Tata Textile Mills Limited

Tata Textile Mills Limited (PSX: TATM) was set up under the Companies Ordinance, 1984, in 1987. Subsequently in 1991, the company set up a spinning unit of 19,200 spindles to manufacture cotton yarn. Its manufacturing facility is located in Muzaffargarh District in Punjab. The company is part of the Tata Pakistan group of industries that also has companies operating in the food and beverages sector.

Shareholding pattern

As at June 30, 2021, over 64 percent shares are owned by the company’s directors, CEO, their spouses and minor children. Within this category, majority of the shares are held by Mr. Shahid Anwar Tata, the CEO of the company. The local general public owns over 23 percent shares, while 10 percent shares are held in NIT & ICP. The remaining about 3 percent shares are owned by the rest of the shareholder categories.

Historical operational performance

Tata Textile Mills has mostly seen a growing topline with the exception of FY15 and FY16. Profit margins, on the other hand, have been fluctuating. They increased between FY16 and FY18, decreased until FY20 before improving again in FY21.

The company witnessed the highest growth in topline thus far in FY18 at 20.5 percent, with revenue crossing Rs 6 billion in value terms. Majority of this increase came from the growth in export sales which was most likely boosted by the currency devaluation that made exports favourable. Local sales on the other hand, saw an almost 21 percent decrease. The effect of currency devaluation is also evident from the rise in other income that came from a net exchange gain and rebate on export sales. Therefore, cost of production as a share in revenue was lower at 89.5 percent, compared to over 93 percent in the previous year. This was also reflected in the bottomline that was recorded at Rs 246 million, with a net margin of almost 4.1 percent, compared to 0.9 percent seen in FY17.

In FY19 revenue growth stood at over 11 percent. Both export sales and local sales witnessed a rise, however, the higher turnover could not be translated into a higher profitability. Production cost increased marginally to almost 91 percent that reduced gross margin slightly to 9.3 percent. But the drop in operating and net margin was more pronounced due to the absence of other income that was largely responsible for raising bottomline in the previous year. In addition, profitability was also adversely impacted by the US-China trade war that had an effect on yarn prices. Moreover, the currency devaluation made imported yarn expensive, raising the cost of inputs. A further dent in profitability was also brought about by the escalation in finance expense due to higher borrowing rates. Thus, net margin stood at 0.5 percent for the year.

Revenue growth in FY20 was mostly flat, remaining close to Rs 6.7 billion with both, gross export sales and local sales witnessing a rise. This was attributed to the loss in sales, particularly in the last quarter owing to the imposition of lockdowns due to the outbreak of the Covid-19 pandemic. Cost of production increased to nearly 93 percent causing gross margin to reduce to 7.4 percent. Net margin was further impacted due to the escalation in other expenses and finance expense. While the latter increased due to the rising interest rates, other expenses rose due to exchange losses on imported cotton. Thus, the company incurred the biggest loss, of Rs 329 million.

Revenue growth was recorded at an all-time high of over 33 percent during FY21, nearing Rs 9 billion in value terms. Both export sales and local sales witnessed double-digit growths. This was attributed to the growth in demand after lockdowns eased. Moreover, since Pakistan contained the impact of the Covid-19 relatively better than its regional competitors, a lot of the orders were directed towards Pakistan that further boosted demand. Thus gross margin rose to 16.8 percent, a level last seen in FY13. With other expenses also reverting somewhat to its previous levels, and finance expense lowering due to the decrease in interest rates, net margin was recorded at an all-time high of 9.2 percent with bottomline also at an all-time high of Rs 824 million.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was significantly higher by almost 4 times year on year. The period 1QFY22 was also the first period of operations of Tata Textile Mills as a merged company. The merger of Island Textile Mills Limited, Salfi Textile Mills Limited and Tata Energy Limited with Tata Textiles Mills Limited was effective from July 1, 2021. The notably higher topline resulted in a gross margin of 23.3 percent that also trickled down to the bottomline, despite the increase in operating expenses as a share in revenue. Thus, net margin was also improved year on year at almost 13 percent.

Whereas demand is sustained, particularly in the value-added sector, with orders pouring in, the cost of inputs, and hence the profitability cannot be ascertained due to the inflationary pressure and movement of prices in the global market.