Shahtaj Textile Mill Limited

A Shahnawaz group company, Shahtaj Textile Limited (KSE: STJT) was incorporated in 1990 and is listed on the Karachi and Lahore Stock Exchanges. Its production facilities are situated in the hub of textile industries near Lahore. The mills went into commercial production in January 1992.
The principal business of the company is manufacturing and sales of textile goods. The company, headed by Muhammad Naeem, initially manufactured grey fabric but is now producing all sorts of weaves and has successfully ventured weaving layosel, model, tensul, organic besides cotton yarn of all counts. Starting with 72 looms, the number of installed looms is 188 with complete back-up process and stand-by power generation. In 2011, the company produced 23.630 million linear meters grey fabric in width up to 126 inches.
PERFORMANCE FOR 1H FY14 In the face of grave energy shortages and swelling inflation, STJT's recent performance on the whole has been consistently on an upward curve. STJT's sales for the 1H FY14 increased by 3.8 percent compared to the corresponding period of the preceding year.
STJT's gross profit was down by 17.1 percent year on year in 1H FY14 due to more than proportionate increase in cost of sales which grew by 6.0 percent. The main cost drivers were salaries, repairs and maintenance and power.
In 1H FY14, in spite of challenging conditions due to power outages and high yarn prices, the company was able to report a net profit of Rs 45.158 million, a significant decrease of 18.8 percent from the previous fiscal year. High yarn prices in 1H FY14 consequently led to an increase in the unit selling price, favourably affecting the company's top line results but higher production costs hampered the firms' bottom line expansion. However, pressures have been witnessed with administrative costs and distribution costs increasing both by 20 percent year on year, respectively.
Reportedly, financial constraints were experienced by the company in 1H FY14 after investment in the power plant and machinery installation. Delays in dispatches have also contributed to the issue. Though the current ratio has increased from 1.24 in 1H FY13 to 1.35 in 1H FY13, this is mainly due to a slowdown in the market, resulting in piling up of stock and increase in collection period.
The finance cost of the company fell from Rs 53.89 million in 1H FY13 to Rs 24.19 million in 1H FY14 with a decline in the long-term debt of STJT. In the following fiscal year, the interest expense rose in line with the long-term debt, moving to Rs 137.9 million. Due to financial constraints in 1H FY14, the management of the company has relied on debt to finance the company's growth. With a decline in the company's profits in 1H FY14, the EPS fell to Rs 4.68, a decline of 18.75 percent for the same period in previous financial year.
FUTURE OUTLOOK The company's gross margins for the first half of FY14 have reduced due to the slowdown in the market despite the announcement of the award of GSP+ status by the EU. The liquidity constraints have led to more bank borrowings resulting in surging financial cost of the company.
At the same time, energy crisis has severely impacted the operations of STJT. However, the management of the company has been able to increase the production capacity by installing new looms under the BMR Plan. This has also led to an enhancement in the production efficiency.
In the absence of gas, STJT is being operated on alternative source of energy like furnace oil which resulted in extra fuel and power cost which had to be borne by the company. The management at STJT hopes to face these challenges in the coming months and make constructive efforts to stabilise the situation in the interests of all stakeholders.

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                           1HFY12    1HFY13  1HFY14

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Profitability

Gross profit margin        28.5%     27.8%    27.2%

Operating profit margin    13.5%     11.2%    10.8%

Net profit margin           8.4%      7.8%     7.3%

ROE                        16.1%     12.9%    11.9%

ROA                        11.4%      9.3%     8.8%

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Liquidity

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Current ratio              2.63      2.84      3.12

Quick ratio                1.13      1.46      1.81

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Turnover

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Total asset turnover       1.36      1.20      1.20

Fixed asset turnover       3.19      3.14      3.51

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Market

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EPS - Rs                  17.28     15.57     16.93

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