Mahmood Textile Mills Limited (PSX: MEHT) was incorporated in Pakistan as a public limited company in 1970. The principal activity of the company is the manufacturing and sale of yarn, grey cloth, and electricity generation.

Pattern of Shareholding

As of June 30, 2024, MEHT has a total of 30 million shares outstanding which are held by 131 shareholders. The local general public has a majority stake of 78.15 percent in the company followed by Directors, the CEO, their spouse, and minor children holding 17.17 percent shares. Around 4.41 percent of the company’s shares are held by joint stock companies. The remaining ownership is distributed among other categories of shareholders.

Financial Performance (2019-24)

MEHT’s top line has grown over the period under consideration. Conversely, its bottom line slid in 2020, 2023, and 2024. The company’s margins which posted reasonable growth in 2019 plunged in 2020 followed by a staggering rebound in the subsequent two years. In 2023, the margins registered a decline. This was followed by an uptick in gross and operating margins in 2024, however, net margin continued to tick down. The detailed performance review of the period under consideration is given below.

In 2019, MEHT’s topline grew by 34.33 percent year-on-year. As of June 30, 2019, export sales comprised 83.96 percent of the net sales mix of the company. Topline improvement came on the back of improved sales volume coupled with Pak Rupee depreciation. During the year, the company also increased its production capacity by installing more spindles which took the tally to 115,824 spindles in 2019 versus 109,008 spindles installed in the previous year. This enabled the company to cater to the increased demand in the international market. The cost of sales grew by 29.27 percent in 2019. The magnitude of growth in cost was much less when compared to net sales as the government offered concessionary gas and electricity prices to the textile industry. This resulted in a 101.05 percent year-on-year improvement in gross profit in 2019 with GP margin climbing up from 7.05 percent in 2018 to 10.55 percent in 2019. Distribution expense inched up by 5.4 percent in 2019 mainly on account of export expenses and surcharges while the company significantly curtailed its advertising budget during the year. Administrative expenses hiked by 27.25 percent in 2019 due to higher payroll expenses on account of inflationary pressure and also because the company expanded its workforce from 3054 employees in 2018 to 3077 employees in 2019. Other income plunged by 42.93 percent in 2019 due to the high-base effect as unlike last year, there was no duty drawback on export sales as well as no realized gain on sale of short-term investments at FVTPL in 2019. Other expenses mounted by 146.60 percent in 2019 due to a realized loss on the sale of short-term investments at FVTPL and an unrealized loss on the re-measurement of short-term investments at fair value. MEHT’s operating profit strengthened by 38.63 percent in 2019 with OP margin ticking up from 5.36 percent in 2018 to 5.53 percent in 2019. Finance costs multiplied by 105.4 percent in 2019 due to higher discount rates and increased borrowings. The company also recorded a massive 2657.43 percent growth in the share of profit of associate companies. MEHT’s net profit grew by 253.66 percent in 2019 to clock in at Rs.750.51 million with EPS of Rs.40.03 versus EPS of Rs.14.15 recorded in the previous year. NP margin also rose from 1.17 percent in 2018 to 3.1 percent in 2019.

In 2020, MEHT’s topline inched up by 0.32 percent in 2020. This was on account of COVID-19 which halted economic activity across the globe and led to the shutdown of industries and businesses. While prices of yarn and fabric also dropped in the local and international markets, the company had raw material stocks procured before COVID-19 at a high rate. This resulted in a 17.89 percent decline in gross profit in 2020 with GP margin dropping to 8.64 percent. The company decided to hold its stock during the pandemic period to avoid further losses due to the decline in prices. Distribution expenses surged by 11.66 percent in 2020 on account of higher export expenses as well as freight & other expenses incurred during the year. This was due to a shortage of containers to ship the orders which led to delays and heightened charges. Administrative expenses escalated by 17.06 percent in 2020 due to higher payroll expenses due to inflationary pressure while the company squeezed its workforce to 3043 employees during the year. Other income eroded by 50.5 percent in 2020 as the company received no dividends during the year and didn’t make any fair value adjustments due to the applicability of equity accounting. Furthermore, MEHT didn’t record any exchange gain in 2020. Other expenses also dropped by 96.75 percent in 2020 due to the high-base effect as the company didn’t record any realized and unrealized loss on short-term investments during the year. Operating profit plummeted by 5 percent in 2020 with OP margin inching down to 5.23 percent. Finance cost stayed constant at the last year level. The share of net profit from associate companies also declined by 55.75 percent in 2020. All these factors translated into a 90.43 percent decline in MEHT’s net profit which stood at Rs.71.81 million in 2020 with EPS of Rs.3.83 and NP margin of 0.29 percent.

In 2021, MEHT recorded 14.18 percent year-on-year growth in its topline. This was the revival year for the textile industry due to government support initiatives which included regionally competitive energy tariffs, removal of taxes and duties on industrial raw materials, payment of pending refunds to the exports as well as monetary easing. The cost of sales increased by 7.92 percent in 2021 as the company managed its procurement mix, installed solar panels to curtail energy costs, and used natural gas instead of furnace oil. This resulted in 80.41 percent higher gross profit in 2021 with GP margin climbing up to 13.65 percent. Distribution expenses mounted by 26.26 percent in 2021 due to higher export expenses, commission, and freight charges incurred during the year. MEHT expanded its workforce to 3150 employees in 2021 resulting in higher payroll expense. This drove up administrative expenses by 27.49 percent in 2021. Other expenses mounted by 542.48 percent due to increased provisioning for WWF and WPPF, higher donations, and realized loss on the sale of short-term investments at fair value through FVTPL. Another expense was offset by 62 percent higher other income recorded in 2021 on the back of fair value gain recorded on long-term investment and higher dividend income. MEHT recorded a 111.33 percent increase in its operating profit in 2021 with OP margin moving up to 9.69 percent. Monetary easing and a decline in short-term financing resulted in a 17.61 percent drop in finance costs in 2021. The share of profit of associate companies also dwindled by 22.11 percent in 2021. Net profit enhanced by a whopping 1766.77 percent in 2021 to clock in at Rs.1340.60 million with EPS of Rs.71.5 and NP margin of 4.8 percent.

MEHT’s topline expanded by 46.66 percent in 2022. This was the result of improved sales volume as well as Pak Rupee depreciation. During the year, the company also commenced its apparel division with an installed capacity of 2.848 million pieces. Cost of sales grew by 39 percent in 2022 due to efficient power mix, procurement mix, and cost curtailment measures put in place during the year. Gross profit grew by 94.89 percent in 2022 which translated into the highest ever GP margin of 18.14 percent. Distribution expense grew by an enormous 92.37 percent in 2022 due to a considerable spike in export expense, commission, and freight charges incurred during the year. Administrative expenses also mounted by 83.8 percent in 2022 due to higher payroll expenses, traveling & conveyance charges, repair & maintenance charges, vehicle running & maintenance charges, subscription & licensing fees, and depreciation charges incurred during the year. During the year, the company enlarged its workforce to 4228 employees due to capacity enhancement in the spinning unit as well as the instigation of the apparel unit. Other income dropped by 51.77 percent in 2022 due to lesser dividend income and no fair value gain on long-term investment recorded during the year. Other income was conveniently offset by 119.42 percent higher other expenses incurred in 2022 on the back of higher provisioning done for WWF, WPPF, and unrealized loss on re-measurement of short-term investment at FVTPL. MEHT’s operating profit strengthened by 76.71 percent in 2022 with OP margin reaching its highest level of 11.67 percent. Finance costs hiked by 41.81 percent in 2022 due to higher discount rates and increased borrowings. The share of profit of associate companies also greatly improved during the year. MEHT recorded 137 percent year-on-year growth in its net profit which clocked in at Rs.3178.195 million with EPS of Rs.105.94 and NP margin of 7.76 percent.

In 2023, MEHT’s net sales grew by 33.34 percent year-on-year. While there was a drop in the demand of textile products in the international market due to the global recession, the company was able to improve its sales volume by increasing its product offerings and geographical outreach. Pak Rupee depreciation also resulted in an increase in net sales in Pak Rupee terms. Cost of sales escalated by 39.9 percent due to persistent indigenous inflation, a spike in commodity prices due to the global commodity super cycle, an increase in energy tariffs, and reliance on imported cotton due to low cotton production in the home country. Gross profit inched up by 3.73 percent in 2023, however, GP margin dropped to 14.11 percent. Distribution expense slid by 6.67 percent in 2023 due to lower export expenses incurred during the year. Administrative inched up by just 3.71 percent in 2023 as higher payroll expense was greatly offset by lower repair & maintenance, legal & professional, and general charges. During the year, the company made widespread human resource induction resulting in a workforce size of 6781 employees. Other income grew by 28.67 percent in 2023 due to government grants, higher markup on TFCs, fair value gain on investment property, and unrealized gain recorded on the re-measurement of short-term investments through FVTPL. Lesser profit-related provisioning and no unrealized loss recorded on re-measurement of short-term investment resulted in a 34 percent decline in other expenses in 2023. Operating profit grew by 10.42 percent in 2023, however, OP margin dropped to 9.66 percent. Finance costs mounted by 121.62 percent in 2023 due to high discount rates and increased borrowings. The share of profit of associate companies also registered a 38 percent downturn in 2023. As a consequence, MEHT recorded a net profit of Rs.1201.948 million in 2023, down 62.18 percent year-on-year. This translated into EPS of Rs.40.06 and an NP margin of 2.2 percent.

MEHT recorded topline growth of 21.89 percent in 2024 which came on the back of stable demand of the company’s products in the international market. Increased operational efficiency enabled the company to control its costs despite heightened energy tariffs, high inflation, and dependence on imported cotton due to thinner local cotton output. This resulted in a 26.21 percent improvement in the company’s gross profit in absolute terms. GP margin slightly inched up to clock in at 14.61 percent. Distribution expenses escalated by 33.2 percent in 2024 due to higher logistics expenses as the company is continuously expanding its presence in the international market. Administrative expense inched up by 3.57 percent in 2024 despite the whopping increase in workforce size which clocked in at 9762 employees. Thinner exchange gain, no dividend income, no markup on TFCs, and lesser unrealized gain on re-measurement of short-term investment at FVTPL resulted in a 48.32 percent slide in other income in 2024. Other expenses mounted by 69.76 percent in 2024 owing to a loss on the valuation of assets held for sale. MEHT recorded a 24.36 percent improvement in its operating profit in 2024 with OP margin slightly inching up to 9.86 percent. Finance costs hiked by 42.46 percent in 2024 due to a higher discount rate. The share of profit of associate companies dropped by 26.92 percent in 2024. MEHT recorded a 79.24 percent decline in its net profit which clocked in at Rs.249.536 million in 2024 with EPS of Rs.8.32 and NP margin of 0.37 percent.

Future Outlook

The textile sector is pinning hope on the positive forecast of cotton production, the resolution of IPP issues, and the downward revision in discount rates and is purchasing more cotton to reap the benefits of the budding demand.