Indus Dyeing & Manufacturing Company Limited (PSX: IDYM) was incorporated in Pakistan as a public limited company in 1957. The company is engaged in the manufacturing and sale of yarn.

Pattern of Shareholding

As of June 30, 2022, IDYM has a total of 54.221 million shares outstanding which are held by 2134 shareholders. Directors, CEO, their spouse and minor children have the major stake of 69.57 percent in IDYM. This is followed by general public holding 22.21 percent shares of the company. Mutual funds account for 2.91 percent shares while financial institutions and insurance companies hold 2.83 percent and 2.47 percent shares of IDYM. The remaining shares are held by joint stock companies.

Historical Performance (2018-22)

IDYM’s topline has been showing steady growth since 2018. The bottomline also follows the similar trajectory except in 2020. The margins which had been growing until 2019, posted a freefall in 2020. In the subsequent years, the margins significantly recovered and boasted their finest level in 2022. The detailed performance review of each of the years under consideration is given below.

In 2019, IDYM’s topline grew by 13 percent year-on-year mainly on the back of growth in revenue from local sales. Local sales grew by 47 percent year-on-year in 2019 while export sales slid by 4 percent year-on-year in 2019. While export sales greatly dropped in terms of volume, Pak Rupee depreciation provided ample support. As of 2019, 57 percent of IDYM’s sales revenue comprises of export sales. The major export destination of IDYM is China followed by Turkey which collectively account for 73 percent of the total export sales worth Rs.14,242 million in 2019. The company produced 52,690 tons of yarn in 2019 which shows a 4.8 percent year-on-year growth. While Pak Rupee depreciation buttressed the export sales by providing exchange gain, it produced negative impact on the cost of sales which rose by 12.5 percent in 2019. Gross profit grew by 16 percent year-on-year in 2019, however, GP margin showed a marginal uptick from 10.6 percent in 2018 to 10.8 percent in 2019. Other income posted a tremendous 125 percent year-on-year rise in 2019 owing to duty drawback as well as unrealized gain on the revaluation of foreign currency debtors. Distribution expense almost remained intact during the year while administrative expenses grew up by 23 percent year-on-year in 2019 on account of higher salaries and wages followed by directors’ remuneration other than the meeting fees. During 2019, IDYM number of employees increased from 2553 in 2018 to 2668. Other expenses were up by 7 percent year-on-year in 2019 due to higher WPPF as well as unrealized loss on revaluation of foreign currency loans. Operating profit ascended by 36 percent year-on-year in 2019 and OP margin clocked in at 10 percent versus 8.3 percent in 2018. Finance cost grew by a massive 63 percent year-on-year in 2019. This was because of an increase in the discount rate during the year coupled with higher short-term and long-term financing requirements. IDYM’s debt-to-equity ratio grew from 78 percent in 2018 to 82 percent in 2019. The bottomline multiplied by 25 percent year-on-year in 2019 to clock in at Rs.1724.25 million with an NP margin of 7 percent versus 6.2 percent in 2018. EPS jumped from Rs. 76.28 in 2018 to Rs.95.40 in 2019.

In 2020, as the economy was struck by COVID-19, IDYM’s topline posted 8.6 percent year-on-year growth which is the lowest topline growth among all the years under consideration. Production dropped by 10 percent to clock in at 47,285 tons on account of lower demand. While revenue from export sales continued to rise in 2020 because of Pak Rupee depreciation, local sales dropped by 14.5 percent year-on-year in 2020. Export sales stood at 66 percent of IDYM’s total sales mix in 2020. Cost of sales inched up by 12 percent year-on-year in 2020 which trimmed down the gross profit by 17 percent year-on-year in 2020. GP margin dropped to 8.2 percent in 2020. Other income slumped by 70 percent year-on-year in 2020 owing to lesser duty drawbacks and lesser unrealized gain on the revaluation of foreign currency debtors. Distribution expense climbed up by 9 percent year-on-year in 2020 due to hike in export charges while administrative expenses shrank by 2.6 percent in 2020 due to significant reduction in salaries and wages as well as directors’ remuneration during the year. During the year, IDYM reduced its number of employees to 2473 which excludes the daily wage employees. Other expense slid by 37 percent year-on-year in 2020 due to lesser WPPF and lesser exchange loss. All these factors culminated into a 34 percent year-on-year drop in operating profit. OP margin posted a steep fall to clock in at 6 percent in 2020. Finance cost tumbled by 11.5 percent year-on-year in 2020 due to significant drop in short-term borrowings due to lesser working capital requirements on account of low demand. Discount rate also started ticking down in the last quarter in 2020. IDYMs debt-to-equity ratio lessened to 75 percent in 2020. Despite contained operating expenses and finance cost, bottomline contracted by 44 percent year-on-year in 2020 to clock in at Rs.957.87 million with an NP margin of 3.5 percent. EPS dropped to Rs.53 in 2020.

In 2021, Pakistan’s textile industry profoundly recovered from the shocks of COVID-19. IDYM’s topline posted a year-on-year rise of 22 percent in 2021 on the back of both local and export sales. Production increased to 48,452 tons in 2021. Disturbances created by COVID-19 in India and Bangladesh rendered them unable to meet their orders which proved to be a plus point for IDYM as it was able to grab additional orders in the export market. Stronger Pak Rupee controlled the cost of sales to a great extent and resulted in a striking 122 percent year-on-year growth in gross profit in 2021 while GP margin climbed up to 15 percent. Other income also posted a considerable rise of 141 percent year-on-year mainly on account of discounting of GIDC followed by exchange gain on forward contract booking. Distribution expense grew by 28 percent year-on-year in 2021 due to higher freight charges. Administrative expenses also posted a 6 percent year-on-year rise due to market induced rise in salaries and wages. Higher WPPF pushed the other expense up by 59 percent in 2021. Operating profit boasted a robust 172 percent year-on-year growth in 2021 while OP margin clocked in at 13.4 percent which was more than double of the OP margin recorded by !DYM in the previous year. Despite monetary easing in 2021, finance cost grew by 54 percent year-on-year in 2021 due to increased borrowings during 2021. The bottomline grew by a massive 235 percent year-on-year in 2021 to clock in at Rs.3212.30 million with an NP margin of 9.7 percent. EPS grew by 11.8 percent to Rs.59.24 as the paid up capital of IDYM increased in 2021 owing to the issuance of 200 percent bonus shares during the year.

With 49.6 percent year-on-year topline growth, 2022 stood out among all the years under consideration. The company produced 50,701 tons of yarn during 2022. Due to drastic depreciation of Pak Rupee, revenue from export sales almost doubled during the year while local sales drastically shrank during the year due to slower economic activity and tamed demand within the country. Export sales constituted 85 percent of IDYM’s sales mix in 2022. Due to heavy floods in the southern region of the country, the local cotton produce badly suffered and the reliance on imported cotton pushed the cost of sales up by 39 percent year-on-year in 2022. Despite surging cost of raw materials, robust export proceeds culminated into a 109 year-on-year growth in gross profit while GP margin ascended to 21 percent in 2022– the highest among all the years under consideration. Other income slipped by 41 percent year-on-year in 2022 because of discounting of GIDC in the previous year. Distribution expense grew by 35 percent year-on-year in 2022 due to higher ocean freight. Administrative expense also ticked up by 7 percent year-on-year due to high inflation. Other expense grew by 176 percent year-on-year in 2022 due to realized exchange loss and high WPPF due to high profitability. Operating profit multiplied by 104 percent year-on-year in 2022 with OP margin ascending to 18 percent. Finance cost posted a year-on-year growth of 49 percent in 2022 due to multiple rounds of monetary tightening in 2022. Despite high finance cost, bottomline grew by 139 percent year-on-year in 2022 to clock in at Rs.7686.32 million with an NP margin of 15.5 percent. EPS also grew to Rs.141.78 in 2022.

Recent Performance (9MFY23)

The exciting growth pattern boasted by IDYM in 2021 and 2022 seems to have reversed in the ongoing fiscal year. During 9MFY23, IDYM’s topline plunged by 6 percent year-on-year owing to stagnant demand in the international market. Export sales stood at Rs.11,692.744 million in 9MFY23, signifying a drastic drop of 60 percent year-on-year. Local sales, with an increase of 216 percent year-on-year in 9MFY23 stood at 66 percent of the total sales mix in 9MFY23. Due to considerable shrinkage in local cotton production, the company had to rely on imported cotton. Pak Rupee depreciation significantly increased the prices of imported raw materials. Moreover, import restrictions and delays in the retirement of Letters of Credit created immense supply chain impediments for the company. Hike in electricity tariff from Rs.19.99 per kWh to more than Rs.40 per kWh also drove the cost of sales up. Gross profit shrank by 63 percent year-on-year in 9MFY23 with GP margin falling to 8 percent from 21 percent in 9MFY22. Other income provided some support as it inched up by 19 percent year-on-year in 9MFY23. Distribution expense also dropped by 17 percent year-on-year on account of lesser freight charges as export orders dwindled in 9MFY23. Conversely, administrative expenses grew by 33 percent year-on-year on account of unprecedented level of inflation. Other expense also plummeted by 57 percent year-on-year in 9MFY23 maybe on account of lower provisioning against WPPF. Operating profit declined by 69 percent year-on-year in 9MFY23 with OP margin climbing down to 5.8 percent versus 18 percent during the same period last year. Increased borrowings to meet working capital requirements coupled with high discount rate translated into a 50 percent year-on-year rise in finance cost in 9MFY23. Consequently, the bottomline contracted by 88 percent year-on-year in 9MFY23 to clock in at Rs.675.29 million with an NP margin as low as 2 percent versus 15 percent during 9MFY22. EPS radically went down to Rs.12.45 in 9MFY23 from Rs.101.25 during the same period last year.

Future Outlook

The future poses myriad challenges for the textile industry which is already grappling against the economic and political headwinds. Massive drop in cotton production, Pak Rupee depreciation, import restrictions, tamed demand, hike in energy prices as well as discount rate coupled with political instability have forced many textile units to suspend their operations. With no visible improvement in economic and political backdrop in the near term, IDYM might not be able to meet its full year sales target in 2023. The margins which have already squeezed during 9MFY23 may further worsen in the ongoing quarter.