National Silk & Rayon Mills Limited (PSX: NSRM) was incorporated in Pakistan as a public limited company in 1950. The company is engaged in dyeing, bleaching, finishing, and embroidery of fabrics.
Pattern of Shareholding
As of June 30, 2024, NSRM has a total of 15.55 million shares outstanding which are held by 600 shareholders. The company’s leadership including its Directors, CEO, their spouse, and minor children has the majority stake of 98.43 percent in the company followed by the local general public holding 1.56 percent shares of NSRM. The remaining ownership is distributed among NIT & ICP, Insurance companies, and joint stock companies.
Financial Performance (2019-24)
NSRM’s topline has been growing since 2019 except for a fall in 2020. Conversely, its bottom line and margins followed a downward trajectory until 2020 and then posted a robust rebound in the following year only to get back to its downhill journey in 2022 and 2023. NSRM posted net losses in 2020 and 2023. In 2024, NSRM’s bottom line and margins considerably recovered. The detailed performance review of the period under consideration is given below.
In 2019, NSRM’s topline grew by 8.57 percent year-on-year. The company had a rated capacity of 57.6 million meters in cloth processing units and 8.12 million meters in embroidery processing units. The company utilized 58.5 percent of its cloth processing capacity in 2019, up from 57.5 percent in 2018. Conversely, the capacity utilization of embroidery processing fell from 82.62 percent in 2018 to 70.76 percent in 2019 (see the graph of capacity utilization). Cost against services provided grew by 10.3 percent in 2019 on account of high power tariffs as well as elevated raw material charges in the wake of currency depreciation. This pushed the gross profit down by 8.62 percent in 2019 with GP margin hovering around 7.63 percent, down from the GP margin of 9.1 percent recorded in 2018. Operating expenses grew marginally by 1.22 percent in 2019 due to an uptick in repair & maintenance, vehicle running & maintenance as well as fee and subscription charges. Operating profit slid by 14.9 percent in 2019 with OP margin falling down to 3.7 percent from OP margin of 4.7 percent posted in 2018. Finance costs shrank by 9.6 percent in 2019 due to a slide in bank commission. This was despite a higher discount rate and increased borrowings in 2019 which drove the gearing ratio up from 9 percent in 2018 to 10.14 percent in 2019. Net profit eroded by 57.5 percent in 2019 to clock in at Rs.17.4 million with EPS of Rs.1.12, down from EPS of Rs.2.63 registered in 2018. NP margin also narrowed down from 4.8 percent in 2018 to 1.87 percent in 2019.
In 2020, NSRM’s topline slipped by 13.77 percent. The company’s capacity utilization also drastically fell (see the graph of capacity utilization) on account of the lockdown imposed due to the breakout of COVID-19. Cost against services provided also declined, however, with a lower magnitude of 10.5 percent on account of the diminishing value of local currency. This squeezed the gross profit by 53.72 percent in 2020 with GP margin marching down to 4.1 percent in 2020. Operating expenses escalated by 3.85 percent in 2020 on the back of a hike in electricity charges as well as payroll expenses. GIDC charges of Rs.28.49 million incurred in 2020 on account of the decision of the Supreme Court of Pakistan in favor of the government, magnified the other expense by 1441.79 percent in 2020. NSRM incurred an operating loss of Rs.36.41 million in 2020. Finance cost magnified by 92.23 percent in 2020 due to higher discount rates for the most part of the year coupled with increased borrowings and bank commission. The gearing ratio jumped up to 10.87 percent in 2020. NSRM sustained a net loss of Rs.46.91 million in 2020 with a loss per share of Rs.3.02.
NSRM’s topline posted a staggering recovery as it grew by 35.42 percent in 2021. The company’s capacity utilization improved, however couldn’t touch the pre-COVID level. As the company started partially sourcing its raw materials locally due to restrictions imposed during the lockdown period and also because of upward revision in the rates of its services, its gross profit rebounded by 216.93 percent in 2021 with GP margin registering its highest level of 9.6 percent. Operating expenses spiked by 14.5 percent in 2021 primarily due to higher payroll expenses incurred during the year. NSRM also posted net other income of Rs.4.94 million in 2021 as it recognized exchange gain and gain on disposal of fixed assets. The reversal of GIDC payable also buttressed other income and drove other expenses down in 2021. Operating profit was recorded at Rs.64 million in 2021 with OP margin clocking in at 5.9 percent. Despite a lower discount rate, finance costs inched up by 12.35 percent in 2021 due to higher short-term borrowings. NSRM touted net profit of Rs.45.09 million in 2021 which culminated into EPS of Rs.2.90 and NP margin of 4.15 percent.
NRSM posted a 19.86 percent year-on-year rise in its topline in 2022. The capacity utilization of the company’s cloth processing unit fell to 48.5 percent in 2022 while the capacity utilization of embroidery processing slightly improved to clock in at 39.43 percent. Cost against services provided spiked by 21.21 percent in 2022 on account of high inflation, elevated energy charges, and Pak Rupee depreciation. While gross profit improved by 7.16 percent in 2022, GP margin ticked down to 8.6 percent. NSRM kept a check on its operating expense which grew by just 1.16 percent in 2022. Operating profit grew by 2.6 percent in 2022, however, OP margin slid down to 4.1 percent. Finance costs surged by 70.43 percent in 2022 on account of monetary tightening and unwinding of discounts on GIDC payable. Net profit slumped by 68.39 percent in 2022 with NP margin clocking in at 1.1 percent and EPS of Rs.0.92.
In 2023, NSRM’s topline registered a healthy year-on-year growth of 34.93 percent, however, it couldn’t trickle down into net profit on account of exorbitant rise in material cost due to high international commodity prices, Pak Rupee depreciation as well as high indigenous inflation. To top it off, a hike in energy tariff also took its toll on the gross profit which tumbled by 52.11 percent year-on-year in 2023. GP margin touted its lowest level of 3 percent in 2023. Capacity utilization of both the segments dropped to its lowest levels since 2018 which gives a hint that upward price revision had a major role to play in yielding a robust topline in 2023. Operating expenses grew by 13.7 percent in 2023 due to higher payroll expenses as the number of employees increased from 379 in 2022 to 394 in 2023. Traveling & conveyance, vehicle running as well as utility charges also hiked in 2023. Operating profit in 2023 turned out to be 92.15 percent smaller than it was in the previous year which translated into an OP margin of 0.3 percent. Despite the towering discount rate, the company was able to trim down its finance cost by 31.21 percent in 2023 due to a significant diminution in short-term borrowings coupled with lower unwinding of discounts on GIDC payable. The gearing ratio declined to 5.83 percent in 2023 from 18.11 percent in 2022. Yet it couldn’t help the bottom line which posted a net loss of Rs.22.93 million in 2023 with a loss per share of Rs.1.47.
In 2024, NSRM’s topline grew by 22.53 percent year-on-year. Capacity utilization of both cloth processing and embroidery processing units grew to clock in at 44.23 percent and 37.16 percent respectively. This translated into an output of 27.78 million meters of cloth processing unit and 3.2 million meters in embroidery processing units. While elevated energy tariffs and heightened input costs continued to haunt the company in 2024, a stable exchange rate resulted in a 190.92 percent improvement in gross profit with GP margin climbing up to 7.22 percent. Operating expenses grew by 4.68 percent in 2024 due to higher payroll expenses incurred in the distribution network coupled with elevated vehicle running expenses, communication expenses as well as insurance expenses incurred during the year. The company trimmed down its workforce from 394 employees in 2023 to 381 employees in 2024. As against net other income of Rs.3.62 million recorded in 2023, NSRM posted net other expenses of Rs.3.41 million in 2024 due to profit-related provisions and allowance for ECL booked during the year. Operating profit strengthened by 1797.87 percent in 2024 to clock in at Rs.97.82 million. This translated into an OP margin of 4.54 percent in 2024. NSRM cut down its finance cost by 84 percent in 2024 as the company secured interest interest-free loan from its director and also didn’t record any interest on WPPF and unwinding of discount on GIDC payable in 2024. The company posted a net profit of Rs.66.3 million in 2024 with EPS of Rs.4.26 and an NP margin of 3.1 percent.
Recent Performance (1QFY25)
NSRM’s topline grew by 44.18 percent in 1QFY25 due to higher sales volume recorded during the period. Cost of sales mounted by 44.57 percent in 1QFY25 on account of heightened energy tariff. This translated into 37.66 percent higher gross profit recorded in 1QFY25, however, the GP margin slightly ticked down from 5.66 percent in 1QFY24 to 5.4 percent in 1QFY25. Operating expenses grew by 13.66 percent in 1QFY25 due to inflationary pressure which pushed up the payroll expense. NSRM also recorded net other income of Rs.0.83 million in 1QFY25 versus net other income of Rs.0.07 million in 1QFY24, which may be because the company booked allowance for ECL in the previous year. NSRM recorded 81.18 percent higher operating profit in 1QFY25 with an OP margin of 2.86 percent versus an OP margin of 2.28 percent posted in 1QFY24. Finance cost grew by 1578.75 percent in 1QFY25 to clock in at Rs.0.57 million in 1QFY25. Net profit grew by 87.75 percent in 1QFY25 to clock in at Rs.10.76 million with EPS of Rs.0.69 versus EPS of Rs.0.38 registered during the same period last year. NP margin grew from 1.37 percent in 1QFY24 to 1.79 percent in 1QFY25.
Future Outlook
Pakistan’s textile sector has faced myriad challenges of late due to depressed demand locally and internationally, shrunken cotton yield, steep depreciation of the Pak Rupee, high taxation, high energy charges, and inadequate input. However, with the improvement in macroeconomic indicators, NSRM is all set to optimize its cost levels and assess fresh avenues of revenue generation to optimize its margins and profitability.