Kohinoor Mills Limited has risen from being a minor weaving mill in 1987 to become one of Pakistan's largest vertically integrated textile units. The company's employee headcount stands over 1700 with the annual turnover exceeding Rs 10.6 billion.
According to the company's most recent annual report, it supplies over 90 million meters of grey, white and dyed fabrics to leading fashion brands in 20 countries around the globe. There are two core segments of the company: dyeing & finishing and weaving.
Kohinoor Weaving (KW) is the flagship division of KML. Originally, a small 48-loom project on a green field site in 1988, it has now grown to 260 high-speed power looms from Toyota in Japan, and Picanol in Belgium.
The division produces 4 million meter of grey fabric every month, which is partially consumed upstream by the dyeing division, while the rest is exported to clients in Southern Europe and Asia. KW has also diversified its operations into Jacquard fabrics for the local fashion industry and luxury clients in the US and Europe.
KML management made a strategic decision to move up the apparel value chain and compete with processing mills in Europe where manufacturing costs were becoming uncompetitive. This led to the formation of Kohinoor Dyeing (KD) in 2002.
Having been present in the industry for more than a decade, KD has become a market leader in cotton stretch bottom wear for the fashion industry. The company caters to leading global brands like Zara, Levi's, Ralf Lauren, American Eagle and Next. The division produces 4 million meters of dyed, white and print fabric every month using machinery from Bennenger in Switzerland, and Brugman in Belgium.
Historical performance Plagued by problems in recent years, the textile sector has witnessed exports plunging due to a variety of factors. These include an overvalued rupee, rising cost of doing business in comparison to regional competitors like Vietnam, Bangladesh and China and pending tax refund issues. In circumstances like these the profitability of textile firms has remained stagnant and Kohinoor Mills Limited has proved to be no exception. FY14 saw the company's turnover and profitability margins plunge on account of a fall in the dollar combined with a slowdown in the US and EU markets.
It should be noted that the decline in the net profit margin came because of extra-ordinary income in FY13. This income was attributable to a one time gain on recognition of financial liabilities at fair value worth Rs 824 million. In FY15 there was only a marginal increase in turnover, but a decrease in energy costs and higher capacity utilisation resulted in improved gross margins. However, it was the dyeing division that came to the company's rescue because of the higher margins it enjoys on account of higher value-addition. The weaving division faced tough international competition taking a toll on its contribution to the firm's top line.
A similar trend of mild growth in revenue along with stagnant margins prevailed in FY16. Once again, the weaving division's contribution to the top line remained under stress due to rising raw material prices and increased overseas competition. On the other hand, value added fabric witnessed increased sales to international brands and led to higher capacity utilisation for the dyeing division.
Recent snapshot Even though the company managed to grow its top line by 25 percent in FY17 as compared to the previous year, margins still remained under duress primarily on account of escalating raw material costs according to the company. Keepings its disappointing streak intact, KML's weaving division once again dragged down the top line in FY17 on account of expensive raw material and competition. Even though the company has been claiming of focusing on new business avenues especially in the export segment in its historical annual reports, yet these efforts are yet to bear fruit.
KML is investing in BMR, which involves installation of an additional 84 high speed air jet looms. As the dying division's capacity utilisation picks up this will aid in supplying increased quantities of greige fabric for value addition. KML is also enhancing its production capacity by 20 percent in the dying division for an anticipated bump in export sales. However, the company noted dull overseas demand in FY17; so additional efforts will have to be made to increase international market presence in order to fully utilize its enhanced production capacity. The first quarter of 2018 saw increasing competition in international frontiers, which kept profit margins in check.
Stock performance KML has mostly underperformed the benchmark KSE-100 index throughout the past year with low volume. The stock is thinly traded with the bulk of shareholding, almost 68 percent residing with directors and their children.
Future outlook Textile exports are picking up as the government struggles to provide some relief to the textile sector. However, widening of duty drawbacks and prompt payment of sales tax refunds has not materialised resulting in a higher cost of doing business as well as liquidity issues.
KML has invested in BMR to increase production capacity in both its weaving and dyed fabric division. In order to remain internationally competitive, the company needs to make its costs more streamlined while at the same time look to explore new avenues both in the domestic as well international market. The focus should be on enhancing the export of dyed fabric, which results in higher margins due to increased value addition.
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Rs (Mn) FY17 FY16 FY15 FY14 FY13 FY12 FY11
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Turnover 10656 8551 7906 7772 8452 6262 5210
Gross profit 1445 1393 1299 1045 1378 919 -95
PAT 134 119 123 107 1009 629 -1396
Gross margin 13.6% 16.3% 16.4% 13.4% 16.3% 14.7% -1.8%
Net margin 1.3% 1.4% 1.6% 1.4% 11.9% 10.0% -26.8%
EPS 2.63 2.33 2.42 2.09 19.81 12.36 -27.42
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Source: Company accounts
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KML Pattern of Shareholding Percentage share held
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Directors, CEO & their spouse/minor children 68.55
NIT and ICP 6.11
Associated Companies, Undertaking and related Parties Nil
Banks, DFI's, NBFC's 0.9
Mutual funds, Pension funds, Takaful/Modarabas 0.15
General public 21.0
Others 2.37
Total 100
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Source: Company accounts
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