Gul Ahmed Textile Mills Limited

Gul Ahmed Textile Mills Limited (GATM) is one of the leading vertically-integrated composite textile houses in the Pakistan that was listed at the Karachi Stock Exchange in 1970. The firm is engaged in the business of textile spinning, weaving, processing, designing, stitching, made-ups and processed cloth.
Company information shows that GATM has 130,000 spindles, 250 wide-width air jet looms, 297 conventional looms, and a state-of-the-art processing and finishing unit, having a production capacity of approximately 100,000 meters per day. GATM has its own captive power plant comprising of gas engines, gas and steam turbines, and backup diesel engines. In addition, the company has also set up a waste water treatment plant to treat 100 percent of the company's effluent waste.
Opening its first 'Ideas' store in 2003, the company was amongst the first and subsequently one of the most successful composite mills that went down the retail path. While many have followed suit, Gul Ahmed remains the pioneer of the "original lawn", a phrase that ushered in an era of innovation and growth in the value-added textile segment of the country.
PERFORMANCE FOR 1H FY14 Despite energy shortages and rising inflation, Gul Ahmed's recent performance on the whole has been consistently on an upward curve. Improved sales initiatives have allowed net sales to increase by 18.6 percent year on year with net sales for the half year clocking in at Rs 15.61 billion.
Sales performances in both local and export markets were encouraging during 1H FY14, with showing an increase of 6 percent and 27 percent, respectively, due to GATM's strong client base in the EU. This is the result of GATM employing leading European designers who constantly develop new designs for specific geographical areas. According to company information, a top French designer works full-time for Gul Ahmed and spends two months in Pakistan and two months in Paris on a rotational basis throughout the year. The designing team visits major international exhibitions to keep abreast of current market trends also.
Strong management of core operations has allowed for substantial improvement in gross profit margin which reached 18.7 percent in 1H FY14. Increase in 'other income' provided additional support to the bottom line. Some pressure was added by a 29 percent increase in finance costs to Rs 736 million during the period under review, which was due to the firm's high short-term and long-term debt obligations. Profit after tax of GATM stood at Rs 570 million during the half year, up by 233 percent year on year. The earning per share was Rs 3.12 in 1H FY14 compared to Rs 0.94 for the same period in previous financial year.
The company's fixed assets have increased by 13 percent year on year mostly due to the addition of new machinery in their production facilities. The company's ROA stood a 2.3 percent due to its optimal capacity utilisation. The current ratio for the period was 1.05, which is better compared to 1.01 in the same period of last year. Quick ratio declined to 0.32 in 1H FY14 from 0.35 in 1H FY13, but it still indicates the company's ability to service short-term obligations.
For Gul Ahmed, this performance comes as a relief after the abysmal performance in last few years, when the energy crises and declining foreign demand combined together to pour salt on the firm's wounds. However, the firm has seemingly moved on from the era of red bottom lines for good, having managed to expand their export reach during the last fiscal year while maintaining a strong grip on the local processed textiles sector at the same time.
FUTURE OUTLOOK SBP has forecasted 6 percent increase in exports in the 2H FY14 due to the GSP+ status and the government's decision to divert gas to industrial sector to reap benefits of the said status.
Going forward, GATM seems optimistic to find new avenues for growth, focusing to gain benefits under the GSP+ scheme. Not limited to this, GATM executives aim to strictly follow a strategy to expand and gain a competitive edge over their competitors. The management wishes to implement best possible initiatives, targeted towards key motivators and customers through new business development and through effective cost and margin management.
The company is revamping internal operations while improving marketing tactics to gain a stronger client base in the EU. The GATM management aims to continue to focus on maintaining quality, product diversification and exploring new markets. With the rapid diversification of their product range, persistent increase in sales and profit in the 2H FY14 is expected.

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                            1HFY12       1HFY13       1HFY14

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Profitability

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Gross profit margin          13.0%        14.6%        18.7%

Operating profit margin       4.6%         6.1%         9.5%

Net profit margin            -2.0%         1.3%         3.7%

ROE                          -5.3%         3.6%         9.5%

ROA                          -1.2%         0.8%         2.3%

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Liquidity

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Current ratio                 1.00         1.01         1.05

Quick ratio                   0.29         0.35         0.32

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Turnover

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Total asset turnover          0.58         0.60         0.62

Fixed asset turnover          1.75         1.95         2.05

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Market

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EPS(Rs)                     (1.87)         0.94         3.12

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