Faisal Spinning Mills Limited

Faisal Spinning Mills Limited (KSE: FASM) is a public limited company incorporated in Pakistan on January 31, 1985. The company is one of the constituent members of a large industrial group of companies-Umer group that enjoys an annual turnover of approximately $300 million.
FASM, headed by Bilal Sharif as CEO, is listed in all three stock exchanges and it's headquartered in Karachi. The company manufactures and sells cotton yarn, ring spun yarn, carded yarn and woven fabrics. FASM production facilities are located at Nooriabad, district Dadu in the province of Sindh and Feroz Watan district Sheikhupura in the province of Punjab. FASM is equipped with 38,256 spindles. Reportedly, its production of yarn was 12,291,733 kilograms of spinning unit and 31,585,583 meters of fabric for the weaving unit.
Performance for 1H FY14 Despite energy shortages and increasing inflation, FASM's recent performance on the whole has been consistently on an upward curve with impressive top line growth trickling down to striking bottom line. The turnover of the company is constantly improving as compared to the corresponding period of the preceding year. During the first half of the ongoing fiscal year, net sales of Rs 4.6 billion expanded significantly by 17.2 percent year on year against net sales of Rs 4 billion attained in the same period of last year.
FASM's gross profit was up by 52.3 percent year on year in 1H FY14 due to less proportionate increase in cost of sales which only grew by 12.5 percent. That mainly attributes to improved productions efficiencies and effective cost reduction strategies.
FASM has also shown strong net profit after tax growth of 59 percent year on year on the back of strong revenue assisted by stable margins. Additional support to bottom line is provided by increase in other income by 183 percent year on year, respectively. However, pressures have been witnessed with distribution and administrative costs increasing by 32 percent year on year and 40 percent year on year, respectively. Finance cost for the term also appreciated by 20 percent year on year, adding further stress to bottom line expansion.
Looking at the company's unconsolidated balance sheet, a comparison of current ratio and quick ratio reveals that the gap between the two has widened significantly over the years with the highest disproportion witnessed in 1H FY14. In 1H FY14, the inventory reported for 81 percent of the company's current assets. This represents that the company possesses huge inventory stock.
FASM has been raising its long-term borrowings over the years, an upsurge of 461 percent year on year in 1H FY14. The loans were used to put some development plans into action like the expansion of its 6,000 spindles. The company's fixed assets have increased by 42 percent year on year mostly due to the addition of new machinery and spindles in their production facilities. Strong performance in 1H FY14 allowed the company to reward investors by earnings per share of Rs 40.52 compared to Rs 25.43 for the same period of the previous financial year.
Future outlook The global economic conditions have not improved much in the current half year. According to the latest OECD quarterly data, growth in the 34 advanced democracies edged back to 0.4 percent in the quarter. Furthermore, higher inflation, social disruptions arising from law-and-order situation is major concerns for business activities in country. The cost of production has risen due to instant increase in inflation. In the absence of power, the mills are being operated on alternative source of energy like furnace oil which increases their cost of production. The competitiveness of this industry in international market has been affected severely due to above mentioned factors.
FASM has successfully been able to enhance overall sales volumes due to improved internal control procedures and performance standards. Reducing and controlling the cost of production (cost per unit) is the key to get good top line and bottom line in corporate sector. Production capacity of spinning unit is being enhanced by 6,000 spindles. In weaving unit aggressive BMR has been planned. Wider width looms are being replaced by narrow width air jet looms. The management expects a reasonable profitability in subsequent period.

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                             1HFY12     1HFY13     1HFY14

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Profitability

Gross profit margin            9.3%      11.8%      15.4%

Operating profit margin        5.6%       8.3%      11.3%

Net profit margin              2.5%       6.3%       8.6%

ROE                            4.4%      10.3%      12.0%

ROA                            2.0%       5.2%       5.7%

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Liquidity

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Current ratio                  1.25      1.40        1.60

Quick ratio                    0.36      0.36        0.30

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Turnover

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Total asset turnover           0.79      0.82        0.66

Fixed asset turnover           2.54      2.95        2.43

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Market

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EPS - Rs                       9.14     25.43       40.52

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