National Silk & Rayon Mills Limited

National Silk & Rayon Mills Limited (PSX: NSRM) was incorporated in Pakistan as a public limited company in 1950. The company is engaged in dyeing, bleaching, finishing, and embroidery of fabrics.

Pattern of Shareholding

As of June 30, 2023, NSRM has a total of 15.55 million shares outstanding which are held by 600 shareholders. The company’s leadership including its Directors, CEO, their spouse and minor children have the majority stake of 98.43 percent in the company followed by local general public holding 1.53 percent shares of NSRM. The remaining ownership is distributed among NIT & ICP, Insurance companies and joint stock companies.

Financial Performance (2018-23)

NSRM’s topline has been growing since 2018 except for a fall in 2020. Conversely, its bottomline and margins followed a downward trajectory until 2020, and then posted a robust rebound in the following year only to get back to its downhill journey in 2022 and 2023. NSRM posted a net loss in 2020 and 2023. The detailed performance review of each of the years under consideration is given below.

In 2019, NSRM’s topline grew by 8.57 percent year-on-year. The company had a rated capacity of 57.6 million meters in cloth processing unit and 8.12 million meters in embroidery processing unit. The company utilized 58.5 percent of its cloth processing capacity in 2019, up from 57.5 percent in 2018. Conversely, the capacity utilization of embroidery processing fell from 82.62 percent in 2018 to 70.76 percent in 2019 (see the graph of capacity utilization). Cost against services provided grew by 10.3 percent in 2019 on account of high power tariff as well as raw material charges in the wake of currency depreciation. This pushed the gross profit down by 8.62 percent in 2019 with GP margin hovering around 7.6 percent, down from 9.1 percent in 2018. Operating expense grew marginally by 1.22 percent in 2019 due to uptick in repair & maintenance, vehicle running & maintenance as well as fee and subscription charges. Operating profit slid by 14.9 percent in 2019 with OP margin falling down to 3.7 percent from 4.7 percent in 2018. Finance cost shrank by 9.6 percent in 2019 due to a slide in bank commission. This was despite higher discount rate and increased borrowings in 2019 which drove the gearing ratio from 9 percent in 2018 to 10.14 percent in 2019. Net profit eroded by 57.5 percent in 2019 to clock in at Rs.17.4 million with an EPS of Rs.1.12, down from Rs.2.63 in 2018. NP margin also narrowed down from 4.8 percent in 2018 to 1.9 percent in 2019.

In 2020, NSRM’s topline slipped by 13.77 percent. The company’s capacity utilization also drastically fell (see the graph of capacity utilization) on account of lockdown imposed due to breakout of COVID-19. Cost against services provided also declined, however, with a lower magnitude of 10.5 percent on account of diminishing value of local currency. This squeezed the gross profit by 54 percent in 2020 with GP margin marching down to 4.1 percent in 2020. Operating expense escalated by 3.9 percent in 2020 on the back of hike in electricity charges as well as payroll expense. GIDC charges of Rs.28.49 million incurred in 2020 on account of the decision of Supreme Court of Pakistan in favor of government, magnified the other expense by over 14 times in 2020. NSRM incurred operating loss of Rs.36.41 million in 2020. Finance cost magnified by 92 percent in 2020 due to higher discount rate for most part of the year coupled with increased borrowings and bank commission. Gearing ratio jumped up to 10.87 percent in 2020. NSRM sustained a net loss of Rs.46.91 million in 2020 with a loss per share of Rs.3.02.

NSRM’s topline posted a staggering recovery as it grew by 35.42 percent in 2021. The company’s capacity utilization improved however couldn’t touch the pre-COVID level. As the company started partially sourcing its raw materials locally due to restrictions imposed during the lockdown period and also because of upward revision in the rates of its services, its gross profit rebounded by 217 percent in 2021 with GP margin registering its highest value of 9.6 percent. Operating expense spiked by 14.5 percent in 2021 primarily due to higher payroll expense incurred during the year. NSRM also posted a net other income of Rs.4.9 million in 2021 as it earned exchange gain and gain on disposal of fixed assets. The reversal of GIDC payable also buttressed other income and drove other expense down in 2021. Operating profit was recorded at Rs..64 million in 2021 with OP margin of 5.9 percent. Despite lower discount rate, finance cost inched up by 12.35 percent in 2021 due to higher short-term borrowings. NSRM touted a net profit of Rs.45.09 million in 2021, culminating into an EPS of Rs.2.90 and NP margin of 4.1 percent.

NRSM posted a 20 percent year-on-year rise in its topline in 2022. The capacity utilization of the company’s cloth processing unit fell to 48.5 percent in 2022 while the capacity utilization of embroidery processing slightly improved to clock in at 39.43 percent. Cost against services provided spiked by 21.21 percent in 2022 on account of high inflation, elevated energy charges and Pak Rupee depreciation. While gross profit improved by 7.16 percent in 2022, GP margin ticked down to 8.6 percent. NSRM kept a check on its operating expense which grew by just 1.2 percent in 2022. Operating profit grew by 2.6 percent in 2022, however, OP margin slid down to 4.1 percent. Finance cost surged by 70.43 percent in 2022 on account of monetary tightening and unwinding of discount on GIDC payable. Net profit slumped by 68.4 percent in 2022 with NP margin of 1.1 percent and an EPS of Rs.0.92.

Recent Performance (2023)

In 2023, NSRM’s topline registered a healthy year-on-year growth of 35 percent, however, it couldn’t trickle down into net profit on account of exorbitant rise in material cost due to high international commodity prices, Pak Rupee depreciation as well as indigenous inflation. To top it off, hike in energy tariff also took its toll on the gross profit which tumbled by 52 percent year-on-year in 2023. GP margin touted its lowest value of 3 percent in 2023. Capacity utilization of both the segments dropped to its lowest value since 2018 which gives a hint that topline hike that upward price revision had a major role to play in yielding a robust topline in 2023. Operating expense grew by 13.7 percent in 2023 due to higher payroll expense as number of employees increased from 379 in 2022 to 394 in 2023. Travelling & conveyance, vehicle running as well as utility charges also hiked in 2023. Operating profit in 2023 turned out to be 92 percent smaller than in the previous year which translated into OP margin of 0.3 percent. Despite towering discount rate, the company was able to trim down its finance cost by 31 percent in 2023 due to significant diminution in short-term borrowings coupled with lower unwinding of discount on GIDC payable. Gearing ratio declined to 5.83 percent in 2023 from 18.11 percent in 2022. Yet it couldn’t help the bottomline which posted a net loss of Rs.22.93 million in 2023 with a loss per share of Rs.1.47.

Future Outlook

Pakistan’s textile sector has faced myriad challenges off-late due to depressed demand locally and internationally, shrunken cotton yield, steep depreciation of Pak Rupee, high taxation, high energy charges and inadequate input. As NSRM’s revenue is closely linked to the performance of textile sector, it shall also continue to bear the brunt.