Masood Textile Mills Limited

Masood Textile Mills Limited (PSX: MSOT) was set up under the Companies Act, 1913. The company manufactures and sells cotton/synthetic fiber yarn, knitted/dyed fabrics and garments.

Shareholding pattern

As at June 30, 2021, over 32 percent shares are held by the directors, CEO, their spouses and minor children. Within this category, a major shareholder is Mrs. Nazia Nazir, followed by Mr. Shahid Nazir Ahmad, the CEO of the company. Close to 26 percent shares are held by associated companies, undertakings and related parties that solely includes Shanghai Challenge Textile Company Limited. Roughly 11 percent shares are held in each of the following categories: shareholders holding 10% and others- joint stock companies/cooperative societies. The remaining about 20 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has mostly seen a growing topline with the exception of FY16 and fairly recently in FY20. Profit margins have remained relatively stable between FY16 and FY19. They witnessed a sharp decline in FY20 before improving again in FY21.

In FY18, revenue saw the largest growth at almost 32 percent to reach nearly Rs 31 billion. Note that the company’s major source of income is the export sales that registered a growth of almost 29 percent. This was largely due to currency devaluation that made exports favorable. Moreover, local sales also saw a rise by almost 74 percent, however its contribution to the total revenue smaller. But the higher topline could not be translated into higher profitability as cost of production claimed close to 88 percent of revenue, thus reducing gross margin to 12.5 percent, down from last year’s 14.5 percent. Although other income allowed operating margin to improve marginally, net margin was still lower at 3.6 percent due to a rise in finance expense consuming almost 3 percent of revenue.

At close to 11 percent, growth rate of revenue was relatively subdued in FY19 with topline crossing Rs 34 billion. Generally, the textile sector experienced an increase in volumes in the value-added segment such as knitwear that saw a 10.7 percent rise in volumes. For Masood Textiles, however, cost of production continued to trim profitability as the former was recorded at almost 89 percent of revenue, reducing gross margin again to, 11 percent. Similar to the previous year, other income improved operating margin, the former largely a result of a net exchange gain. Although finance expense also increased to consume 3.5 percent of revenue, it was offset by an even larger rise in other income. Thus, the company posted an all-time high net profit of Rs 1.3 billion.

After growing for the last three consecutive years, revenue fell in FY20 by 16.2 percent, reducing topline to Rs 28.7 billion. This was the largest contraction in revenue the company had witnessed since FY11. It was attributed to the outbreak of the Covid-19 pandemic that halted trade, and led to a delay or a cancellation in orders. The textile sector of the country that not only makes a large portion of exports but also has the largest weight in Large Scale Manufacturing (LSM) witnessed an 11 percent contraction. This was also reflected in the company’s performance. The loss in revenue led to cost of production consuming 95 percent of revenue. Additionally, other income also disappeared relative to that seen in the last two years. Thus, the company posted the highest net loss of over Rs 4 billion.

Business and economic activities resumed somewhat a year into the pandemic, with lockdowns placed to contain the spread. Pent-up demand from the last one year was also generated, thus improving the financial performance of a many in the country. Masood Textiles Limited also saw an over 29 percent rise in its revenue to reach an all-time high of Rs 37 billion. Export sales had witnessed an increase of almost 43 percent. Thus, gross margin increased sharply to 14.3 percent, up from last year’s 4.76 percent. With operating and finance expenses also making a lower share in revenue, the company earned a net margin of 1.7 percent.

Quarterly results

Revenue in the first quarter of FY22 was higher by almost 71 percent year on year. However, with the general inflationary pressure in the economy, cost of inputs increased resulting in a rise in cost of production and a decrease in gross margin year on year. But the company earned Rs 554.5 million in other income that provided support to the bottomline and allowed the company to post a net profit for the quarter, unlike the same period last year.

The second quarter also saw higher revenue year on year, by 64 percent. Overall, for the textile industry, growth was observed in the value-added segment such as readymade garments saw a rise of 22.93 percent and knitwear grew by 35.21 percent. Cost of production for the company was marginally higher year on year but reduction in operating and finance expenses as a share in revenue allowed net margin to be higher year on year at 4.5 percent. Textile sector of Pakistan commands immense importance for the economy; however, the rising cost of inputs continues to become a challenge for profitability.