NCL’s gloomy 1HFY18

Nishat Chunian Limited, one of the country’s prominent textile composites, recently announced its 1HFY18 financial result which saw the company’s top-line grow by almost 17 percent on account of higher revenue of the spinning segment and higher value products.

But that is where the good news ends. Like other textile firms, NCL also saw its cost of sales increase by a higher proportion due to the higher cotton price during the period along with a rise in the cost of utilities. As a result the gross profit fell remained stagnant in 1HFY18 as compared to the same period last year while gross margins fell by almost 1.5 percent.

Another factor that dragged the bottom-line down was the deep plunge in its non-core income by a whopping 53 percent, which is mostly the dividends from its power sector subsidiary, Nishat Chunian Power Limited. Recall that power sector firms including Nishat Power Limited (NPL) have not paid dividends this year so far on account of liquidity constraints due to non-payment of dues by NTDC.

The company’s finance cost also picked by 29 percent in order to fund working capital requirements and capex investments. All these factors made NCL’s bottom-line go down by almost 56 percent on a year-on-year basis in 1HFY18 while the EPS more halved to Rs2.05 (1HFY17: Rs4.68).

Looking at NCPL’s recent BMR activities in the past year, the company has invested almost Rs2.8 billion in capacity addition and modernisation. Add to this the recent PKR depreciation of 5 percent against the dollar and 10 percent against the pound, and export numbers for the textile composite will likely be higher in FY18. The bulk of this went to the spinning division with an investment of Rs1.9 billion resulting in an addition of 53,664 spindles out of which 40,608 were replacements.

Segment-wise, spinning constitutes the largest chunk of Nishat Chunian’s revenue, followed by processing & home textile, and then weaving. Seemingly, the sales mix has not changed much over the years, as spinning has accounted for 54-60 percent of sales over the past five years, while processing has remained around 29-31 percent. However, for FY17, the home textile’s division contributed 29 percent to the top-line which might be indicative of a gradual shift in the sales mix.

This is a positive shift considering that value-added segments boast better profitability. The retention of GSP plus status as well as the recent rupee depreciation of 5 percent will be beneficial in getting NCL more export orders going forward especially for its home textiles division.