Saif Textiles - 9M FY14

Saif Textile Mills Limited (KSE: SAIF) is a public listed company that's listed on the KSE commenced commercial production on 1st January 1992. The company mills are located in industrial estate, Gadoon Amazai, KPK, Pakistan. SAIF, headed by Anwar Saifullah Khan as Chairman, is principally engaged in the manufacture and sale of compact cotton and syntehtic yarns. Moreover, it offers diverse product line including denim, apparel, shirting, technical fabrics and home textiles.
The company distributes its products in the domestic market and to oversea markets such as Europe, Far East and Middle East. SAIF has an installed capacity of 88,476 spindles, manufacturing and market over 20 million kilos of combed cotton, carded cotton and syntehtic yarns annually. It has the largest installation of Rieter Com4 spinning K-44 ring frames and is pioneer in the manufacture of premium yarns for the Italian luxury shirting sector.
PERFORMANCE FOR 1H FY14 In the face of energy shortages and political instability particularly in the region of Khyber-Pakhtunkhwa (KPK), SAIF's current performance on the whole has been on a sliding curve. During the 9M FY14, net sales of Rs 5,934 million expanded significantly by 8.3 percent year on year against net sales of Rs 5,482 million attained in the same period of last year.
SAIF's gross profit dwindled by 5.5 percent year on year in 9M FY14 due to the company's cost of sales grew out-of-step with the top line growth, by 10.7 percent year on year. Subsequently, these costs consumed 87 percent of net sales in 9M FY14. The decline in the performance was brought about by the effect of non-responsiveness of yarn prices against the rise in cotton rates.
During the period, 9M FY14 there was worsening in yarn demand both of international and domestic market with reduction in rates and sudden appreciation in Pakistani currency against dollar that has not only hampered export competitiveness but also provided additional incentives to importers of imported yarn and fabric that resulted in reduction in sales rate and demand.
Profit after tax clocked in at Rs 134 million due to taking into account the exchange rate fluctuations. However, pressures have been witnessed with distribution costs and administrative costs rising by 28.6 percent and 18.1 percent year on year, respectively. Finance cost for the period also rose by 15.1 percent year on year, in line of increase in kibor rates adding extra stress to bottom line growth.
The current ratio for the company lingered at 1.02 in 9M FY14. In view of at the SAIF's unconsolidated balance sheet, an assessment of current ratio and quick ratio shows that the difference between the two has broadened considerably over the years with the highest disproportion witnessed in 9M FY14. In 9M FY14, the inventory constituted for 63 percent of the company's current assets. This shows that the company possesses huge inventory stock.
SAIF has been raising its long-term borrowings over the years for the replacement of machinery and equipment of its production facilities and currently for the installation of the dyeing unit. With a decline in the company's profits in 9M FY14, the EPS fell to Rs 5.1 from Rs 10.6, a decline of 51.9 percent for the same period in previous financial year.
FUTURE OUTLOOK Despite power shortages and endless tariff hike, the last few months have seen a steadied demand for textile products both in the domestic and international market.
SAIF is maintaining its focus on research and development activities. Various expansion and modernisation projects are underway which include projects for converting mills further coarser and increasing production capacities. In addition to increasing spindlage, other projects are focusing on replacement of old machinery with new energy efficient, highly productive and less labour intensive technology. Efforts are also being made to explore new customer base by emphasising market development as well as product development.

=================================================

                         9MFY12   9MFY13   9MFY14

=================================================

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%

-------------------------------------------------

Liquidity

-------------------------------------------------

Current ratio             2.63     2.84      3.12

Quick ratio               1.13     1.46      1.81

-------------------------------------------------

Turnover

-------------------------------------------------

Total asset turnover      1.36     1.20      1.20

Fixed asset turnover      3.19     3.14      3.51

-------------------------------------------------

Market

-------------------------------------------------

EPS - Rs                 17.28    15.57     16.93

=================================================