Nishat Mills Limited (NML) is the flagship company of Nishat Group that was established in 1951 and listed at stock exchange in 1989. The firm is engaged in the business of textile spinning, weaving, processing, stitching, made-ups and processed cloth. It is one of the most modern and largest vertically integrated textile companies in Pakistan.
Over the years, NML has achieved significant geographical diversification in its export sales and is fast becoming a force to be reckoned with in the value-added garment sector in the region. Nishat's apparel division has the capacity to produce 7.2 million garments per annum.
NML has 199,536 spindles and 40 sulzer shuttle-less looms, and its weaving unit has 655 air jet looms and two stitching units for home textile with annual capacity of 24 million meters per annum.
Performance for 1H FY14 The cotton prices remained steady to a great extent in the 1H FY14. However, a comparison of cotton prices with the corresponding period of last year shows an increase of 15.88 percent, which has impacted the cost of NML products 1H FY14. The company started purchasing raw cotton according to requirements of spinning division immediately after the arrival of new crop in the market. More than 85 percent of the planned procurement was completed during the half year.
However, the declining trend in the demand for cotton yarn was observed towards the end of the first quarter which continued during the second quarter as well. Hong Kong and China remained the main markets for cotton yarn whereas demand was insignificant in Europe and USA.
NML earned sales of Rs 28.08 billion during 1H FY14, showing positive growth of 6.7 percent over the same period of last year. All business divisions of the company contributed towards this sales growth in terms of both increased volume and favourable prices. Weaving division performed well in 1H FY14 as compared to the corresponding half of the last year. According to NML's management, business relating to apparel and technical fabric in the European market grew gradually, especially in Germany, despite some sluggishness in the Italian and Spanish markets due to poor economic conditions. Another reason for higher growth in NML sales is its fabric product, corduroy, which usually has great demand in winter season. However, the demand of grey fabric from China slowed downed due to existing huge stocks with Chinese traders and uncertain cotton policy of Chinese Government.
NML's gross profit margin was up by 18.6 percent in 1H FY14 due to less than proportionate increase in cost of sales which only grew by 4.2 percent. That mainly attributes to productions efficiencies and effective cost reduction strategies. Operating profit also recorded an increase of 27 percent year on year thus enabling NML to finance its working capital requirements and to carry out BMR at their manufacturing facilities.
NML has posted a profit after tax of Rs 3.852 billion in 1H FY14 which is up by 34.8 percent year on year. The fuel cost savings, higher profitability of value-added segments and a well-diversified investment portfolio were the main reasons for this significant increase. Decrease in finance cost by 0.3 percent in 1H FY14 as compared to last year through better working capital management and reduction in borrowing rates were also among the contributors to the profitability.
NML's liquidity and short-term financial position improved further in the current year. Current and quick ratios stayed at 1.44 and 0.67, respectively in 1H FY14. Prudent working capital and financial management seems to be at work. The company maintains optimal capital structure in order to create balance between financing requirements and cost of capital that resultantly creates value for shareholders. The earning per share was Rs 10.96 compared to Rs 8.13 for the same period in previous financial year. NML is a low-geared company which reduces its financial risk. A greater proportion of equity provides a cushion and is seen as a measure of financial strength.
Future outlook The global economic conditions have not progressed much in the current half year but optimism prevails that world economy will rebound very soon. The textile industry in Pakistan is also in the limelight after the approval of the GSP+ status from the European Union (EU) which may considerably enhance the country's textile exports to the EU.
NML looks set to make good use of this development, thanks to its specialisation in the value-added segment. Unlike other firms, NML's power-generation capability will also help it benefit from the new opportunities. NML's plans for extension of the power plant are underway. It plans to set up more such plants at Faisalabad and Bhikki. A plan to replace their existing gas turbines will ensure the firm a supply of cheaper power, thereby helping them to reap benefits out of the GSP+ status.
NML seems committed and focused to improve its strengths and develop strategies like utilising alternate energy resources, product diversification, new market development and achievement of efficiency in production. Signs suggest that this textile firm will continue to cheer its shareholders.
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1HFY12 1HFY13 1HFY14
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Profitability
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Gross profit margin 14.3% 16.7% 18.6%
Operating profit margin 7.6% 10.2% 12.1%
Net profit margin 8.8% 10.9% 13.7%
ROE 6.3% 6.2% 6.0%
ROA 3.8% 4.3% 4.3%
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Liquidity
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Current ratio 1.28 1.38 1.44
Quick ratio 0.48 0.73 0.67
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Turnover
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Total asset turnover 0.43 0.39 0.31
Fixed asset turnover 1.60 1.78 1.55
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Market
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EPS (Rs) 8.13 10.96
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Source: Company accounts
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