Ahmad Hassan Textile Mills Limited

Ahmad Hassan Textile Mills Limited (PSX: AHTM) was set up in 1989 as a public limited company under the Companies Ordinance, of 1984. It has its own in-house production capacity from the ginning process to weaving. The company manufactures and sells yarn and fabric.

Shareholding pattern

As of June 30, 2022, over 57 percent of shares are held by the directors, CEO, their spouses, and minor children. Within this category, a major shareholder is Mr. Muhammad Haris, the CEO of the company. The local general public owns 31 percent of shares, followed by almost 11 percent held in NIT & ICP. The remaining roughly 1 percent share is with the rest of the shareholder categories.

Historical operational performance

The company has witnessed a fluctuating topline over the years, with a brief period between FY16 and FY19 when it grew consistently. In the last six years, profit margins have improved between FY17 and FY21, before declining in FY22.

In FY18, the topline registered a growth of almost 28 percent to reach Rs 5 billion in value terms. Export sales largely dominated the topline growth as the former posted an increase of 46 percent due to currency devaluation that made exports competitive in the global market. Local sales grew by a relatively marginal 4.6 percent. Within segments, both yarn sales and fabric sales experienced an incline. With the cost of production remaining close to 94 percent of revenue, the gross margin was more or less flat at around 6 percent. Combined with a decline in operating expenses and financial expenses as a share in revenue, the company managed to post a net profit of Rs 10 million, compared to a net loss of Rs 3 million in the previous year.

In FY19 the company posted the highest growth seen in the topline thus far, at over 40 percent to cross Rs 7 billion in value terms. Export sales posted a growth of 19 percent, while local sales doubled year on year to reach Rs 3.4 billion. Previously, export sales exceeded local sales by a significant margin, but since FY16, a gradual shift has been made toward local sales resulting in the gap between export sales and local sales reducing. This is due to stiff competition in the global market from regional competitors. However, export sales continued to make a larger contribution to the total revenue. With a marginal decrease in the cost of production, the gross margin remained close to 6 percent. This also trickled to the bottom line with a net margin of 0.5 percent.

In FY20, the topline declined by over 48 percent due to a demerger that led the spinning division to be transferred to Ahmad Hassan Spinning Limited. With the cost of production reduced to almost 93 percent, the gross margin improved to 7.2 percent. Coupled with this was a considerable decline in operating and financial expenses as a share in the revenue that allowed the net margin to improve to 3.1 percent with a bottom line of Rs 116 million.

The company saw marginal growth in revenue in FY21, at 1.2 percent. Export sales registered a growth of nearly 15 percent, while local sales contracted by 8.7 percent. Within the export sales, direct exports had actually reduced, while indirect exports through Standardised Purchase Orders (SPOs) had increased. Cost of production fell further to 92.4 percent of revenue, taking gross margin to a seven-year high of 7.6 percent. With some support from other income and a further reduction in finance expense as a share of revenue, the net margin reached a peak at 4.4 percent with the bottom line recorded at Rs 168 million.

Recent results and future outlook

The company experienced an all-time high topline growth rate of nearly 46 percent to reach Rs 5.5 billion in value terms. While export sales exhibited a growth of over 60 percent, local sales also followed as they grew by close to 30 percent. This can partly be attributed to an increase in prices. However, the increase could not be matched with the increase in the cost of production as the latter grew to consume nearly 94 percent of revenue which reduced gross margin again to nearly 6 percent. This is also reflected in the net margin that was recorded at a lower 3.6 percent. However, in terms of value, the bottom line reached an all-time high of Rs 201 million.

There is an expectation for fiscal adjustments and monetary tightening to curtail demand. In addition, business sentiments have also been adversely impacted by internal political stability, combined with the uncertainty associated with the Ukraine-Russia war that has resulted in supply chain issues, food shortages, and a surge in global commodity prices. Moreover, during the Covid-19 pandemic, the regional competitors were severely affected, resulting in export demand directed toward Pakistan. But now with the competitors’ supply back in the international market, exports from Pakistan have reduced, while the devastating floods in the country have further exacerbated the industry’s outlook.