Ellcot Spinning Mills Limited

INTRODUCTION: Part of the Nagina Group of Companies, Ellcot Spinning Mills was established in 1991 and is listed on the Karachi and Lahore Stock Exchanges. The Company has an installed capacity of 54,528 Spindles with related process machines. It produces high quality yarns of 100 percent cotton, synthetic and polyester cotton blends which are used in the production of apparel fabrics, sheeting, toweling, canvas and knitted products.
Profitability In FY09, the Company increased its production of blended yarns by 7.65 percent compared with the values for FY08. During the year, net sales of yarn increased by 16.45 percent compared with the sales values a year earlier.
Despite production and sale increases, net earnings of ESML remained low at Rs.997 million. The reason for this is a fall in demand for yarn as a result of the worldwide recession that led to a decline in the yarn prices. Additionally, the increase in minimum wages and excessive financial charges for the year added to the low profit figure.
In the following fiscal year, there was only a marginal increase of 0.38 percent in the blended yarn production. However, with a 33.43 percent increase in the average sales price compared with the price a year earlier, the Company was able to manage net sales of Rs.3,186 million. A surge in the local and international demands for yarn also contributed to the increase in sales for the year.
The Company was successful in increasing its net earnings by 87.10 percent, reaching Rs.128.633 million. This may be attributable to the management's prudence on timely procurement of cotton due to which the Company's average cotton cost remained low.
During the FY11, net sales of yarn increased by 56.67 percent on the back of a rise in the yarn prices owing to an increase in cotton prices as well as a surge in the foreign and domestic market. After tax profit for the FY11 was recorded at Rs.352 million, showing an increase of 173.73 percent compared with the earnings a year earlier.
For the first nine months of the ongoing fiscal year, the Company has experienced a decline in the sales revenue as well as in the profitability due to a sharp fall in the international market price of yarn, along with the general increase in the cost of production.
This has led to a decline in the gross profits earned by the Company. As a result, the net profit after tax was recorded at Rs.95.622 million as compared to Rs.261.590 million in the corresponding period of last year. The return on equity of the Company has experienced exceptional improvement, increasing from 0.21 percent in FY09 to 38.99 percent at the end of FY11. This may be credited to the management's operational and strategic excellence.
Liquidity The management at ESML has ensured a healthy liquidity position since FY09. The current ratio has shown an increasing trend, rising from 1.10 in FY09 to 1.33 in FY11. The quick ratio, which reflects on the Company's' ability to meet short-term obligations, too has increased from 0.36 in FY09 to 0.42 in FY11.
Debt Management Management at ESPL has been successful in controlling the Company's long-term borrowings. Resultantly, there has been a decline in the interest expense over the years, from Rs.184 million in FY09 to Rs.137 million in FY11.
A decline in the Company's debt to equity ratio suggests the management's efforts to minimise its growth from debt. The ratio has fallen from 54.19 percent in FY09 to 33.80 percent in FY11.
Operational Efficiency Under the BMR Scheme, the Company has replaced and modified the existing machinery. This has led to an increase in the production efficiency, indicating the management's effectiveness in using this investment to generate revenues. This is evident from the fixed asset turnover ratio, which has increased from 2.66 in FY09 to 5.56 in FY11, an improvement of 09 percent over the years.
Market Value An indicator of the profitability of the Company, the Earnings per Share of ESML has shown phenomenal improvement since FY09, increasing from Rs.0.09 to Rs.32.16 in FY11.
Future Prospects In light of the issues faced by Pakistan including excessive power outages, rising input costs, unstable law-and-order situation and overall economic instability, the management predicts the future to remain challenging.