupee depreciation drove up other income by 472.56 percent in 2019. GATM recorded 65.34 percent bigger operating profit in 2019. OP margin also rose from 7.27 percent in 2018 to 9.57 percent in 2019. Finance costs surged by 49.27 percent year-on-year in 2019 which was the result of higher discount rates and increased borrowings. GATM closed the year with a 73.94 percent rise in its net profit which clocked in at Rs.3609.22 million with EPS of Rs.10.12 versus EPS of Rs.5.82 recorded in 2018. NP margin also progressed from 4.55 percent in 2018 to 6.3 percent in 2019.

GATM succumbed to subdued demand and halted business activity on account of COVID-19 and registered a drop in its local sales by around 21 percent year-on-year in 2020. Export sales managed to post a year-on-year uptick of 6 percent due to vigorous demand from its export markets in the 1HFY20, however, it couldn’t sustain the topline which plummeted by 5.84 percent year-on-year in 2020. Owing to weak demand in the 2HFY20 due to COVID-19-related lockdowns, GATM achieved capacity utilization of 81.75 percent and 88.44 percent in its spinning and weaving units respectively. Cost of sales slid by 0.96 percent year-on-year in 2020 as fixed overhead couldn’t be absorbed. This resulted in a 24.31 percent year-on-year decline in GATM’s gross profit in 2020. GP margin also dropped to 16.81 percent in 2020. Distribution expense slid by 2.58 percent year-on-year in 2020 primarily on account of a plunge in rent & ancillary charges incurred during the year. Administrative expense posted a marginal 1.33 percent uptick in 2020 which was the effect of inflation as the company trimmed its workforce to 13,480 employees during the year. No provisioning for WPPF booked during the year squeezed other expenses by 15.26 percent in 2020. Other income couldn’t help the bottom line either and slipped by 67.67 percent year-on-year in 2020 mainly on account of a massive decline in foreign currency exchange gain. GATM’s operating profit thinned down by 64.76 percent in 2020 with its OP margin sliding down to 3.58 percent. Finance costs mounted by 36.26 percent year-on-year in 2020 due to a higher discount rate for the most part of the year coupled with increased borrowings. Exchange loss on foreign currency loans and interest on liability against right-of-use assets also contributed towards a taller finance cost in 2020. As a result, GATM registered a net loss of Rs.479.36 million in 2020 with a loss per share of Rs.1.12.

2021 recompensed the company for the losses it suffered in 2020 as its net sales posted a massive year-on-year growth of 46 percent in 2021. The growth came on the heels of a rebound in both local and export sales. Gross profit in absolute terms also grew by 41.89 percent year-on-year in 2021, however, the high cost of raw materials, increase in utility prices, and supply chain and logistics challenges contained the GP margin which slightly slipped to clock in at 16.34 percent in 2021. The company was able to limit its administrative and distribution costs in 2021, other expenses grew by 96.49 percent year-on-year on the back of profit-related provisioning. However, another expense was offset by a substantial 134.14 rise in other income mainly because of the re-measurement of government grants and provision of GIDC. This translated into a 288.59 percent jump in GATM’s operating profit in 2021 with OP margin climbing up to 9.53 percent. Finance cost showed a 3.17 percent downtick on the back of a low discount rate. The company posted a net profit of Rs.4424.54 million in 2021, culminating in an NP margin of 5.62 percent.

2022 was characterized by grave macroeconomic challenges such as frequent power disruptions, high discount rates, weaker local currency, and persistent political uncertainty. Massive floods in the country added further insult to the injury. The local sales of the company dropped by 62 percent year-on-year on account of muted demand as record high inflation considerably affected the purchasing power of consumers. Conversely, export sales boasted an impressive jump of 68 percent year-on-year in 2022. High export sales enabled the company to operate at its optimum capacity resulting in a year-on-year topline growth of 27.27 percent in 2022. High raw material prices, supply chain disruptions, Pak Rupee depreciation, and increasing power costs coupled with power disruptions pushed up the cost of sales by 25.77 percent year-on-year in 2022. Gross profit posted a 34.96 percent rebound in 2022 with GP margin moving up to 17.32 percent. The company managed to cut back on its selling and distribution costs by 41.19 percent year-on-year 2022mainly in the categories of salary, wages, and benefits as well as advertisement and publicity expenses. Administrative costs also showed a plunge of 6.52 percent in 2022 due to lower payroll expenses incurred during the year. Elevated profit-related provisioning and loss on the sale of fixed assets drove other expenses up by 65.74 percent in 2022. Other income slipped by 6 percent year-on-year in 2022 particularly due to lower gain on re-measurement of GIDC. GATM was able to record a 75 percent bigger operating profit in 2022 with an OP margin of 13.10 percent. Higher discount rates, increased borrowings, as well as finance cost on provision for GIDC, drove the overall finance cost up by 37.31 percent in 2022. Yet, the company registered a 100.28 percent enhancement in its net profit which clocked in at Rs.8861.65 million in 2022 with EPS of Rs.11.97 and NP margin of 8.84 percent - the highest ever since 2018.

In 2023, GATM’s topline posted a marginal 11.68 percent uptick. Revenue from export sales grew by 10 percent year-on-year in 2023 while local sales revenue registered 28 percent year-on-year progress. Export volume remained largely comparable to last year. Conversely, in the local market, the company recorded an increase in sales volume due to improved market share. Cost of sales surged by 14.96 percent year-on-year in 2023 due to a hike in the prices of raw materials particularly on account of the ban on imports from India, Pak Rupee depreciation as well as higher utility charges. This resulted in a 3.97 percent erosion in GATM’s gross profit in 2023 with GP margin marching down to 14.9 percent. Distribution expense spiked by 12.42 percent year-on-year in 2023 due to longer shipping periods and exposure to higher exchange rates amid a ban on imports from India. Administrative expenses escalated by 54.39 percent year-on-year in 2023 driven by higher payroll expenses, utility charges, and travel expenditures.GATM’s workforce grew to 15,624 employees in 2023 from 15,493 employees in the previous year. 49.77 percent lower other expenses incurred by the company in 2023 was the result of lower profit-related provisioning and lesser losses incurred on the disposal of its fixed assets. Other income also shrank by 16 percent in 2023 as there was no government grant, no gain on re-measurement of GIDC as well as no reversals of provisioning like the previous year. These factors overshadowed the improved foreign currency gain booked by the company during the year. GATM posted 14 percent thinner operating profit in 2023 with OP margin clocking in at 10.09 percent. Finance cost spiraled by 100.33 percent in 2023 which was the consequence of a higher discount rate while the company trimmed down its short-term borrowings during the year. Net profit slipped by 55 percent in 2023 to clock in at Rs.3986.02 million with EPS of Rs.5.39 and NP margin of 3.56 percent.

In 2024, GATM registered a topline growth of 27.85 percent. While local sales stood intact at last year’s level, export sales posted massive growth of 40.22 percent in 2024 due to expansion in export order volumes (particularly to Germany and the UK) and favorable exchange rate movement. The cost of sales mounted by 32.18 percent in 2024 on account of a drastic hike in energy tariff, restricted gas supply, high inflation, and a spike in raw material and conversion cost. This resulted in a paltry 3.1 percent uptick recorded in gross profit in 2024 with GP margin sliding down to 12 percent. Distribution expense multiplied by 47.55 percent in 2024 due to an increase in freight expense on account of the Red Sea crisis. Payroll expenses in the supply chain network also drove up distribution expenses in 2024. Administrative expenses ticked up by just 1.26 percent in 2024. Other expenses surged by 13.64 percent in 2024 due to higher profit-related provisioning and loss incurred on the sale of property, plant & equipment. However, other expense was conveniently wiped off by 191.88 percent higher other income recorded by the company in 2024 which was the result of exchange gain from currency realization and derivative finance instruments. Operating profit posted 5.9 percent growth in 2024, however, OP margin slipped to 8.36 percent. Finance cost registered a modest 1.48 percent growth in 2024. Net profit improved by 18.61 percent in 2024 to clock in at Rs.4727.80 million with EPS of Rs.6.39 and NP margin of 3.3 percent.

Future Outlook

High power costs, uncertain availability of natural gas as well as volatility in global cotton prices, and thinner local cotton output will continue to pose challenges to the textile industry. Owing to surging costs, Pakistani textile products are losing their competitiveness in the global market.

Moreover, lower anticipated global growth and shrinking disposable income in the local market will further fade the demand. This will not allow the company to pass on the onus of cost hike to its customers, resulting in margin contraction.