Gul Ahmed Textile Mills

Gul Ahmed group has been operating as a textile trader since the 1900s. However, the group commenced its manufacturing operations as Gul Ahmed Textile Mills (GATM) in 1953. It turned into a public limited entity in 1955.

The subsidiary of Gul Ahmed Holdings (Private) Limited, GATM is a composite textile mill engaged in the manufacturing and sale of textile products. The company has an installed capacity of over 51000 spindles, 300 modern weaving machines, and the most up-to-the-minute yarn dyeing, processing, and stitching units.

Besides having a strong presence in the manufacturing sector, the company has a foothold in the retail business too. The retail business started in Karachi and stretched to more than 40 stores across the country offering products ranging from fashion and clothing to home accessories.

GATM has its own captive power plant and wastewater treatment plant to play its role in environmental sustainability.

Pattern of Shareholding

As of June 30, 2022, GATM has a total of 616.7 million shares outstanding which are held by 5838 shareholders. 69 percent of the shares are held by associated parties, undertakings, and related parties. In this category, Gul Ahmed Holdings (Private) Limited leads with a shareholding of 56 percent. Directors form the next leading category of shareholders with a stake of 7.4 percent in GATM’s outstanding share capital. This is followed by Banks, NBFIs, DFI, and Investment companies holding 3.9 percent of the company’s shares. Mutual funds own 3.8 percent of GATM’s outstanding share capital followed by Insurance Companies owning 3.1 percent. NIT and ICP hold around 1.6 percent of the company’s shares. The rest is held by other shareholders including Joint Stock Companies, Mordarba Companies, Financial and Charitable institutions, etc.

Historical Performance (FY18 – FY22)

GATM’s topline has been riding a growth trail in all the years under consideration except FY20. This was the year when the economy was hit hard by Covid-19. This put brakes on Pakistan’s textile exports which were showing encouraging growth until the 1HFY20. The year closed with a drop of 6 percent year-on-year in the textile exports of Pakistan in FY20.

GATM also succumbed to the subdued demand and halted business activity and registered a drop in local sales by around 21 percent year-on-year in FY20. Export sales managed to post a year-on-year uptick of 6 percent due to strong demand from its export markets in the 1HFY20 but couldn’t sustain the topline which plummeted by 6 percent year-on-year in FY20. GP margin also dropped to 16.8 percent in FY20 vis-à-vis 20.92 percent in the previous year. The irreversible factors such as human resources, depreciation, rent, and finance cost put a major dent in the company’s profitability. Other income couldn’t help the bottom line either and slipped by 68 percent year-on-year in FY20 mainly on account of a massive decline in foreign currency exchange gain. As a result, GATM registered a loss after tax of Rs.479.36 million in FY20 versus a Profit after tax of Rs. 3609 million in FY19.

FY21 recompensed the company for the losses it reported in FY20. The net sales of the company posted a year-on-year growth of 46 percent in FY21. The growth came on the heels of a rebound in both local and export sales. The gross profit also grew by 42 percent year-on-year but the high cost of raw materials, increase in utility prices, and supply chain and logistics challenges contained the GP margin which clocked in at 16.34 percent in FY21 versus 16.81 percent in FY20. While the company was able to limit its selling and distribution costs, other expenses grew by 96 percent year-on-year on the back of workers’ profit participation fund and workers’ welfare fund. This could have marred the bottom line but a massive jump in other income mainly because of the re-measurement of government grants and provision of gas infrastructure development Cess (GIDC) saved the day for GATM. Besides, Finance costs also showed a downtick on the back of a low discount rate backdrop to revive economic activity post-Covid-19. Hence OP margin grew to 9.53 percent in FY21 versus 3.58 percent in FY22. The company also managed to post a profit after tax of Rs.4424.54 million in FY21, culminating in a PAT margin of 5.62 percent

FY22 was characterized by macroeconomic challenges such as frequent power disruptions, high discount rates, weaker local currency, and persistent political uncertainty. Massive floods in the country added further insult to injury. The local sale of the company dropped by 62 percent year-on-year on account of muted demand as record high inflation has considerably affected the purchasing power of consumers. Conversely, export sales boasted an impressive jump of 68 percent year-on-year in FY22. High export sales enabled the company to operate at its optimum capacity resulting in a year-on-year topline growth of 27 percent in FY22.

The company managed to cut back on its selling and distribution costs mainly in the category of salary, wages, and benefits as well as advertisement and publicity. Administrative costs also showed a plunge in FY22. Hence, the OP margin, PBT margin, and PAT margin recorded by GATM in FY22 were the highest ever since FY18 amidst all the macroeconomic glitches.

Recent Performance (1QFY23)

The local market continued to remain stagnant during 1QFY23. Local sales of GAMT couldn’t gain momentum and dropped by 54.5 percent year-on-year in 1QFY23 while export sales continued to impress and grew by 67 percent year-on-year during the same period.

Despite topline growth of 32 percent year-on-year in 1QFY23, GP margin dropped to 13.24 percent in 1QFY23 vis-à-vis 16.5 percent during the same period last year. The significant losses to the cotton crop due to catastrophic flooding in the country increased the cost of raw materials. This coupled with high commodity prices in the international market; Pak Rupee Depreciation and import restriction owing to low foreign exchange reserves has led to diminishing cotton stocks as well as high costs. High energy costs also played a part in keeping the GP margin under pressure.

High finance costs owing to multiple upward revisions in the discount rate also took its toll on the bottom line which although showed a year-on-year increase of 12.89 percent but translated into a PAT margin of 4.99 percent in 1QFY23 as compared to 5.85 percent during the same period last year.

Future Outlook

The future doesn’t bode well for Pakistan's economy in general and the textile sector in specific. With banks not opening LCs on retiring cotton imports, the industries are facing a supply shortage which is halting their operations. All roads lead to IMF in order to continue the import of imperative items and keep the industries running.

Even if the deal with IMF strikes in, the interrelated austerity measures will further elevate energy charges, and discount rates, and foster Pak rupee depreciation. This will result in further economic slowdown and demand-side hindrances for the textile sector.

The textile sector, being one of the biggest contributors to the national exchequer, is declining export orders on account of the unavailability of raw materials. This will not only curtail the export inflows amidst exponentially deteriorating foreign exchange reserves but will also permanently shift those orders to others countries.

Margins are expected to shrink in the times to come and to act in response, rationalizing operations appears to be the only solution for the textile industry.