Textile Spinning: FAZAL TEXTILE MILLS LIMITED - Year Ended 30.06.2006

This large textile unit of Federal B Area Karachi has been able to withstand the steep slide in profitability unlike majority of spinning units of the textile industry.
The directors of the company said that the textile industry received a big setback due to increase in finance cost, cost of inputs, steep rise in price of lint cotton and energy cost.
The factors are hit the profitability of the company also, However, the company has maintained the steady stream of cash dividends. The market value of the company share was quoted quite high mainly because of high dividend pay outs, large spinning facility hundred percent capacity utilisation, almost completing its major development and renovation of production facilities with relatively cheaper funds and above all being an important part of a global trading conglomerate Yonus Brother group.
The directors foresee better future prospects. Their positive outlook is based on increased next cotton crop estimated to be around 15 million bales. However this outlook is slightly impacted by heavy rains in the monsoon season adversely affecting size and quality of cotton crop pushing up the cotton prices. The higher mark-up rates dampens the positive outlook. The positive outlook is further strengthened with the government's initiatives. The government is giving relief to the export industry by R&D and lowering refinancing cost.
Fazal Textile Mills Ltd was incorporated in the province of Sindh on July, 1963 as a private limited company. The company is quoted on stock exchanges in Pakistan since 1971. It is engaged in manufacturing selling, buying and dealing in all types of yarn and knitted fabrics. The company's registered office and factory are located at LA-2/B, block-21, Rashid Minhas Road, Federal B Area Karachi.
Fazal Textile Mills Ltd is a part of one of the oldest and prominent trading group Yunus Brothers. The other large spinning mill, Gadoon Textile Mills Ltd is also a part of Yunus group. The other sister concern of the company is Yunus Textile Mills which is an state of the art textile weaving, processing, finishing and stitching facility equipped with 214 Air jet looms established in the year 2000. The group website emphasises that Yunus Textile Mills Ltd is the newest and most advanced integrated textile mills, manufacturing a wide range of fabrics, home textile and garments.
Lucky Textile Mills and Lucky Cement Limited are other two sister concern. Yunus Brothers is recognised internationally in the world of textile. It is actively involved in international trading of various products including cotton and blended yarn, cotton and blended fabrics, rice sugar, fertiliser, earth moving equipment's, chemicals spare parts and automotive vehicles.
Yunus Brothers is one of the largest export houses of Pakistan exporting mainly to European, US, Far Eastern, Middle Eastern and African markets. According to the company's website Yunus Brother's annual sales turnover exceeds US $300 million with 95% of the sales geared towards the exports markets. Spinning activities of the group is being carried out under the name of Fazal Textile Mills Ltd and Gadoon Textile Mills Ltd.
Fazal Textile Mills Ltd is equipped with 57,108 spindles and 18 knitting machines. During 2005-06 the year under review, the company produced 48.032 million lbs of yarn converted to 20s count and achieved almost 100 percent capacity utilization which is almost identical to last financial year's performance.
During the year the knitting department capacity utilisation improved to 39.21% as compared to the proceeding year's. The management continued to modernise the company's plant. The company entered into various contracts for supply of state of the art machines to meet quality requirements of its buyers. During the year under review, the company incurred capital expenditure of Rs 155.59 million for plant and machinery and the funds of the capital expenditure were generated from company's own resources. Funds are becoming expensive creating bottle neck in further investment in the textile industry. Even large textile units have gone slow in their capital expenditure programmes.
Nevertheless fortunately, according to the company directors the company had been through its major development and renovation of production facilities with relatively cheaper funds.
During the year 2005-06, the company posted sales in terms of value at Rs 2.027 billion the last financial year of nine months sales had amounted to Rs 1.642 billion and its annualised rough estimate works out to 2.189 mln. On this basis the sales amount of the year under review is 7.4% lower as against last year's annualised sales estimate.
The company's gross profit margin was lower at 8.66% as compared to the previous year's 9.88%. As mentioned earlier the directors enumerated a number of reasons for low profitability.
Resultantly, the pretax profit to sales ratio was down at 2.53% from last year's 4.75%. For the year under review, which encompassed 12 months, its pretax profit, was lower at Rs 51.46 mln as compared to last nine month's pre-tax profit of Rs 78.17 mln. The credit cost hit more than 200%.
Even then the company posted higher after tax profit at Rs 48.62 mln (2004-05: Rs 40.88 mln) because of a large amount of favourable write back of provision for taxation. The company's EPS works out to Rs 7.86 while the Board of Directors proposed cash dividend at Rs 2.5 per share which is identical to last year's. The share of the company has been priced at Rs 115 per share, which is 11.5 times of the par value. During the last one year the market value of the share has ranged between Rs 79 and Rs 190.95 per share. During the first two days of November 2006, there was no turnover in its share.

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Performance Statistics                     (Million Rupees)

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30th June                               2006           2005

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Share Capital-Paid-up:                 61.87          61.87

Reserves:                             683.97         650.82

Shareholders Equity:                  745.84         712.69

Deferred Gratuity:                     25.09          13.46

Deferred Taxation:                     61.51          77.07

Current Liabilities:                1,036.36         896.14

Fixed Assets:                         652.33         669.94

L.T. Loans & Advance:                   2.73           4.12

L.T. Deposits:                          0.53           0.53

Current Assets:                     1,213.21       1,024.77

Total Assets:                       1,868.80       1,699.36

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Profit & Loss A/c:

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                              For Year  For 9 Months Period

                               Ended June 30  Ended June 30

                                        2006           2005

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Sales:                              2,027.30       1,642.38

Gross Profit:                         175.57         162.29

Other Operating Income:                 3.62           2.02

Operating Profit:                     125.53         119.57

Finance (Cost):                       (74.07)       (41.41)

(Depreciation):                       (64.62)       (49.68)

Profit Before Taxation:                51.46          78.17

Profit After Taxation:                 48.62          40.88

Earnings Per Share (Rs):                7.86           6.61

Dividend Cash (%):                     25.00          25.00

Share Price (Rs) on 02/11/06:         115.00              -

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Financial Ratios

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Price/Earning Ratio:                   14.63              -

Book Value Per Share:                 120.24         115.19

Price/Book Value Ratio:                 0.96              -

Debt/Equity Ratio:                     0:100          0:100

Current Ratio:                          1.17           1.53

Asset Turn Over Ratio:                  1.08           0.97

Days Receivables:                        117             52

Days Inventory:                           95            170

Gross Profit Margin (%):                8.66           9.88

Net Profit Margin (%):                  2.40           2.49

R.O.A.        (%):                      2.60           2.40

R.O.C.E. (%):                           5.84           5.09

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Capacity & Actual Production (Figures in Million)

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Spinning 20s Count Yarn in lbs

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Rated Capacity:                       48.342         34.725

Actual Production:                    48.033         34.454

Capacity Utilization (%):              99.36          99.22

Number of Spindles at year end:       57,108         59,508

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Knitting Kilograms

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Installed Capacity:                    2.178          2.178

Actual Production:                     0.854          0.632

Capacity Utilization (%):              39.21          29.02

Number of Knitting Machines Installed:    18             18

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