Shahtaj Textile Mills Limited

A Shahnawaz Group Company, Shahtaj Textile Limited was incorporated in 1990 and is listed on the Karachi and Lahore Stock Exchanges. Its production facilities are situated in the hub of Textile Industries near Lahore. The mills went into commercial production in January 1992.
The principal business of the company is manufacturing and sales of textile goods. The Company initially manufactured grey fabric but is now producing all sorts of weaves and has successfully ventured weaving Layosel, Model, Tensul, Organic besides Cotton and P/C yarn of all counts. Starting with 72 looms, the number of installed looms is 188 with complete back-up process and stand-by power generation.
FINANCIAL ANALYSIS OF SHAHTAJ TEXTILE MILLS LIMITED
Profitability Company's sales for the FY 09 increased by 23 percent compared with the results in FY 08. Despite high financing and energy costs, the company was able to generate a net profit of Rs 38.887 million for the FY09. This may be attributed to the improvement in the market conditions offering better gross margins. Overall profitability also increased as a result of replacement of old production machinery.
In FY 10, in spite of challenging conditions due to power outages and high yarn prices, the company was able to report a net profit of Rs 107.795 million, a significant increase of 177 percent from the previous fiscal year. High yarn prices in FY 11 consequently led to an increase in the unit selling price, favourably affecting the company's bottom line results. Added to this was the impact of higher production as a result of an increase in production capacity. Resultantly, net profit for the year increased by 89.92 percent from last year, reaching Rs 204.734 million.
The management of the company has prudently used the shareholders investment to generate high profits as can be seen by an increase in the Return on Equity (ROE) ratio. Since FY 09, the ratio has moved from 9.74 percent to 31.19 percent in FY 11.
The profit margin of the company has continued its rising trend since FY 09, reflecting the managements' ability to generate profits with significant control over costs. The ratio has increased from 2.08 percent in FY 09 to 5.80 percent in FY 11.
As a result of a slowdown in the market conditions, net earnings for the first half of FY12 did not match the profits earned in the corresponding period a year earlier. Net profit for the first half of FY12 amounted to Rs 55.594 million.
Liquidity Financial constraints were experienced by the company in FY 11 after investment in the power plant and machinery installation. Rise in trade debts and delays in dispatches have also contributed to the issue. Though the current ratio has increased from 1.11 in FY 10 to 1.42 in FY 11, this is mainly due to a slowdown in the market, resulting in piling up of stock and increase in collection period.
Debt Management The finance cost of the company fell from Rs 102.803 million in FY09 to Rs 81.831 million in FY10 with a decline in the long-term debt of STML. In the following fiscal year, the interest expense rose in line with the long-term debt, moving to Rs 110.042 million. Due to financial constraints in FY11, the management of the company has relied on debt to finance the company's growth. This is depicted by the debt to equity ratio, which increased from 0.32 in FY09 to 0.69 in FY11.
Operational Efficiency The management of the company has been able to increase the production capacity by installing new looms under the BMR Plan. This has also led to an enhancement in the production efficiency. This can be seen by the improvement in the fixed assets turnover ratio, which has gone up from 3.34 in FY09 to 4.70 in FY11.
Market Value Following the company's earnings trend, the Earnings per Share (EPS) of STML have increased from 4.03 in FY09 to 11.16 in FY10. In FY11, the EPS was recorded at Rs 21.19, an increase of 89.87 percent from previous year value.
Future Prospects The company's gross margins for the first half of FY12 have reduced due to the slowdown in the market situation. The liquidity constraints have led to more bank borrowings resulting in the financial cost of the company. At the same time, energy crisis has severely impacted the operations of STML. The management at STML hopes to face these challenges in the coming months and make constructive efforts to stabilise the situation in the interests of all stakeholders.