Allawasaya Textile and Finishing Mills Limited

Allawasaya Textile and Finishing Mills Limited (PSX: AWTX) was set up as a private limited company in 1958. Subsequently, in 1965 it was converted into a public limited company under the Companies Act, 1913 (cow Companies Act, 2017). The company manufactures and sells yarn and has an installed capacity of 38,232 spindles.

Shareholding pattern

As at June 30, 2021, nearly the entire 100 percent shares were held under the category of “individuals”, while less than 1 percent shares are held by joint stock companies and investment companies.

Historical operational performance

Since FY13, the company has seen a fluctuating topline, whereas profit margins have followed an upward trajectory since FY16.

After seeing two consecutive years of revenue contraction, revenue in FY17 saw a rise by 17.5 percent. This was in part attributed to a 9 percent rise in sales volumes. However, the higher revenue did not translate into a higher bottomline as cost of production continued to consume over 97 percent of revenue, leaving little room for absorption of other costs. As a result, the company posted a loss of Rs 40 million for the year.

In FY18, revenue registered a 10.3 percent rise, crossing Rs 2 billion in value terms. This was attributed to a rise in prices of yarn as well as an improvement in volumes sold. Cost of production, on the other hand, reduced to over 94 percent of revenue, down from last year’s 97.5 percent. As a result, gross margin improved to 5.8 percent for the year. With little changes in other areas of the financial statements as a share in revenue, the higher gross margin also trickled down to the bottomline that was recorded at a positive Rs 18 million after three consecutive years of losses.

Revenue declined again in FY19, by 3.6 percent. This was in part attributed to the fall in sales volumes by 21 percent. While a lower demand was also witnessed, there was also the presence of cheap imported yarn that negatively impacted the domestic market. Moreover, the company also conducted BMR activities during the year which led one of its spinning units to remain shut for a large part of the year. As a result, fixed costs were spread on a smaller number of units. This is reflected in the higher cost of production during the year, at over 95 percent of revenue. With a rise in administrative expense and finance expense as a share in revenue, the latter due to rising interest rates, the company incurred a loss of Rs 16 million during the year.

The company witnessed the highest growth in revenue thus far in FY20 as topline posted a growth rate of over 27 percent. Due to the BMR activities undertaken in the previous year, the company was able to increase production, as well as volumetric sales. The latter saw an increase by 21.6 percent. Most of this increase was concentrated in the first nine months of the year as the last quarter saw lockdowns imposed due to the outbreak of the Covid-19 pandemic. The higher revenue translated into a higher gross margin for the year at 6.66 percent. Although finance expense was notably higher year on year, it was offset by the growth in topline, thus net margin was also recorded at a positive 0.6 percent.

Revenue in FY21 was even higher, by over 33 percent, crossing Rs 3.5 billion in value terms. Sales in terms of volumes grew by 18.7 percent. The government provided support to the industries to encourage business such as deferment of loans for a year, loans against salaries and fresh financing for capex under TERF Scheme that gave the industry an edge over its competitors in the international market. This also had positive effects on the local industry which is reflected in the higher sales volumes. Thus, gross margin increased to over 10 percent of the year. It also trickled down to the bottomline that was recorded at an all-time high of Rs 145 million and a positive net margin of 4.1 percent.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by nearly 45 percent year on year, with production cost at 89 percent of revenue for the period compared to 92.2 percent of revenue seen in the same period last year. The first quarter of FY21 had only seen business activities resuming therefore, the increase in revenue year on year is significant. The improvement in revenue made way for an improvement in profitability as net margin was recorded at 4.9 percent in 1QFY22 compared to 1.3 percent in 1QFY21.

With BMR activities also in place, the company expects an increase in production in terms of volumes, alongside an improvement in quality. Moreover, with demand sustaining to make up for lost demand during the lockdown period, the company can expect future profitability. A challenge that the industry, however, faces in Pakistan is the rising cost of inputs that can put profitability into question since the company has consistently seen cost of production consuming almost or more than 90 percent of revenue.