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, 2023, IDYM has a total of 54.221 million shares outstanding which are held by 2200 shareholders. Directors, CEO, their spouse and minor children have the majority stake of 56.81 percent in IDYM followed by general public holding 34.98 percent shares of the company. Mutual funds account for 2.91 percent shares of IDYM while financial institutions and insurance companies hold 2.82 percent and 2.47 percent shares respectively. The remaining shares are held by joint stock companies.

Historical Performance (2019-23)

IDYM’s topline which had been showing steady growth since 2019 nosedived in 2023. The bottomline plunged in 2020 and 2023. The margins grew in 2019 followed by a decline in 2020. In the subsequent two years, the margins significantly recovered and boasted their finest level in 2022. In 2023, the margins drastically ebbed. The detailed performance review of the period under consideration is given below.

In 2019, IDYM’s topline grew by 12.8 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. 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 was 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 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 15.7 percent year-on-year in 2019 with GP margin showing a marginal uptick from 10.57 percent in 2018 to 10.84 percent in 2019. Other income posted a tremendous 124.6 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 22.7 percent year-on-year in 2019 on account of higher salaries and wages followed by directors’ remuneration other than the meeting fees. IDYM’s number of employees increased from 2553 in 2018 to 2668 in 2019. Other expense went up by 6.7 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 35.7 percent year-on-year in 2019. OP margin clocked in at 9.95 percent in 2019 versus 8.3 percent in 2018. Finance cost grew by a massive 62.8 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 25.1 percent year-on-year in 2019 to clock in at Rs.1724.25 million with NP margin of 6.92 percent versus 6.24 percent recorded in 2018. EPS jumped from Rs. 76.28 in 2018 to Rs.95.40 in 2019.

In 2020, as the local and global economies were 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 11.8 percent year-on-year in 2020 which trimmed down the gross profit by 17.4 percent year-on-year in 2020. GP margin dropped to 8.24 percent in 2020. Other income slumped by 69.6 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 8.9 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 37.3 percent year-on-year in 2020 due to lesser provisioning for WPPF and lesser exchange loss. All these factors culminated into 34.4 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 44.4 percent year-on-year in 2020 to clock in at Rs.957.87 million with NP margin of 3.54 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 year-on-year rise of 22.1 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 122.2 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 140.5 percent year-on-year mainly on account of discounting of GIDC followed by exchange gain on forward contract booking. Distribution expense grew by 27.6 percent year-on-year in 2021 due to higher freight charges. Administrative expenses also posted 6.4 percent year-on-year rise due to market induced rise in salaries and wages. Higher provisioning for WPPF pushed other expense up by 58.8 percent in 2021. Operating profit boasted a robust 171.8 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 IDYM in the previous year. Despite monetary easing in 2021, finance cost grew by 54.2 percent year-on-year due to increased borrowings . The bottomline grew by a massive 235.4 percent year-on-year in 2021 to clock in at Rs.3212.30 million with NP margin of 9.71 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 39.1 percent year-on-year in 2022. Despite surging cost of raw materials, robust export proceeds culminated into 109.1 year-on-year growth in gross profit while GP margin ascended to 20.95 percent in 2022– the highest among all the years under consideration. Other income slipped by 40.9 percent year-on-year in 2022 because of discounting of GIDC in the previous year. Distribution expense grew by 34.9 percent year-on-year in 2022 due to higher ocean freight. Administrative expense also ticked up by 7.3 percent year-on-year due to high inflation. Other expense grew by 175.8 percent year-on-year in 2022 due to realized exchange loss and high provisioning for WPPF due to high profitability. Operating profit multiplied by 104.4 percent year-on-year in 2022 with OP margin ascending to 18.29 percent. Finance cost posted year-on-year growth of 49.2 percent in 2022 due to multiple rounds of monetary tightening in 2022. Despite high finance cost, bottomline grew by 139.3 percent year-on-year in 2022 to clock in at Rs.7686.32 million with NP margin of 15.54 percent. EPS also grew to Rs.141.78 in 2022.

The exciting growth pattern boasted by IDYM in 2021 and 2022 seems to have reversed in 2023. During the year, IDYM’s topline plunged by 0.3 percent year-on-year owing to stagnant demand in the international market. Export sales stood at Rs.30,234.443 million in 2023, signifying a drastic drop of 27.8 percent year-on-year. Local sales registered an increase of 152.92 percent year-on-year in 2023 and stood at 38 percent of IDYM’s total sales mix. Due to sluggish demand, the company’s production dropped to 47,878 tons in 2023, down 5.57 percent year-on-year. 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 64.5 percent year-on-year in 2023 with GP margin falling to 7.46 percen. Other income provided some support as it inched up by 22.6 percent year-on-year in 2023 on account of hefty dividend income and amortization of deferred government grant. Distribution expense dropped by 18.5 percent year-on-year on account of lesser ocean freight charges as export orders dwindled in 2023. Conversely, administrative expense grew by 24.3 percent year-on-year on account of elevated payroll expense and directors’ remuneration. In 2023, IDYM also expanded its workforce to 2538 employees. Other expense plummeted by 46.4 percent year-on-year in 2023 on account of lower provisioning for WPPF. Operating profit declined by 69.5 percent year-on-year in 2023 with OP margin drastically falling down to 5.59 percent. Increased borrowings to meet working capital requirements coupled with high discount rate translated into 77.8 percent year-on-year rise in finance cost in 2023. Debt-to-equity ratio surged to 91 percent in 2023 versus 65 percent in the previous year. Consequently, bottomline contracted by 90.8 percent to clock in at Rs.707.95 million with EPS of Rs.13.06 and NP margin of 1.44 percent.

Recent Performance (9MFY24)

During 9MFY24, IDYM’s topline multiplied by 50.76 percent year-on-year. This was on account of a tremendous rise in revenue from export sales. Conversely, local sales revenue dwindled during 9MFY24. Export sales comprised of 65.43 percent of IDYM’s net sales revenue in 9MFY24 versus 34.22 percent during the same period last year. Cost of sales escalated by 52.49 percent during the period due to high cost of raw materials, Pak Rupee depreciation and hike in energy tariff. Gross profit strengthened by 31 percent in 9MFY24 while GP margin dropped from 8 percent in 9MFY23 to 6.99 percent during 9MFY24. Distribution expense hiked by 53.27 percent year-on-year during 9MFY24 due to escalation in ocean freight charges as export sales continued to rise. Administrative expense also registered 22.29 percent spike during the period due to higher payroll expense. Other income grew by 34.69 percent during 9MFY24. The main components of other income were dividend income, amortization of government grant, scrap sales and exchange gain. IDYM seems to have booked lesser provisioning for WWF and WPPF which culminated into 67.57 percent lower other expense recorded during 9MFY24. Operating profit picked up by 37.7 percent year-on-year in 9MFY24 with OP margin clocking in at 5.34 percent versus OP margin of 5.84 percent recorded during the same period last year. Elevated short-term borrowings coupled with higher discount rate pushed finance cost up by 98.87 percent during 9MFY24. Net profit slid by 19.73 percent to clock in at Rs.542.04 million in 9MFY24 with EPS of Rs.10 versus EPS of Rs.12.45 in 9MFY23. NP margin receded from 1.98 percent in 9MFY23 to 1.05 percent in 9MFY24.

Future Outlook

The future poses myriad challenges for the textile industry which is already grappling against the economic and political headwinds. Low cotton production, Pak Rupee depreciation, import restrictions, tamed local demand, hike in energy prices as well as high discount rate coupled with political instability have forced many textile units to suspend their operations. IDYM’s margins which have already squeezed during 9MFY24 may further worsen in the absence of substantial reforms.