Faisal Spinning Mills Limited

Faisal Spinning Mills Limited (PSX: FASM) was set up in 1985 as a public limited company under the repealed Companies Ordinance, 1984 (now, Companies Act, 2017). The company has a weaving and spinning unit where it manufactures and sells yarn and woven fabric. It also generates electricity but that is limited for its own consumption.

Shareholding pattern

As at June 30, 2020, a little over 50 percent shares were held by the associated companies, undertakings and related parties. Within this category, the major shareholder was Admiral (Pvt) Limited, holding nearly 13 percent of the shares. The directors, CEO, their spouses and minor children held around 39 percent shares; of this, Mr. Hamza Shakeel and Mr. Muhammad Amin, both non-executive directors, held 4.8 and 4.6 percent shares, respectively. A little over 8 percent were held by the general public/individuals. The remaining roughly 3 percent shares were with the rest of the shareholder categories.

Historical operational performance

Faisal Spinning Mills has mostly seen a rising topline over the years, with the exception of FY15 when it contracted by over 5 percent. Profit margins, on the other hand, declined until FY16 before rising again until FY19; FY20 saw profit margins dipping again.

In FY17, the company saw double-digit topline growth at nearly 14 percent, after witnessing negative growth in FY15 and less than 1 percent growth in FY16. Most of the incline was seen in export sales, particularly of yarn; export sales of fabric also saw a rise. On the other hand, local sales of yarn fell by four times. Cost of production reduced to 90 percent of revenue, allowing gross margin to improve to nearly 10 percent, from 7.3 percent in FY16. This also trickled down to the bottomline that stood at Rs 431 million, compared to Rs 169 million in FY16; thus, net margin was higher at 4 percent, compared to 1.8 percent in FY16.

Growth momentum continued during FY18, as topline witnessed a 12 percent rise. While export sales remained more or less flat in value terms, local sales grew by 51 percent. Most of this growth in revenue was associated with local fabric sales. Thus, the share of cost of production in revenue reduced marginally to 89 percent. However, it is pertinent to note that while most companies in the textile sector saw exports rising due to currency depreciation, Faisal Spinning Mills saw its export sales revenue remaining flat. A likely rationale for this could be that demand for products from the spinning segment had generally contracted globally. The higher revenue also translated into a higher bottomline. Net margin was recorded at a 4.9 percent for the year, compared to 4 percent in the previous year.

The company witnessed the highest growth in revenue at over 18 percent. While local sales also grew, most of the incline was seen in export sales, particularly fabric and yarn. Cost of production also further went down to consume a little over 86 percent, thereby taking gross margin to a high of over 13 percent- a level last seen in FY14. Although other operating expenses made a larger share in revenue, the effect of the combination of higher revenue and lower costs allowed bottomline to also rise. This was further supported by an abnormally higher share of profit of associated undertaking- at Rs 117 million, compared to Rs 68 million in the previous year. Thus, net margin was also at a high of 6.5 percent- a level last seen in FY13.

Revenue growth was relatively subdued at 6 percent during FY20 compared to the double-digit growths seen in the last three years. While local sales remained more or less flat, export sales saw an over 15 percent rise. Cost of production, on the other hand, increased to over 90 percent, bringing gross margin down to 9.5 percent. This also translated into a lower net margin at 3.5 percent that was somewhat supported by other income; most of this was generated through reversal of ECL.

Quarterly results and future outlook

The first quarter of FY21 saw revenue lower by 1.4 percent year on year, with cost of production exceeding 91 percent of revenue for the quarter. Therefore, gross margin also stood at 8.6 percent of revenue, compared to over 9 percent in the same period last year. the poor quality of cotton yield has failed to improve, with the situation exacerbated by below par seed research. The lower revenue and higher costs reflected in the net margin for the quarter that stood at nearly 2 percent, compared to 3.7 percent in 1QFY20.

Revenue in second quarter of FY21 was also lower, by 2.7 percent year on year. But the lower cost of production allowed gross margin to be higher for the period, at nearly 14 percent. Bottomline for 2QFY21 was also supported by other income that was the highest among the three quarters of FY21. Thus, the quarter saw a net margin of 9.4 percent.

The third quarter saw some improvement in topline as it was 27 percent higher than that in 3QFY20. Cumulatively too, revenue for 9MFY21 was higher by 7.3 percent year on year. cost of production for 3QFY21 fell to 81.7 percent taking gross margin to a high of 18 percent. With share of profit of associated undertaking at Rs 129 million added towards the bottomline, net margin reached 14 percent for 3QFY21.The company’s new finishing unit completed its Production Trial Run (PTR) for printing and began commercial production. PTR for commercial dyeing was planned to begin in May 2021.

The textile sector of the country has suffered over the years due to poor crop yields, poor research and practices, in addition to little or no value addition that has rendered the products uncompetitive in the global market. The current situation shows improvement I the industry dynamics as the sectors sees a revival of exports.