The Crescent Textile Mills Limited (PSX: CRTM) was set up under the Companies Act, 1913 (now Companies Act, 2017) in 1950. The company has several business segments from spinning, combing, weaving, dyeing to bleaching, printing, stitching, and trading and dealing with yarn, cloth and other goods and fabric made from raw cotton and synthetic fibre. The company also generates and sells electricity.

Shareholding pattern

As of June 30, 2021, close to 25 percent shares are held under other companies, corporate bodies, trust, etc. The directors, CEO, their spouses, and minor children own over 10 percent shares within which, a major shareholder is Mr. Ahmad Shafi, a director of the company. Seven percent shares are held in associated companies, undertakings, and related parties within which a major shareholder is Trustees the Crescent Textile Mills Employees Provident Fund Trust. The local general public owns almost 55 percent shares, while the remaining roughly 3 percent shares are with the rest of the shareholder categories.

Historical operational performance

Since FY14, the company has seen a fluctuating topline while profit margins have also been fluctuating, particularly in the last six years.

Revenue in FY18 grew by 4 percent to cross Rs 11 billion in value terms. Most of this increase was associated with local sales that posted a growth of 34 percent. On the other hand, export sales declined by 13.7 percent. While local sales grew because of “outright sale instead of in-house utilization of yarn,” export sales fell due to lower demand for a large part of the year, that only picked up in the last quarter. Gross margin increased marginally to 9.7 percent compared to 8.9 percent in FY17. However, operating margin posted at 5.7 percent saw a higher increase year on year, as distribution expense fell due to export freight and commission. But net margin fell to less than 1 percent due to an escalation in finance expense that grew from Rs 287 million to Rs 638 million. This was due to sudden rupee depreciation that led to a huge exchange loss on foreign currency loans.

Topline posted a growth of 23 percent in FY19 to reach near Rs 14 billion. Export sales grew by a whopping 42.6 percent, while local sales continued to grow, by 4.6 percent. The reason for growth in export sales was an increase in volumes coupled with the impact of currency devaluation that rendered exports cheaper and thus favorable in the export market. The higher topline also reflected in the higher gross margin that was recorded at 11.7 percent. With finance expense also reverting to pre-FY18 levels, net margin grew to 1.7 percent. Additionally, the company resorted to natural hedging instead of foreign currency loans to reduce risk and uncertainty associated with changes in exchange rate.

Revenue contracted in FY20 by nearly 5 percent. Both local sales and export sales decreased by 7.5 percent and 3.2 percent, respectively. This was due to a loss in demand that further worsened in the last quarter of FY20 with the outbreak of the Covid-19 pandemic. Due to the resultant lockdowns, spinning segment witnessed lower production as the plant was shut down. Moreover, processing and home textile saw lower exports thereby adversely affecting performance. With cost of production changing only marginally as a share in revenue, gross margin was flat at 11.7 percent. However, operating margin was affected by the decrease in other income that also trickled down to the net margin. The decrease in other income was due to a decrease in dividend income and the absence of net exchange gain. Thus, net margin fell to less than 1 percent.

Topline in FY21 grew by an all-time high of over 34 percent to reach Rs 17.8 billion. Export sales posted a growth of 35.6 percent while local sales grew by almost 32 percent. This was attributed to an increase in prices as well as volumes, particularly in the spinning segment. While the spinning and weaving segments reaped the benefits of rising prices, profit margins in processing and home textiles division were impacted by increases in yarn and fabric prices. The higher topline reflected in the gross margin that grew to an all-time high of 13.77 percent. With further decrease in finance expense as a share in revenue, net margin also reached a peak of 2.9 percent, while net profit was recorded at its highest of Rs 516 million.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by 21 percent year on year. Local sales posted a growth of 48 percent, while export sales grew by 8 percent year on year. Overall, the textile industry also saw increase in exports particularly in the value-added segments. The higher topline translated into higher profitability as net margin was recorded at 5.2 percent versus 2.6 percent in the same period last year.

Revenue in the second quarter was higher by 3 percent year on year. Overall 1HFY22 revenue was higher by 11 percent year on year. This was again attributed to an increase in sales that grew by 43 percent. On the other hand, cost of production was significantly lower as a share in revenue that also contributed to the growth in profitability as net margin for 2QFY22 at 5.4 percent was notably higher than 2.57 percent in 2QFY21. The company, and the industry overall has seen a growing demand, whereas achieving efficiency, thus reducing costs, and full capacity utilization has enabled the company to earn profitability despite rising cost of inputs.