Kohat Textile Mills Limited

Kohat Textile Mills Limited (PSX: KOHTM) was established in 1967 and it started commercial production in 1970. It manufactures and sells yarn in the domestic market. Kohat Textile Mills’ holding company is Saif Holding Limited.

Shareholding pattern

As at June 30, 2021, close to 78 percent shares are held by the associated company. This category solely includes Saif Holdings Limited. Over 10 percent shares are with the local general public, while another 10 percent are held with banks, DFIs and NBFIs. The remaining over one percent share is with the rest of the shareholder categories.

Historical operational performance

The company has witnessed a fluctuating topline over the years with profit margins also following a similar trend.

In FY18, Kohat Textile Mills saw a marginal incline in revenue, similar to the previous year, with topline remaining close to Rs 2.2 billion. While a lot of the companies in the textile sector benefitted from currency devaluation as their exports became more favorable in the global market, because Kohat Textile Mills is not present in the international market, it could not expand its revenue. Despite this, the company was able to improve its gross margin to 9.6 percent versus 8 percent in FY17 on the back of cost reduction measures. However, this could not trickle down to the net margin as finance and tax expense. The increase in finance expense was due to rise in interest rates. Thus, net margin reduced to 0.45 percent compared to 1.57 percent in FY17.

Revenue in FY19 increased by over 32 percent to reach close to Rs 3 billion in value terms. This was due to a better selling price. As a result, gross margin increased slightly to 10.45 percent. With most other factors remaining similar as a share in revenue, except for finance expense that consumed nearly four percent of revenue due to higher financing rates, net margin also grew year on year to 2.26 percent.

In FY20, the company experienced revenue contraction of 12.6 percent. This was largely attributed to the outbreak of the Covid-19 pandemic that brought a sudden halt to operations in the second half of the year soon after the first case of Covid-19 was detected in the country. The company’s capacity utilization stood at 67 percent due to strict lockdowns that stopped production. With the loss in revenue, gross margin reduced to 8.2 percent. Operating expenses also made a larger share in revenue year on year while finance expense escalated to consume almost seven percent of revenue. Thus, the company posted an all-time high loss of Rs 65 million for the year.

Kohat Textile Mills witnessed the largest growth in revenue in FY21 by nearly 40 percent to reach Rs 3.6 billion in value terms. Yarn sales make up a significant portion of revenue. It experienced a growth of almost 36 percent. An additional Rs 92.6 million were also brought in through raw material trading activities that was zero in the previous year. With revenue reaching an all-time high, gross margin also reached a peak of 20.6 percent. Supported by decreases in operating and finance expenses as a share in revenue, net margin also peaked at 8.6 percent with bottomline at Rs 312 million.

Quarterly results and future outlook

Revenue in the first quarter of FY22 grew by over 35 percent year on year. Roughly a year after the outbreak of the Covid-19 pandemic, business activities had more or less returned to normal, with pent up demand recovering. Moreover, with support from the government, the textile industry, which is already a major contributor to exports of the country, saw capacity enhancement as well as a higher utilization as well. With global demand also diverted to Pakistan as neighboring countries grappled with the dire pandemic situation, the country’s textile industry saw robust demand. With cost of production also reducing for the company for the quarter at over 79 percent of revenue, compared to nearly 88 percent seen in the same period last year, net margin also improved year at 9 percent versus 1.2 percent in 1QFY22.

Growth momentum continued in the second quarter of FY22 as revenue grew by almost 32 percent year on year. However, cost of production was only marginally better at 82 percent of revenue, keeping gross margin flat at 17 percent. But with finance expense growing as interest rates began to rise that had been reduced to aid the industries during pandemic, and a higher taxation, the company saw a lower net margin for the period at almost 3 percent, compared to 7 percent seen in 2QFY21. As winters come to an end, the company expects gas supply to improve, but with the ensuing political turmoil, uncertainty is on the horizon. Moreover, the company is also impacted by rising interest as was seen in the first half of FY22, thus change in interest rates, as well as exchange rate are crucial to the company’s growth and profitability.