Nishat Mills Limited (NML) is the largest textile composite unit of Pakistan engaged in spinning, weaving and dyeing & finishing segments of the value chain. The company has the significant free-float of about 44.1% in equity markets. The shares of the company are listed on all stock exchanges in the country.
Its manufacturing facilities are located at five different locations in three districts of Punjab. From the foregoing it can be seen that it is a gigantic and wider diversified unit and textile processing functions are fully integrated by means of information technology as business processing is dependent on timely providing information and data.
For reliable and cheaper power, Nishat has installed its power generation plants. These are cutting edge technology highly efficient reciprocating engines and gas turbines generators, which besides generating power are supplying steam and air conditioning, being produced using so called "waste heat", to the production units. In fact, Nishat Mills is the trend-setter in this type of power generation in the country.
On the marketing side it has entrenched customer bases in Hong Kong and Europe and during the past few years it set its goal to achieve greater market share in Central American, Spanish, French, Portuguese markets which it managed to achieve.
Recent Results (Q1 '08):
NML earned an after tax profit of Rs 483.369 million as compared to Rs 425.704 million in the corresponding period ended September 30, 2006, resulting in net increase of 13.55 %. This increase in profitability, despite decrease in sales and gross profit, is mainly due to increase in other operating income and decrease in financial charges. The increase in other operating income is mainly due to increase in dividend income and decrease in financial charges is due to decrease in borrowing rates. Gross profit has decreased by 3.55 % due to increase in local cotton consumption rate.
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Financial Highlights Quarter ended September 30 Inc/(Dec)
2007 2006 %age
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Net Sales ('000' Rs) 4,277,037 4,360,839 (1.92)
Gross Profit ('000'Rs) 791,537 820,699 (3.55)
Pre-tax Profit ('000' Rs) 536,369 475,990 12.68
After Tax Profit ('000' Rs) 483,369 425,704 13.55
Gross Profit (%) 18.51 18.82
After Tax Profit (%) 11.30 9.76
Earning Per Share (Rs) 3.03 2.66
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Source: Company Reports:
Financial Performance (Sep '01 - Jun '07):
The FY'07 was an overall good year for NML in which its sales reached a new landmark of Rs 17 billion following an excellent growth after a nosedive in '05. This increasing sales trend is attributed to expansion on its value added products divisions- Stitching, Dyeing and Finishing coupled with the added capacity. However, this was unable to trickle down to company's profit after tax.
NML has earned an after tax profit of Rs 1,674 Million in this year thus showing an decrease of 2.53 % as compared to Rs 1634 Million for the previous period.
Analysis reveals that despite an increase in local cotton prices by 6.39 %, and finance cost by 8.5 % an increase in other income by 102 % ( due to increase in dividend income and gain on sale of investment from profit on sale of AICL) the profit for the period increased.
As a result of robust sales growth both the net and gross margins registered a slight decline after a rising trend till '05. Both ROA and ROE plummeted to due low increase in net profits compared ro robust increases in total assets and equity respectively. However, it is expected to improve in coming 2-3 years. The company is in the process to expand on its value added products divisions- Stitching, Dyeing and Finishing to improve margins.
All the liquidity ratios of NML are showing a positive trend reflecting the fact that company has maintained a good liquidity position over the years and is able to pay its short term obligations very efficiently.
Inventory Turnover (ITO) ratio depicts how quickly the company is able to sell off its inventory. The trend line indicates a relatively constant ITO over the 7 year period except a sharp rise in '05 mainly due to a very high proportionate decline in its sales (-24%). Reasonable ITO over the rest of the years shows that NML is able to efficiently turn its inventory into sales. Its also lower than the rest of the industry in the respective years.
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 NML has been initially very high in 2001 (63 days) but has been relatively low in the subsequent years under consideration reflecting that the company is pursuing a highly efficient credit policy.
The operating cycle of NML hence followed the same trend as driven by ITO and DSO in the respective years being much higher than the industry average in 2001 but is below the industry trend over the rest of the years even in 2007.
TATO of NML has declined slightly over the period under review (from 0.82 to 0.44), that the company is enhancing its assets base by investing long term for capacity expansion. The Sales/Equity has tumbled sharply on the account of higher increase in equity base (mainly due to higher reserves in the year 2007) compared to increase in sales
As far as debt management is concerned, both D/A and D/E ratios of NML show its decreasing reliance on debt financing compared to equity financing. The trend lines in particular show that both D/A and D/E ratios have declined considerably over the years owing to modestly increasing long term debts compared to higher proportionate increase in equity base.
This is further confirmed by the long term debt to equity ratio which has also shown a negative trend over the years.
The debt-equity ratio in FY'06 seems appropriate at 31% despite the firm performed large expansion and BMR activities in past two years.
The TIE ratio for NML has been rising till '05 but nose dived in '06 due to the very high finance costs (85.2%) coupled with decrease in EBIT (-0.68%), thus having an adverse impact on NPL's interest covering ability. Increase in finance cost is due to increase in short term financing rate by 96 % and long term financing rate by 44 % causing the overall financing rate to increase to 8.49 % as compared to 85.43 % for the previous period. Looking at this, we can that infer that NML's interest covering ability has been affected adversely due to rising interest rates.
The (P/E) ratio shows how much investors are willing to pay per rupee of the reported profits, depends on the company's price per share and its the earnings per share (EPS).
Both the EPS and year end market prices of NML have been fluctuating over the 7 year period, with volatility in prices and that in EPS as shown by the trend line. However, the P/E ratio followed an erratic trend driven by the combined effect of EPS and market price of shares. The P/e ratio of NML is much higher than other companies in the textile composite sector, reflecting the investor's confident in NML.
NML is currently trading on attractive valuations. Its book value per share shows a positive trend on the account of expanding equity base (due to increase mainly in reserves and issued capital especially in the last 2 years) compared to very slight changes in the no. of shares. This reflects that now investors/ shareholders are willing to pay more for a share of the company.
As evident from the rising 7 year DPS trend, the company did not skip dividend during any of the years. The regular and attractive dividend distributions to its prime stakeholders - shareholders coupled with a decent BPS, shows maximisation of shareholder's wealth as a prime objective of NML.
Post Budget effect and future Outlook:
FY'07 year saw major expansions in all businesses of Nishat Mills. In almost all divisions, old machines were replaced with new and up-graded technology. The company has acquired new finishing equipments and is in the process to expand on its value added products divisions- Stitching, Dyeing and Finishing to improve margins. This is vital to stay ahead of the competition and to continue the existing growth pattern.
Government has announced a reduction in the presumptive taxes on textiles exports to 1.0% from 1.5%. Moreover, the spinning sector has been granted much demanded loan swaps in the current budget. These government steps for the promotion of Textiles Industry and its exports coupled with recent incentives in the budget and trade policy can facilitate NML in becoming the best company of the textile sector in Pakistan.
The future although is bright but is going to be very challenging. The sudden fluctuations in domestic cotton market, the high cost of raw material , increased processing charges and high gas tariffs may reflect negatively on NML's profitability.
The company's management however is confident that with the added capacity and new products it will out perform its previous year's performance and will be able to offset various challenges faced by the textile industry in Pakistan. New customers and markets are explored simultaneously and NML remains committed in providing better quality and value for money to its customers.
The timely expansion, strong fundamentals and large portfolio investments of NML makes it one of the top candidates to reap the benefits of the ongoing developments in the industry.
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Nishat Mills Limited (NML) - Financials
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Balance Sheet 2003 2004 2005 2006 2007
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ASSETS
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NON CURRENT ASSETS
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Property, plant and equipment 7,383,661 8,132,083 9,151,096 10,611,353 10,586,159
Long Term Investments 2,166,157 3,198,405 5,003,177 10,793,026 15,466,506
Long term loans, deposits,
prepayments and deferred costs 99,995 17,243 16,912 16,507 18,865
Total non-current assets 9,649,813 11,347,731 14,171,185 21,420,886 26,071,530
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CURRENT ASSETS
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Stores,spares and loose tools 409,013 434,934 424,827 471,520 422,428
Stock-in-trade 1,905,278 2,797,208 2,897,392 3,003,174 3,106,436
Short Term Investments 563,018 718,530 2,173,530 4,350,146 8,118,459
Trade debts 1,047,025 1,517,143 877,358 1,026,884 831,653
Advances, Deposits and prepayments 457323 374,023 463,713 449,319 437,665
Other receivables 178,293 370,830 388,598 407,147 322,839
Cash and bank balances 1,044,865 615,382 520,999 50,250 69,607
Total current assets 5,804,815 6,828,050 7,746,417 9,758,440 13,309,087
TOTAL ASSETS 15,454,628 18,175,781 21,917,602 31,179,326 39,380,617
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EQUITY AND LIABILITIES
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SHARE CAPITAL AND RESEVES
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Authorised capital 1,500,000 1,500,000 1,784,700 1,784,700 1,784,700
150,000,000 ordinary shares
of Rs 10 each
Issued, subscribed and paid-up capital 1,224,788 1,224,788 1,452,597 1,452,597 1,597,857
Reserves 4,893,336 6,626,552 10,468,761 17,120,114 28,359,567
Surplus on Revaluation of
operating fixed assets
Total Equity 6,118,124 7,851,340 11,921,358 18,572,711 29,957,424
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NON CURRENT LIABILITIES
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Long term loans 2,617,117 2,796,512 2,982,353 1,773,820
Deferred liabilities -
Redeemable Capital 2,706,249
Liablilities against assets 47140 5,756 61,643 33,031 -
subjected to financial lease
Total non-current liabilities 2,753,389 2,622,873 2,858,155 3,015,384 1,773,820
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CURRENT LIABLITIES
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Short term finances 4,479,400 5,608,985 4,284,815 4,315,708 5,018,664
Current portion of long term liabilities 926,908 816,545 711,164 1,342,771 1,341,565
Accrued mark-up 88,449 151,236 131,744
Trade and other payables 882,645 1,085,349 812,216 960,436 926,593
Provision for taxes 294,162 190,689 356,689 281,382 230,807
Total current liabilities 6,583,115 7,701,568 6,253,333 7,051,533 7,649,373
Total liabilities 9,336,504 10,324,441 9,111,488 10,066,917 9,423,193
TOTAL EQUITY AND LIABILITIES 15,454,628 18,175,781 21,032,846 28,639,628 39,380,617
Profit and loss 2003 2004 2005 2006 2007
NetSales 13,209,299 14,875,877 11,374,630 16,417,358 17,180,192
Cost of goods sold 11,321,308 12,941,953 9,239,731 13,701,626 14,335,254
Gross profit 1,887,991 1,933,924 2,134,899 2,715,732 2,844,938
Administrative, general, distribution 831,767 924,850 756,264 1,007,167 1,340,738
and selling expenses
Operating profit 1,056,224 1,009,074 1,378,635 1,708,565 1,504,200
Other income 151,094 371,283 621,569 277,961 562,710
EBIT 1,208,128 1,380,357 2,000,204 1,986,526 2,066,910
Financial and other charges 635,296 427,144 407,696 755,054 819,267
Workers' participation fund 28,697 47,711 - - -
663,993 474,855 407,696 755,054 -
Share of profit in associated companies 440,846 527,394 571,527
Profit for the period/
year before taxation 544,135 905,502 2,033,354 1,758,866 1,819,170
Provision for taxation 133,556 154,442 166,000 126,000 145,000
Profit after taxation 410,579 751,060 1,867,354 1,632,866 1,674,170
Earnings per share (Rs) 3.35 6.13 12.86 11.24 10.48
FINANCIAL RATIOS 2003 2004 2005 2006 2007
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PROFITABILITY RATIOS
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Profit Margin 3.11% 5.05% 16.42% 9.95% 9.74%
Gross profit margin 14.29% 13.00% 18.77% 16.54% 16.56%
Return on Assets 2.66% 4.13% 8.52% 5.24% 4.25%
Return on Equity 6.71% 9.57% 15.66% 8.79% 5.59%
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LIQUIDITY RATIOS
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Quick Ratio 0.53 0.47 0.71 0.89 1.28
Current Ratio 0.88 0.89 1.24 1.38 1.74
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ASSET MANAGEMENT RATIOS
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Inventory Turnover(Days) 63.07 78.22 105.15 76.19 73.95
Day Sales Outstanding (Days) 28.54 36.72 27.77 22.52 17.43
Operating cycle (Days) 91.61 114.93 132.91 98.71 91.37
Total Asset Turnover 0.85 0.82 0.52 0.53 0.44
Sales/Equity 2.16 1.89 0.95 0.88 0.57
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DEBT MANAGEMENT RATIOS
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Debt to Asset 0.60 0.57 0.43 0.35 0.24
Debt to Equity Ratio 1.53 1.31 0.76 0.54 0.31
Long Term Debt to Equity 0.45 0.33 0.24 0.16 0.06
Times Interest Earned 1.90 3.23 4.91 2.63 2.52
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MARKET RATIOS
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Earning per share 3.35 6.13 12.86 11.24 10.48
Price/Earnings Ratio 8.96 9.16 7.37 9.96 9.05
Dividend per share 1.50 2.00 2.50 2.50 3.50
Book value per share 49.95 64.10 82.07 127.86 206.23
No of Shares issued 122,479 122,479 145,260 145,260 145,260
Market prices(Year end) 30.03 56.13 94.80 111.93 94.80
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