Idrees Textile Mills Limited [PSX: IDRT] was incorporated in Pakistan as an unquoted public limited company in 1990. The company is engaged in the manufacturing and sale of yarn and fabric.
Pattern of Shareholding
As of June 30, 2024, IDRT has a total of 19.853 million shares outstanding which are held by 1406 shareholders. Directors, CEO, their spouses, and minor children have the majority stake of 85.93 percent in the company. The remaining shares are held by Joint stock companies, Banks, DFIs, Insurance companies, and Modarabas.
Financial Performance [2020-24]
IDRT’s topline slid twice during the period under consideration i.e. in 2020 and 2023. The company posted net losses in 2020, 2023 and 2024. IDRT’s margins which slumped in 2020, posted sound recovery for the next two years. In 2022, the margins attained their optimum level. In 2023 and 2024, the gross margin ticked down while the operating margin slid in 2023 and then inched up in 2024. Net margin stayed in the negative zone in 2020, 2023, and 2024. The detailed performance review of the period under consideration is given below.
In 2020, IDRT’s topline slid by 6.69 percent. This was on account of reduced demand as well as curtailed operations on account of COVID-19-related restrictions. The company’s annual production slid from 17.37 million kgs of yarn in 2019 to 10.073 million kgs in 2020. Cost of sales slid by 3.9 percent during the year, resulting in 28.4 percent thinner gross profit recorded during the year. GP margin also fell from 11.38 percent in 2019 to 8.73 percent in 2020. Distribution expense mounted by 42.43 percent in 2020 on account of higher freight and octroi charges as well as elevated clearing and forwarding charges on account of disturbances and blockages across the supply chain. Administrative expenses grew by 7.52 percent in 2020 due to higher depreciation expenses as well as fee and subscription charges incurred during the year. No provisioning done for WWF and WPPF as well as lesser infrastructure cess incurred during the year resulted in 20.84 percent fewer other expenses in 2020. Other income mounted by 195.32 percent in 2020 due to gains recognized on the sale of property, plant, and equipment as well as higher profit earned on saving deposits. Operating profit tapered off by 41.2 percent in 2020 with OP margin sliding down from 7.93 percent in 2019 to 5 percent in 2020. Finance costs surged by 15.10 percent in 2020 due to increased borrowings and higher discount rates for most part of the year. IDRT registered a net loss of Rs.102.58 million in 2020 with a loss per share of Rs.5.17. This was against net profit of Rs.32.31 million and EPS of Rs.1.63 recorded in 2019.
In 2021, IDRT’s net sales strengthened by 23.56 percent. This was on account of higher sales volume as well as increased prices of yarn which allowed the company to pass on the onus of higher power tariff to its consumers. The company also optimized the cost of raw materials by purchasing a mix of local and imported varieties of cotton. This resulted in an 88.74 percent improvement in gross profit in 2021 with the GP margin jumping up to 13.34 percent. Distribution expense multiplied by 32.39 percent in 2021 due to higher freight and octroi charges as well as business promotion expenses incurred during the year. The company was able to cut down its administrative expenses by 7.47 percent in 2021 by reducing payroll expenses, entertainment expenses, and traveling and conveyance expenses during the year. Provisioning done for WWF and WPPF, higher infrastructure cess, and loss on modification in terms of financial assets resulted in 143.87 percent higher other expenses in 2021. However, it was partially offset by 143.61 percent higher other income recorded during the year which was primarily the consequence of unwinding of discounts on other receivables. IDRT’s operating profit multiplied by 143.72 percent in 2021 with OP margin clocking in at 9.85 percent. Finance costs slid by 28.75 percent during the year due to monetary easing and reduced short-term borrowings due to improved liquidity position. The company recorded a net profit of Rs.159.80 million in 2021 with EPS of Rs.8.05 and an NP margin of 4 percent.
In 2022, IDRT recorded a 29 percent year-on-year improvement in its net sales. This was the result of a combination of higher dispatches and upward revision in prices. During the year, the company focused more on direct and indirect exports which amid Pak Rupee depreciation resulted in higher sales value in Rupee terms. Cost of sales mounted by 25.92 percent in 2022, resulting in 49.59 percent higher gross profit recorded during the year with GP margin attaining its optimum level of 15.46 percent. Increased sales volume drove the distribution expense up by 30.18 percent in 2022. Administrative expenses escalated by 25.56 percent in 2022 on account of higher payroll expenses. Increased infrastructure cess and higher provisioning for WWF and WPPF resulted in 28 percent higher other expenses in 2022. Other expense was completely offset by 442.37 percent higher other income recorded during the period. This was primarily due to contract settlement charges received by the company from its suppliers who defaulted on the cotton supply contracts owing to an increase in the international prices of cotton while the contracts were finalized on slightly lower prices. The company also recognized an exchange gain during the year due to the Pak Rupee depreciation. Operating profit progressed by 84.19 percent in 2022 with OP margin jumping up to 14 percent. Finance costs inched up by 1.72 percent in 2022 despite a higher discount rate. This was due to fewer short-term borrowings outstanding during the year. IDRT’s net profit picked up by 170.34 percent in 2022 to clock in at Rs.432 million with EPS of Rs.21.76 and NP margin of 8.36 percent.
IDRT recorded an 18.7 percent year-on-year drop in its topline in 2023. This was due to economic slowdown which resulted in demand destruction – both locally and internationally. High energy cost, Pak Rupee depreciation as well as elevated levels of inflation and discount rate also took their toll on the textile industry. Cost of sales slid by 13.45 percent in 2023, resulting in a 47.39 percent drop in gross profit with GP margin dipping to 10 percent. Lower sales volume resulted in a 7.31 percent plunge in distribution expense in 2023. Conversely, administrative expenses mounted by 15.87 percent due to higher payroll expenses on account of inflationary pressure. No profit-related provisioning done during the year resulted in a 42.85 percent slide in other expenses in 2023. Other income also shrank by 67 percent in 2023 due to the high base effect as the company recorded contract settlement charges in the previous year. Operating profit slid by 62.5 percent in 2023 with OP margin moving down to 6.48 percent. To add to the ado, finance costs surged by 75.96 percent during 2023 on account of multiple rounds of monetary tightening that took place during the year. The company’s borrowings also increased during the year particularly financing against imported merchandise, running finance, and long-term financing for capacity enhancement. IDRT posted a net loss of Rs. 12.49 million in 2023 with a loss per share of Rs.0.63.
In 2024, IDRT recorded year-on-year topline growth of 53.56 percent. The company enhanced its capacity from 14.8 million kgs of yarn in 2023 to 16.72 million kgs of yarn in 2024. Capacity utilization also increased from 49 percent in 2023 to 61.30 percent in 2024. Capacity enhancement enabled the company to attain new orders both locally and internationally which played a pivotal role in driving up the sales. The company’s home textile products made great strides in the export market. Direct and indirect exports of yarn also increased during the year. Massive hike in energy tariff due to discontinuation of Regionally Competitive Energy Tariff [RCET] coupled with unavailability of good quality cotton in the local market resulted in a 54.26 percent spike in the cost of sales in 2024. In absolute terms, gross profit picked up by 47.23 percent in 2024, however, GP margin nosedived to 9.6 percent. Distribution expense escalated by 51.21 percent in 2024 due to a surge in freight and octroi as well as clearing and forwarding charges incurred during the year. Administrative expenses inched up by 9.1 percent in 2024 due to higher payroll expenses. This was despite the fact that the company squeezed its workforce from 768 employees in 2023 to 552 employees in 2024. 32.46 percent higher other expenses incurred in 2024 were the result of exchange loss. However, it was roughly offset by 8.46 percent stronger other income recorded during the year on the back of higher profit on bank deposits. Operating profit multiplied by 57.95 percent in 2024. OP margin also ticked up to 6.67 percent in 2024. Finance costs didn’t show any mercy and magnified by 88.92 percent in 2024. This was the consequence of higher discount rates and higher working capital-related borrowings. IDRT registered a net loss of Rs.194.388 million in 2024 with a loss per share of Rs.9.79.
Recent Performance [1QFY25]
During the period under consideration, the company recorded a 30.4 percent drop in its topline. This was due to sluggish demand. Elevated energy tariffs and the use of imported raw materials due to quality issues in the local produce didn’t allow the cost of sales to shrink proportionately. This resulted in 83.82 percent thinner gross profit recorded during the period with the GP margin clocking in at 2.72 percent versus the GP margin of 11.71 percent recorded during the same period last year. Distribution and administrative expenses slipped by 51.39 percent and 5.36 percent respectively during 1QFY25. This was due to lower sales volume and reduced capacity utilization during the period. Other expenses dipped by 92.14 percent during 1QFY25 due to lower exchange loss, no profit-related provisioning,g and no infrastructure cess recorded during the period. Other income nosedived by 26.76 percent during the period as the company didn’t recognize any dividend income, exchange gain, gain on disposal of property, plant, and equipment,t and realized gain on other financial assets during the period. Operating profit slid by 99.73 percent during 1QFY25 with OP margin clocking in at 0.03 percent versus OP margin of 8.1 percent recorded during 1QFY24. Finance costs increased by 28.97 percent during 1QFY25. Although the discount rate was cut down during the period, its full impact will be seen in the coming quarters. IDRT recorded a net loss of Rs.163.185 million in 1QFY25 with a loss per share of Rs.8.22. This was against net profit of Rs.8.73 million and EPS of Rs.0.44 posted during 1QFY24.
Future Outlook
Low-quality local cotton crops, high energy tariffs, geopolitical tensions, and demand-supply imbalances due to uncertain foreign exchange positions are rendering the local textile sector uncompetitive in the international market amid competition from economies like India, Bangladesh, and Vietnam.
Comments