Blessed Textiles Mills

Blessed Textiles Mills (PSX: BTL) is part of the larger Umer group of companies. The company was set up as a public limited company; it manufactures and sells yarn and woven fabric at its manufacturing unit located in Sheikhupura, Punjab.

Shareholding pattern

As at June 30, 2020, nearly 49 percent of the total shares are with the associated companies, undertakings and related parties. Of this, the key shareholder is M/S. Faisal Spinning Mills Limited holding over 18 percent shares. The directors, CEO, their spouses and minor children own over 35 percent shares. Of this, more than 8 percent shares are with Mrs. Samia Bilal, a non-executive director. Over 8 percent shares are held by the general public/individuals while the remaining 8 percent shares are with the rest of the shareholder categories.

Historical operational performance

While topline has mostly been rising since FY12, except for in FY16, profit margins gradually bottomed out in FY16, before improving until FY19, and fell again in FY20.

After falling by 10 percent in FY16, revenue increased by nearly 18 percent in FY17. While both export and local sales registered a rise, local sales picked up remarkably by 23 percent. This was attributed to better pricing. There was also some reduction in cost of production that decreased to 90 percent of the revenue, compared to over 92 percent in FY16. This led to an improvement in gross margin; the effect also trickled down to net margin that was further supported by a curtailment in finance expense. Thus, net margin improved to 3 percent during the year, up from 1.4 percent seen in FY16.

In FY18, the company witnessed one of the highest growth rates in revenue at 27 percent, crossing Rs 10 billion in value terms. Both, local and export sales saw rising revenues, by 29 percent and almost 22 percent, respectively. Within the segments, yarn sales saw a rise in both export and local sales, whereas fabric sales revenue reduced marginally. On the other hand, cost of production reduced very marginally keeping gross margins relatively flat. The slight reduction in finance expense allowed this effect to reflect in the net margin that rose slightly to 3.6 percent during the year.

The company continued with a growing topline in FY19, as it witnessed a more than 20 percent rise. Export sales saw a nearly 25 percent rise while local sales rose by over 17 percent. Local sales of fabric fell marginally, while export sales for the same went up by nearly 3 times. The currency devaluation against the US dollar made exports favorable in the export market as is evident by the growth in exports. This helped to improve gross margin to 13 percent- the highest seen since FY14. Net margin also improved year on year to over 5 percent. Although it was slightly diluted due to finance expense nearly doubling in value terms. This was due to a rise in interest rates by the State Bank of Pakistan (SBP).

Growth in revenue was subdued in FY20, as it inclined by less than 1 percent. Export sales continued to rise but was offset by the fall in local sales. The latter declined by 5.7 percent. Export sales of both, fabric and yarn picked up, while local sales of fabric in particular reduced, by 46 percent. On the other hand, cost of production increased to consume nearly 90 percent of revenue that brought gross margin down to 10 percent. Although other expenses and finance expenses reduced, coupled with a relatively higher contribution by other income due to “reversal of impairment on trade debts on recovery”, net margin reduced to 3.4 percent.

Quarterly results and future outlook

After the lock down that ensued in the event of the Covid-19 pandemic, business activities that had been on a halt, gradually returned to normal. This is reflected in the over 14 percent climb in topline during 1QFY21 year on year. With cost of production consuming 90 percent of revenue for the period, gross margin remained stable year on year.

The second quarter of FY21 saw an even higher revenue at Rs 3.6 billion. Collectively 1HFY21 was nearly 10 percent higher than 1HFY20. With cost of production dropping to 85 percent for 2QFY21, it saw a higher gross margin quarter on quarter. Moreover, the decrease in policy rate by the State Bank of Pakistan, in an attempt to provide relief to businesses during the Covid era, led to finance expense for the second quarter dropping to Rs 55 million, compared to Rs 92 million in the first quarter of FY21. Thus, net margin for 1HFY21 was recorded at nearly 6 percent.

The textile industry of the country, despite being the largest contributor to the GDP of the country, is not without its challenges, the most primary being the availability, or lack thereof, and quality of the raw material. The cotton shortage in the country leads to imports of the raw material. Thus, the costs are exposed to an exchange rate risk. Moreover, the company advocates investment in seed research and agriculture policymaking. Coupled with a high power and fuel expense, the products become uncompetitive in the international market.