Azgard Nine Limited

Azgard Nine Limited (PSX: ANL) was set up as a public limited company in 1993. Initially it was named “Indigo Denim Mills Limited”, and then “Legler-Nafees Denim Mills Limited in 1994. In 2004 it was named to what it is today. The company has a spinning, weaving, dyeing and stitching unit where it manufactures yarn, denim and denim products.

Shareholding pattern

As at June 30, 2020, close to 25 percent shares are owned by its associated companies, undertakings and related parties. The local general public owned about 48 percent shares followed by nearly 12 percent in joint stock companies. The directors, CEO, their spouses and minor children together held almost 10 percent shares. The remaining roughly 6 percent shares are held by the rest of the shareholder categories. The breakdown of each category is not known.

Historical operational performance

While the topline has been fluctuating over the years, profit margins have remained relatively stable after FY16.

After expanding by 23 percent in FY16,the company’s topline contracted in FY17 by almost 3 percent. Export sales fell by 4.7 percent while local sales saw a decline of 8.3 percent. Looking at the segments, the weaving segment fell by 30 percent due to lower demand, particularly from Turkey. The devaluation of the Turkish currency against USD made local manufacturers more competitive than imports. On the other hand, sales of garments saw a rise of 47 percent as it performed well in the European markets. Despite the fall in sales revenue, the company was not only able to maintain profitability but rather decrease the loss incurred year on year. This was due to a reduction in cost of production and finance expense. The company incurred a loss of Rs 814 million in FY16 that decreased to a loss of Rs 134 million in FY17.

The company witnessed a staggeringly high growth rate in revenue thus far, during FY18, at nearly 25 percent. While local sales contracted by 19 percent, export sales picked up to increase by over 26 percent. Both the weaving and garments segment registered a growth of 18.8 percent and 42.8 percent, respectively. Barring the spinning sector, the textile industry of the country, as a whole, saw a rise of 9 percent in its exports. The company, on the other hand, has seen better margins in the garment’s division, while the denim segment has witnessed a downward trend, primarily due to the dwindling demand from Turkey. Azgard Nine managed to curtail costs; this, combined with a better topline, the company posted a positive net margin of 1.23 percent after incurring significant losses for four consecutive years.

In FY19, the company saw the highest growth rates in revenue at over 26 percent. Both export and local sales contributed to this rise; export sales rose by close to 28 percent, while local sales registered a 58 percent rise. The BMR activities in the garments division resulted in an increase in capacity utilization that resulted in better volumes for the company. Thus, sales revenue from the garments division rose by over 39 percent; weaving division saw relatively lower growth of 6.4 percent, while sales of the spinning division increased by 41 percent. This coupled with a lower cost of production and operating expenses, gross margin grew to its highest of 17.25 percent while net margin was recorded at 1.5 percent- marginally higher year on year.

In FY20, the company experienced the largest decline in revenue seen in five years, by over 16 percent. Both, export and local sales witnessed a drop, by almost 14 percent and 33 percent, respectively. While sales had increased in the first half of FY20, with the onset of the Covid-19 pandemic and countries worldwide resorting to strict lock downs, sales started to decline in the second half; orders and shipments were cancelled or delayed along with volatility in prices and raw material costs. This created an adverse effect on the company’s profitability reflected in the loss incurred for the year, at Rs 389 million.

Quarterly results and future outlook

Topline grew by 10 percent year on year during the first quarter of FY21 as business activities resumed after the strict lock down placed in the third quarter of FY20. During the quarter, the company saw a lower cost of production, compared to both the following quarter of FY21 and 1QFY20. Thus, it saw improved margins as well.

Revenue continued to grow in the second quarter of FY21, with 1HFY21 being nearly 7 percent higher than 1HFY20. There was a marginal decline in costs overall year on year, but net margin was lower in 1HFY21 due to loss on sale of non-current asset; during the period, a stitching unit in Lahore had been sold.

After more than a year into the pandemic, some normalcy seems to have returned with the process of vaccination also started in several countries. However, it will require time for business to return to pre-pandemic period.