Nishat Chunian Limited (PSX: NCL) was established in 1990 as a public limited company. It started its commercial production a year later in 1991 with its first spinning unit. Although the company has a power generation unit, it primarily operates in the textile sector, engaged in spinning, weaving, dyeing, printing, stitching, processing, and dealing in yarn, fabrics, and made-ups from raw cotton, synthetic fibre and cloth.
It sells through its retail store which goes by the name “The Linen Company”, located in Karachi, Lahore and Islamabad, while its business units are located in Kasur and Raiwind.
Shareholding pattern
While 33 percent of the shares are distributed with the general public, directors, CEO, their spouses and children hold nearly 26 percent of the shareholding. Of this, Mr. Shahzad Saleem, the CEO of Nishat Chunian holds 20 percent of the shares. Another major shareholder of the company are the associated companies, undertakings and related parties which own 16.6 percent of the shares, followed by banks, DFIs, and NBFIs that hold 7.5 percent. The remaining, close to 17 percent, is distributed with the rest of the categories.
Historical operational performance
The topline of the company has, for the most part, experienced positive growth, with the exception of FY12. Profit margins though have been in the green, saw some decline, before gradually inclining post FY14.
Looking at the company’s performance in the last five years specifically, both revenue and profits have been growing. During FY15, topline growth had been relatively subdued at 4 percent. This was attributed to low demand in the international market, particularly for cotton yarn. Despite the grant of GSP plus status, textile exports failed to pick up as regional players such as China and India gave tough competition. On the costs side, it improved slightly as a percentage of revenue, making up almost 92 percent of the revenue. The effect of this was seen in the margins as they improved year on year.
Topline growth doubled to grow at 8.5 percent during FY16. This was due to an increase in both exports as well as local sales. Looking at it segment-wise, although spinning is the prominent revenue generating division, Home Textiles and Weaving division saw the most gain in profitability. During the year, the company also started its first retail store “The Linen Company”. Spinning division incurred losses due to low cotton prices. The latter was a result of low demand from one of its major export market, China as it shifted its demand to India that offered cheaper prices. Thus, with the further reduction of costs to make up 90.5 percent of the revenue, gross margins increased marginally, while net margin improved due to notable decline in finance costs.
After a period of three years, Nishat Chunian witnessed double-digit topline growth of close to 16 percent in FY17. Local sales saw the most increase here. Spinning division saw better margins in the local market, thus shifted its focus away from the exports, while Home Textiles continued to govern the export sales. The company added two other retail stores of “The Linen Company” during the year. While gross margins remained flat as costs increased corresponding to revenue, further decline in other income reduced operating margins.
Revenue further grew at 19 percent year on year in FY18- the highest seen since FY12. Both local sales and exports saw an increase. Spinning division witnessed a 26 percent growth in exports and 40 percent in local sales. Revenue increased on the back of better volumes as well as better yarn prices. Currency devaluation also worked in the favour of the export oriented company. Costs made up 88 percent of the revenue, down from 90 percent in FY17. With no significant changes in other factors, profit margins picked up.
The company witnessed double digit growth for the third time in a year in FY19 - at 10.6 percent. While exports decreased, local sales saw a 34 percent rise. Since the spinning division which contributes most to the total revenue, saw 70 percent of its sales in the local market, total local sales saw the most increase. In addition, the company added two more stores of “The Linen Company” which added to local sales. The spinning division saw a decline in exports due to the trade war between China and the US. Costs remained more or less the same, however, other income doubled as a percentage of revenue- increased from 3 percent to 6 percent, thus lifting operating margin.
Quarterly results and future outlook
Revenue and costs both increased more or less to a similar extent during 9MFY20, thus there was not much of a change in gross margins. Most other factors remained unchanged, except for other income which decreased by 5 times year on year. This largely affected the operating margins, the effect of which was also seen on the bottomline.
The business environment during FY20 was mostly noted by high inflation and interest rates, China and the US trade wars and a poor cotton crop, with Covid-19 being a fairly recent development. The company commends the government’s initiative to provide discounted loans and reduce interest rates. With reduced international trade and relatively subdued sentiments of the local consumer to shop, the last quarter may see the full effect of the pandemic on the financials.