Zahidjee Textile Mills Limited

Zahidjee Textile Mills Limited (PSX: ZAHID) was established as a public company in 1990 under the Companies Ordinance, 1984. It primarily exports value-added fabrics, while also manufacturing and selling yarn. Its manufacturing facilities are located in Faisalabad.

Shareholding pattern

As at June 30, 2022, over 96 percent shares are owned by the company’s directors, CEO, their spouses and minor children. Within this category, majority shares are owned by Mr. Ahmad Zahid. The local general public holds 2, 5 percent shares, while the remaining around 1 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has consistently seen a growing topline, albeit at varying rates. Profit margins, in the last six years specifically, have followed an upward trajectory.

In FY18, revenue registered a growth rate of close to 20 percent to cross Rs 10 billion in value terms. This was attributed to a rise in both, export sales as well as local sales, by 14.4 percent and 32.7 percent, respectively. This, in turn, was a result of capacity expansion that increased production. The company had installed 17,472 spindles during the year. While gross margin remained more or less flat at 10 percent, as cost of production continued to consume around 90 percent of revenue, net margin increased marginally to over 3 percent, compared to 2.7 percent seen in FY17. This was due to a slight decrease in finance expense as a share in revenue, coupled with an additional Rs 13 million contributed by trading profit.

The company witnessed the biggest revenue growth in FY19 seen thus far at over 30 percent, crossing Rs 13 billion in value terms. Export sales and local sales continued their double-digits growth momentum as they increased by almost 16 percent and 35 percent, respectively. Currency devaluation encouraged export sales as the former made goods competitive in the global market. On the other hand, cost of production reduced marginally to 89 percent of revenue, allowing gross margin to increase to almost 11 percent. While this also trickled to the operating margin, net margin, recorded at 5.8 percent, was higher by a somewhat greater margin due to a positive tax figure of Rs 37 million compared to a taxation expense of Rs 249 million in the previous year. However, profit before taxation margin is stagnant at 5.5 percent for the years FY18 and FY19.

The company witnessed single-digit growth in FY20 for the second time since FY13, at 3.4 percent. This was a reflection of a general economic slowdown at the start of the year, combined with the outbreak of Covid-19 pandemic in the second half. Local sales decreased by less than 1 percent, whereas export sales grew by 19 percent, but it must be noted that local sales is the major contributor to revenue. Moreover, capacity utilization remaining above 80 percent consistently for almost a decade is indicative of the fact that demand for Pakistan’s textile products is considerable. Production cost reduced slightly to almost 88 percent of revenue, allowing gross margin to increase to 12 percent. Growth in net margin was again contained, rather reduced to 5 percent due to the highest taxation expense seen thus far in value terms, at Rs 277 million. However, profit before taxation margin increased to 7 percent for the period.

Revenue bounced back in FY21 as it experienced a growth of 19.5 percent to reach Rs 16.6 billion. This was the highest seen thus far. Export sales more than doubled year on year, while local sales saw a decrease of 6 percent, yet it continued to be the major contributor to total revenue. This is attributed to demand recovery, particularly for the value-added segment of the textile sector as trade resumed that had halted or was minimal with a large number of countries under a lockdown. With cost of production reducing to 85.7 percent, gross margin improved to 14.3 percent. Coupled with lower share in revenue of operating and finance expense, net margin also improved to 9.4 percent, whereas the bottomline was recorded at over Rs 1.5 billion.

Recent results and future outlook

The company witnessed an all-time high revenue growth of over 68 percent, with topline also reaching a high of almost Rs 28 billion. While export sales fell by almost 29 percent, local sales more than made up for the loss as it more than doubled to reach Rs 23.8 billion. This was attributed to better pricing mechanism. Combined with cost of production falling to an-all-time low of almost 80 percent of revenue, gross margin peaked at 20 percent. With little changes in other elements of the financial statement, net margin also reached a peak of over 14 percent, followed by bottomline that was recorded at its highest of almost Rs 4 billion.

The adverse impact of floods on the country’s economy is expected to be seen as the country would have to rely on imports that would raise production costs, and hamper profitability.