Wonder why Nishat Mills stock has continued to outperform the benchmark index for more than two years? Well, Its their performance, stupid!
Posting the fastest quarter-on-quarter sales growth since 2QFY10, the firm has reported net sales of Rs13.5 billion for the three months ending March 2011. Although NMLs gross margins squeezed further in year-on-year comparisons, it rose substantially on a quarter-on-quarter basis, despite 34 percent hike in average cotton prices in the third quarter FY11. Banking on efficient inventory management and aggressive sales strategy, especially in the value-added sector, the company expects to maintain the gross margin enjoyed in 3QFY11 in the last quarter of the current financial year.
Another thing that stands out is NMLs continuous efforts towards efficient administration. Though distributing and administration costs have not been more than 10 percent of sales in recent years, the fact that it is decreasing speaks volumes about the companys management. Total operating costs, as a percentage of sales, stood at 6.2 percent in 3QFY11, its lowest in the last 11 quarters to say the least.
The first nine-months has also seen NMLs other income rising more than 200 percent, thanks to dividend earnings from sister concerns that were booked in the first half, and gains booked on exchange rate management.
The last quarter should see further increases under the head of other income, as dividend amounting Rs350 million is due to be received from MCB Bank. Full-year net earnings, according to NMLs management estimates, is expected to land at Rs4.8-5 billion, which, if materialised, can result in nearly 65 percent growth in full-year net profits.
Looking beyond horizon, NMLs, wholly owned subsidiary in the UAE, plans to open its first retail outlet in Dubai on the twelfth of May, with the second outlet planned to be opened in Dubai Outlet Mall by end June, according to Badar-ul-Hassan, the firms Chief Financial Officer.
Over the course of years, the firm intends to open around five or six outlets in the UAE; "but the expansion will depend on the performance of the first venture," Badar had told BR Research in February.
The UAE and the Middle East are fast growing and highly attractive apparel markets, according to several studies, which means that NMLs experiment is likely to bear fruits. On top of that, setting up facilities in one of the top liberal visa regimes that offers a safe and secure law & order environment, means that NML would have an attractive access to international travellers and apparel buyers.
Yet, despite these exciting plans, when it came to NMLs stock performance at the bourse yesterday, investors expressed disappointment. NMLs stock went down by 0.74 percent in a market that was up 0.16 percent. Indeed, its never too much to please investors.
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Nishat Mills P&L
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QoQ
Rs (mn) 9MFY11 YoY change 3QFY11 change
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Sales 34,864 56% 13,520 19%
Cost of sales 29,125 60% 11,063 8%
Gross profit 5,739 41% 2,457 115%
Gross margin 16.5% down 180 bp 18.2% up 810 bps
Total operating expenses 2,271 28% 842 16%
Other operating income 1,685 202% 478 -44%
Profit from operations 5,152 80% 2,093 65%
Finance cost 1,209 49% 504 29%
Profit after tax 3,481 92% 1,424 101%
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Source: Company notice
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