Crescent Textile Mills Limited (PSX: CRTM) is one of the leading textile composites in Pakistan. Established in 1950 by Muhammad Shafi, the company managed to make a niche for itself in export markets of North America, Europe and Japan while also expanding into Asian and African markets. Crestex is involved in spinning, weaving and home textile processing.
The spinning division has 100,272 spindles, while there are 112 air jet looms in weaving. In addition, CRTM has the capacity to produce 28.8 million metres of bleached/dyed/printed cloth, while the home textiles division can make finished products of 18 million metres.
Crestex's capacity utilisation was highest in its home textiles segment at 95.5 percent whereas the weaving division was the laggard with utilisation at 83 percent in FY17. The company's home textile portfolio includes quilted bed-in-a-bag items, bed linen, table linen, kitchen linen and furnishings.
Shareholding pattern and stock performance
The majority of CRTM is held by the public, which has 49.94 percent of the total shareholding whereas other companies and corporate bodies control 23.11 percent. The largest shareholder is Trustee -The Crescent Textile Mills Limited Employee Provident Fund that holds 9.24 percent followed by Munaf Ibrahim at 8.57 percent and M/S CS Capital (Pvt) Limited, which has 7.41 percent shareholding.
CRTM started the year at par with the benchmark KSE-100 index but has since underperformed the by a wide margin. Improved export outlook for textile firms and better export numbers might aid interest in textile scripts including CRTM on the back of rupee depreciation and textile incentive package.
Historical performance
The past several years have not been kind to textile firms in Pakistan given the challenging business environment and tough international dynamics. CRTM has been no exception and revenues for the firm have decreased since 2013, with gas curtailment proving to be particularly troublesome for the company's production.
FY13 saw depressed gross margins for Crestex because of a higher cost of doing business. This was due to increased energy tariffs coupled with higher raw material and labour costs. During the year sales mix shifted in favour of local revenue, which increased from 35 to 42 percent on account of lower international demand.
Exports fell further in FY14 denting CRTM's top-line due to lacklustre demand from China. The spinning segment's poor performance could be attributed to depressed yarn prices and the steadily increasing cost of production.
FY15 saw CRTM achieve improved gross margins mostly due to a less than proportionate rise in the cost of production due to depressed commodity prices. This helped the company save almost Rs 185 million in energy costs on a year-on-year basis on account of lower FO prices. In the absence of the other income support, the company's net profit margins fell for the year.
CRTM witnessed plummeting spinning margins in FY16, which offset the decrease in cost of production to create marginal impact on profitability margins. However, the improved performance of value added segments provided a cushion and CRTM was able to achieve nominal growth in GP margins in comparison to the previous years' results. Support from other income in the form of higher dividend inflow coupled with lower finance cost helped the company register a 13 percent in net profit compared to SPLY.
Recent financial performance
The 9MFY18 period saw textile exports increase by 7 percent as compared to the same period last year. This rise could be attributed both to the government's incentive package and the rupee depreciation albeit the lower export base in the same period last year also played a factor. However, issues such as the high cost of production that included higher tariffs for energy in particular dampened exports to an extent. The pending sales tax refunds and withdrawal of GST refund on packaging also posed problems for textile exporters.
The price of cotton and polyester remained stable and on the higher side on account of strong demand. CRTM's export sales for the 9MFY18 period were down by 16.5 percent while local sales increased by almost 32 percent. Overall revenue only saw a marginal increase, and gross margins saw a small improvement. Other income registered an increase of almost 30 percent on account of exchange gains on exports, while the higher finance cost was attributable to exchange loss of Rs 173.967 million on dollar denominated loans. EPS for CRTM increased by a massive 8.4 times on account of the improved operating profit and other income.
Future outlook
Textile exports are poised to recover from their poor performance in the past several years on account of the PM's incentive package announced by the government last year. Yet most players complain about the patchy implementation and argue for expedited sales tax refunds and a decrease in cost of production for the textile sector.
A boon for textile firms is the much-awaited depreciation of the rupee by 5 percent against the dollar and almost 10 percent against the pound and the extension of GSP plus status. This will be a catalyst in getting more export revenue for CRTM and allow it to utilise its home textile division for generating increased profitability. The shift of global preferences towards man-made fibres has necessitated the change in paradigm for textile exporters when it comes to innovation and use of quality fabrics. Therefore, CRTM should focus on increasing its value-added product sales in international frontiers while consolidating growth in the local market as well.
================================================================= CRTM: Pattern of Shareholding Shareholders Category Percentage of holding ================================================================= Directors, CEO, their spouses and minor children 9.75% Executives 1.35% Associated Companies, Undertakings & Related Parties 11.86% of which: Trustee-The Crescent Textile Mills Limited 9.24% Public Sector Companies & Corporations 0.00% NIT and IDBP (ICP UNIT) 2.41% Banks, DFIs, Non-Banking Financial Institutions 1.10% Insurance Companies 0.43% Modarabas and Mutual Funds 0.03% Others 23.11% General Public 49.94% =================================================================
Source: Company accounts
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