Ahmad Hassan Textile Mills

Ahmad Hassan Textile Mills [PSX: AHTM] was incorporated in Pakistan as a public limited company in 1989. The principal activity of the company is the manufacturing and sale of yarn and fabric. The company also took a ginning factory on lease from its associated company and started a cotton ginning business.

Pattern of Shareholding

As of June 30, 2024, AHTM has a total of 8.47 million shares outstanding which are held by 663 shareholders. Directors, CEO, their spouses, and minor children have the majority stake of 57.06 percent in the company followed by the local general public holding 31.06 percent shares. NIT and ICP account for 10.78 percent of shares of AHTM. The remaining shares are held by other categories of shareholders.

Financial Performance [2020-24]

AHTM’s topline slid twice during the period under consideration i.e. in 2020 and 2023. Conversely, its bottom line plunged in 2023 and 2024. AHTM’s margins registered reasonable growth until 2021 followed by a dip in 2022. In 2023, gross and operating margins picked up while net margins continued to drop. In 2024, all the margins hit their lowest level. The detailed performance review of the period under consideration is given below.

In 2020, AHTM’s topline declined by 48.40 percent. Due to COVID-19-related lockdowns and demand destruction, the company produced 51.229 million square meters [converted into 60 picks]. This resulted in capacity utilization of 66.86 percent versus capacity utilization of 72.4 percent recorded during the same period last year. An increase in sales proceeds from export sales resulted in an increased GP margin of 7.21 percent recorded during the year versus a GP margin of 6.32 percent recorded in 2019. In absolute terms, gross profit tapered off 41.17 percent in 2020. The decline in direct exports resulted in a 69.27 percent drop in distribution expenses in 2020. Administrative expenses also shrank by 48.8 percent in 2020 due to lower payroll expenses as the company drastically streamlined its workforce from 645 employees in 2019 to 314 employees in 2020. Higher profit-related provisioning resulted in a 47.44 percent expansion in other expenses in 2020. Conversely, other income eroded by 64.65 percent in 2020 due to the high-base effect as the company didn’t record duty drawback of taxes on export sales, profit on sales tax refunds, and gain on disposal of property, plant, and equipment during the year. Exchange gain also nosedived during the year. AHTM recorded 36 percent lower operating profit in 2020 with OP margin clocking in at 5.43 percent versus OP margin of 4.38 percent recorded in 2019. On the positive front, the company was able to cut down its finance cost by 65.35 percent in 2020 due to a decline in working capital-related financing. Net profit enlarged by 182.92 percent in 2020 to clock in at Rs.115.87 million with EPS of Rs.13.68 versus EPS of Rs.2.84 recorded in 2019. NP margin also jumped up from 0.56 percent in 2019 to 3.1 percent in 2020.

In 2021, AHTM’s topline posted a marginal year-on-year growth of 1.19 percent. This was the result of greater proceeds from export sales. AHTM recorded 6.78 percent stronger gross profit in 2021 with GP margin clocking in at 7.6 percent. Sales volume remained lackluster during the year, resulting in a 41.73 percent drop in distribution expenses. Conversely, administrative expenses spiked by 11.84 percent during in 2021 due to higher payroll expenses as the company inducted additional human resources which drove its workforce to 336 employees. Other expenses mounted by 54.13 percent in 2021 primarily due to higher provisioning done for WWF and WPPF. Other expense was offset by 2250.40 percent higher other income recorded during the year which was the result of unrealized gain recorded on the re-measurement of short-term investment and realized gain on the sale of NIT units. Operating profit improved by 17.48 percent in 2021 with OP margin climbing up to 6.3 percent. Finance costs dipped by 59.22 percent in 2021 due to monetary easing and an increase in outstanding liabilities. Net profit picked up by 44.8 percent in 2021 to clock in at Rs.167.79 million with EPS of Rs.19.81 and NP margin of 4.42 percent.

AHTM recorded a tremendous 46 percent year-on-year growth in its net sales. Export sales which constituted 61.18 percent of the company’s net sales in 2021 grew by 61.5 percent in 2022 to grab 67.68 percent of the topline in 2022. Weaker local currency translated into higher revenue despite demand contraction. Capacity utilization also dropped from 81.59 percent in 2021 to 72.16 percent in 2022. High inflation, Pak Rupee depreciation, and elevated energy tariff drove the cost of sales up by 48.37 percent in 2022. In absolute terms, gross profit grew by 17.2 percent in 2022, however, GP margin went down to 6.10 percent. Selling & distribution expenses escalated by 78.89 percent in 2022 mainly on account of export-related expenses including bank charges followed by freight charges incurred during the year. Administrative expenses heightened by 38.94 percent in 2022 primarily due to payroll expenses on account of inflationary pressure. Number of employees ticked down from 336 in 2021 to 322 in 2022. Other expenses surged by 22 percent in 2022 predominantly due to exchange loss. Other income dipped by 86 percent in 2022 due to unrealized and realized loss recorded on the re-measurement and disposal of investments respectively coupled with considerably lower gain recorded on the sale of property, plant & equipment in 2022 versus the previous year. Profit from trading yarn lent a helping hand as it grew from 0.2 million in 2021 to 14.43 million in 2022. AHTM recorded 7.22 percent taller operating profit in 2022; however, OP margin dipped to 4.63 percent. Finance cost multiplied by 89.82 percent in 2022 due to higher discount rates and higher working capital-related borrowings obtained during the year. The company recorded 20 percent higher net profit in 2022 which clocked in at Rs.201.32 million with EPS of Rs.23.76. NP margin went down to 3.63 percent in 2022.

In 2023, AHTM recorded a 21.97 percent decline in its topline. Due to lower demand, the company produced 35.106 million square meters of fabric, down 18.68 percent year-on-year. This resulted in capacity utilization of 58.68 percent in 2023. Export sales drastically dropped during the year due to the global recession and stood at 42.42 percent of AHTM’s net sales mix in 2023. Cost of sales slid by 24 in 2023, resulting 9.19 percent higher gross profit. GP margin progressed to 8.54 percent in 2023. Despite lower sales volume, inflationary pressure pushed distribution expense by 45.56 percent in 2023. AHTM continued to streamline its workforce which stood at 302 employees in 2023; however, this couldn’t be reflected in the payroll expense owing to high inflation. This translated into 29.77 percent higher administrative expenses recorded in 2023. Other expenses ticked up by 7.73 percent in 2023 as higher exchange loss was counterbalanced by lower profit-related provisioning done during the year. Other income strengthened by 44.97 percent in 2023 due to higher dividend income and gains realized on the sale of investments. Profit on trading of yarn plunged by 96.15 percent in 2023. AHTM recorded a 3.82 percent decline in its operating profit with OP margin jumping up to 5.71 percent. Finance costs mounted by 71 percent in 2023 due to monetary tightening. Outstanding borrowings plummeted during the year. Net profit tapered off by 53.85 percent in 2023 to clock in at Rs.92.92 million. This culminated in an EPS of Rs.10.97 and an NP margin of 2.15 percent.

In 2024, AHTM’s topline grew by 17.36 percent. Export sales continued to slide due to dampened demand and were recorded at 34.43 percent of the company’s net sales mix in 2024. High prices of yarn and elevated energy tariffs pushed the cost of sales up by 20.57 percent in 2024. Consequently, gross profit dampened by 17 percent with GP margin sliding down to 6 percent in 2024. Distribution expenses grew by 16 percent in 2024 due to higher freight charges. The company inducted new employees during the year which took the tally to 313 employees. This resulted in higher payroll expenses; however, administrative expenses plummeted by 3.57 percent due to lower depreciation expenses. Other expenses dropped by 62.42 percent in 2024 as the company booked lesser provisioning for WWF and WPPF and also because no exchange loss was incurred during the year due to stable local currency. AHTM recorded a tremendous exchange gain during the year which drove other income up by 803.24 percent in 2024. However, this couldn’t buttress the operating profit which eroded by 5.33 percent in 2024 with the OP margin falling down to 4.6 percent. Finance costs multiplied by 52.72 percent in 2024 due to higher discount rates and increased working capital-related borrowings. Net profit slumped by 56.24 percent to clock in at Rs.40.66 million in 2024 with EPS of Rs.4.8 and NP margin of 0.8 percent.

Recent Performance (1QFY25)

During 1QFY25, AHTM’s topline grew by 19.16 percent due to upward price revision to account for elevated energy tariff and inflationary pressure. Cost of sales grew by 19 percent during the period resulting in 21.53 percent growth in gross profit. GP margin improved from 6.42 percent in 1QFY24 to 6.55 percent in 1QFY25. Distribution and administrative expenses slid by 46.85 percent and 18.95 percent respectively due to lower sales volume and reduced capacity utilization. Other expenses dipped by 32.15 percent during 1QFY25 due to lower profit-related provisioning. Other income also eroded by 84.96 percent during 1QFY25 probably due to lower dividend income. Reduced operating expenses resulted in 34.73 percent higher operating profit in 1QFY25 with OP margin clocking in at 5 percent versus OP margin of 4.44 percent recorded during the same period last year. Finance cost surged by 72.64 percent due toa higher discount rate while outstanding borrowings thinned down during the period. Net profit slipped by 50.24 percent to clock in at Rs.8.536 million in 1QFY25 with EPS of Rs.1.01 versus EPS of Rs.2.03 recorded in 1QFY24. NP margin slumped from 1.32 percent in 1QFY24 to 0.55 percent in 1QFY25.

Future Outlook

The global recession has resulted in demand destruction for the textile industry which is already grappling with high cost of production and cutthroat competition from regional counterparts. The stability of local currency has further eroded the margins on export sales. Gradual reduction of discount rate will prove to be a good omen for AHTM and will reduce the cost pressure.