Azgard Nine Limited (ANL), formerly known as Legler Nafees Denim Mills Limited, was a joint venture between a leading European brand and a Pakistani manufacturer, Nafees Cotton Mills Ltd. The company turned into fabric supplier from a value added denim products manufacturer. It is a now composite spinning, weaving, dyeing and stitching unit engaged in the manufacture of yarn, denim and denim products.
A public limited company, it was listed on Karachi Stock Exchange in 1996. The company is in the process of implementing an extensive BMR programme. The major expansions are financed through Term Finance Certificates issue of Rs 2.0 billion plus a green shoe option.
In FY06 ANL acquired Pak American Fertilisers Ltd, (PAFL), the lowest cost urea producer in Pakistan, from the Pakistan Government. As a result of this new power plant, the company expects to further cut down on its fuel costs per ton in the coming years.
Financial Performance (September 2001 - December 2006): The FY06, was another hallmark year for Azgard Nine Limited. The company posted net sales at Rs 4.88 billion showing a robust increase of 10.6% over the same period last year. This increasing sales trend is attributed to an extensive BMR programme carried by ANL in the past few years. The company experienced high acceptability of its premium products in the international markets.
It can be seen from the trend lines that the gross margin declined slightly owing to high COGS which mitigated the gross profit. Cotton prices increased about 23.0% to Rs 2,351 per maund in FY06 cotton accumulation season from Rs 1,909 per maund in FY05. However, due to its proactive strategy and efficient production focused on international quality, ANL was able to compete well in the challenging environment. Hence, the profit margin showed an increase due to high profits in FY06.
Both ROA and ROE showed a decline due to tremendous increase in the company's assets and equity base respectively. However, it is expected to improve in the coming 2-3 years. The company is in the process to expand on its value added products to improve margins.
All the liquidity ratios of ANL are showing that company is undergoing expansion, and it has maintained a good liquidity position over the years and is able to pay off its short term obligations quite efficiently.
Inventory Turnover (ITO) ratio depicts how quickly the company is able to sell off its inventory. The trend line indicates a relatively unstable ITO over the 6-year period with a very small ITO in 2004 mainly due to a very small inventory level in that year. ANL's ITO declined in 2006 slightly showing efficiency on part of the company.
Days sales outstanding (DSO) shows how quickly the company is able to collect the dues from its debtors. It should be enough for the company to avoid risks of bad debts. DSO for ANL has been hovering between 80 to 90 days except in 2004 when it shot up to 159 due to high trade debts. Overall the company may be pursuing an easy credit policy to attract more credit sales. The operating cycle of ANL followed the same trend as driven by ITO and DSO in the respective years.
TATO of ANL declined slightly over the period under review, because the company is enhancing its assets base by investing long term for capacity expansion. The Sales/Equity, also shown a negative trend, on the account of higher increase in equity base (mainly due to higher unappropriated profits) compared to increase in sales.
As far as debt management is concerned, both D/A and D/E ratios of ANL show its decreasing reliance on debt financing compared to equity financing. The trend lines in particular show that initially both D/A and D/E ratios declined considerably over the years owing to modestly increasing long term debts compared to higher proportionate increase in equity and asset base.
However, these have shown a slight increase from 2004 onwards due to sharp rise in current and long term liabilities. This is confirmed by the long term debt to equity ratio which has increased considerably in 2005 due to increase in long term loans.
The debt management ratios seem appropriate, taking into account that the firm performed large expansion and BMR activities in the past two years. The TIE ratio for ANL has been rising till 2004 but tumbled after that, due to very high finance costs coupled with comparatively lower increase in EBIT, thus having an adverse impact on ANL's interest covering ability.
Increase in financial charges seems to grow as a result of Rs 16.6 billion bid for Pak-American Fertiliser (PAFL) that caused a hefty increase in borrowings in 2nd quarter 2006. The 6 months Kibor rate also increased to 9.61% in June 2006 from 8.64% in June 2005. Looking at this, we can infer that ANL's interest covering ability has been affected adversely due to rising interest rates.
Both the EPS and year-end market prices of ANL have been increasing over the years, except in 2006 when EPS declined due to increase in the number of outstanding shares. The (P/E) ratio showing how much investors are willing to pay per rupee of the reported profits, followed an erratic trend driven by the combined effect of EPS and market price of shares.
ANL's book value per share shows a positive trend on the account of expanding equity base due to increase mainly in reserves, retained earnings and issued capital compared to very slight changes in the number of outstanding shares. This reflects that now investors/shareholders increasing willingness to pay more for a share of the company. A decline in BV was seen in 2005 on the account of higher increase in outstanding shares than overall equity of the company.
FUTURE OUTLOOK: The global demand for textile product is growing annually at 2.5% and there is an immense potential particularly in the value added segment, for the Pakistan exports. The future outlook seems to be buoyant mainly because expanded manufacturing facilities. But at the same time rising interest rates, increased cotton and petroleum prices and double-digit inflation are likely to blunt the competitive edge.
Moreover, the Pakistani textiles industry has been facing tough competition from the regional players such as China, India, Bangladesh and Sri Lanka, which get various subsidies and regulatory support from their respective governments.
It is hoped that with the added capacity and new products the company will outperform its previous year's performance and will be able to offset various challenges faced by the textile industry in Pakistan.
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Azgard Nine Limited (ANL) - Financials
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Balance Sheet 2001 2002 2003 2004 2005 2006
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Total non-current assets 987,844,652 1,957,828,850 2,350,966,899 3,041,788,455 5,681,051,487 14,136,486,815
Stores and spares 9,228,625 21,688,759 45,777,796 0 87,790,355 101,762,486
Stock in trade 246,191,504 722,376,223 1,265,777,101 72,608,693 2,034,180,550 2,022,510,924
Trade debts 337,303,577 533,467,787 536,616,084 1,394,729,330 1,013,883,584 1,134,897,149
Cash and bank balances 20,379,848 23,476,815 21,601,750 20,907,777 45,642,358 580,905,624
Total current assets 781,677,571 1,550,389,190 2,478,756,422 3,255,429,757 4,860,175,237 9,041,816,252
Total Assets 1,769,522,223 3,508,218,040 4,829,723,321 6,297,218,212 10,541,226,724 23,178,303,067
Total non-current liabilities 688,387,930 797,536,774 1,166,010,464 1,174,216,059 3,000,257,818 6,054,799,426
Total current liabilities 928,869,695 1,685,256,993 2,382,305,029 2,612,893,250 4,447,866,267 7,949,335,507
Total liabilities 1,617,257,625 2,482,793,767 3,548,315,493 3,787,109,309 7,448,124,085 14,004,134,933
Total Equity 152,264,598 1,020,166,656 1,279,192,104 4,609,559,824 3,093,102,639 9,174,168,134
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Income Statement 2001 2002 2003 2004 2005 2006
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Sales - net 1,257,106,181 1,931,118,480 2,428,127,182 3,155,912,427 4,422,472,357 4,889,681,966
Cost of goods sold 948,476,399 1,437,729,818 1,782,024,020 2,440,779,273 3,288,786,063 3,703,361,406
Gross profit 308,629,782 493,388,662 646,103,162 715,133,154 1,133,666,294 1,186,320,560
Profit from operations / EBIT 204,130,296 351,219,885 447,059,035 539,175,030 1,118,916,243 1,917,631,878
Finance cost 135,127,442 197,092,872 184,976,083 122,998,014 290,508,556 648,649,925
Profit before taxation 61,882,522 151,578,523 248,440,384 395,262,335 792,136,936 1,260,083,804
Taxation 5,300,000 (13,795,269) 20,252,338 20,000,000 50,843,271 115,569,082
Profit after taxation 56,582,522 165,373,792 228,188,046 375,262,335 741,293,665 1,144,514,722
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PROFITABILITY RATIOS 2001 2002 2003 2004 2005 2006
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Profit Margin 4.50% 8.56% 9.40% 11.89% 16.76% 23.41%
Gross profit margin 24.55% 25.55% 26.61% 22.66% 25.63% 24.26%
Return on Assets 3.20% 4.71% 4.72% 5.96% 7.03% 4.94%
Return on Equity 37.16% 16.21% 17.84% 8.14% 23.97% 12.48%
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LIQUIDITY RATIOS 2001 2002 2003 2004 2005 2006
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Quick Ratio 0.57 0.48 0.49 1.22 0.62 0.87
Current Ratio 0.84 0.92 1.04 1.25 1.09 1.14
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ASSET MANAGEMENT RATIOS 2001 2002 2003 2004 2005 2006
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Inventory Turnover (Days) 73.15 138.71 194.45 8.28 172.73 156.40
Day Sales Outstanding (Days) 96.59 99.45 79.56 159.10 82.53 83.56
Operating cycle (Days) 169.74 238.16 274.01 167.38 255.27 239.95
Total Asset Turnover 0.71 0.55 0.50 0.50 0.42 0.21
Sales/Equity 8.26 1.89 1.90 0.68 1.43 0.53
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DEBT MANAGEMENT RATIOS 2001 2002 2003 2004 2005 2006
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Debt to Asset 0.91 0.71 0.73 0.60 0.71 0.60
Debt to Equity Ratio 10.62 2.43 2.77 0.82 2.41 1.53
Long Term Debt to Equity (%) 4.52 0.78 0.91 0.25 0.97 0.66
Times Interest Earned 1.51 1.78 2.42 4.38 3.85 2.96
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MARKET RATIOS 2001 2002 2003 2004 2005 2006
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Earning per share 2.08 2.64 2.63 4.31 7.42 4.97
Price/Earnings Ratio 3.65 3.11 4.33 5.63 5.13 7.97
Dividend per share 0.00 0.00 0.00 1.00 1.50 1.10
Book value per share 4.77 11.74 14.73 26.53 17.80 24.21
No of Shares issued 31905701 86865401 86865434 173730868 173730868 378883890
Market prices (Year End) 7.60 8.20 11.40 24.28 38.03 39.61
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