The fourth-largest textile company in Pakistan by sales, Nishat (Chunian) Limited (PSX: NCL) began its journey in 1990 with a spinning mill comprising of 14,400 spindles. Today, the company is a fully vertically integrated textile juggernaut, with a market capitalisation of nearly Rs 14 billion.
Nishat Chunian Limited operates in four business segments - spinning, weaving, processing & home textile, and power generation (which does not have any external sales). In addition, Nishat Chunian has gone on to establish a number of subsidiaries as well - Nishat Chunian (Power) Limited; NC Electric Company Limited; Nishat Chunian USA Inc; and most recently, NC Entertainment (Private) Limited.
Stock & pattern of shareholding NCL stock has been on the up and up ever since the start of FY17, massively outperforming the KSE100 index throughout the year. The stock reached its high point in mid-February, before falling over the next few months. At present, however, NCL appears to be climbing again.
The pattern of shareholding reveals that the largest chunk of NCL is with the general public. The second-largest is with associated companies. The company's annual report mentions four associated companies, though the details of these are not mentioned. However, MCB Bank Limited and Adamjee Insurance are mentioned as 'associated companies' in various places and, as per the company's websites, Nishat Mills and D G Khan Cement are listed as two associated companies.
Prior performance Over years of greatly fluctuating profits and margins, Nishat Chunian has maintained non-stop top line growth. Profits peaked in FY13 due to a dollar appreciation, huge earnings in the yarn segment, and cost-cutting measures, as per that year's Director's Report. However, in the subsequent year, the margins suffered due to significantly higher costs, increased global competitiveness, exchange rate fluctuations, and expansion of spinning capacity that didn't operate at optimum capacity. In FY15, the demand for textile products in general and cotton yarn in particular declined, with a Rupee appreciation further hurting the company's margins. However, FY16 saw immense growth in profitability year-on-year on the back of effective cost management and skyrocketing margins in the home textile division.
When talking about Nishat Chunian's bottom-line, however, it becomes pertinent to mention the huge role played by 'other income,' which has often times been higher than the bottom-line itself! This is mostly in the form of dividend income from one of its subsidiary companies, Nishat Chunian (Power) Limited.
A look at the segments shows that spinning makes up the largest portion of Nishat Chunian's sales, followed by processing & home textile, and then weaving. Seemingly, the sales mix has not changed much over the years, as spinning has accounted for 54-60 percent of sales over the past five years, while processing has remained around 29-31 percent. However, a look at the segments' profits shows the shifting trend; the spinning segment's profitability has plummeted over the past three years, while the processing & home textile segment has become the most dominant business of the company. As per the FY16 Director's Report, Nishat Chunian greatly expanded the capacity of its home textile division, in addition to efficient cost management, giving superb margins.
Nishat Chunian is an export-oriented company, with around 69 percent of its revenues coming from exports. In terms of segments, the home textile segment earns the highest foreign exchange (93% of its sales are exports), while both spinning (57%) and weaving (37%) have a relatively stronger domestic presence. However, the company has taken steps to increase the home textile segment's domestic market share by launching "The Linen Company" to enter the retail space in Pakistan.
Recent performance As far as the ongoing fiscal year is concerned, Nishat Chunian has been performing exceptionally well; for the nine months ended FY17, the company's top line is up 16 percent year-on-year, while the bottom-line has grown by an astounding 83 percent. Both gross and net margins have inched up as well.
Impressively, the company has largely kept its distribution costs in check (up 2% YoY); while a significant increase in other income (34%) gave the bottom-line a huge boost.
As per the Director's Report, Nishat Chunian has successfully managed to enhance its market share in terms of exports via 'intelligent marketing tactics,' as well as its domestic market. Moreover, the company's spinning division has seen major investment in innovation and up- gradation, along with capacity expansion.
Future outlook Nishat Chunian has a lot going on: the company's subsidiary cinem3a business, "Universal Cinemas," started operations in Lahore during the year; an additional outlet for The Linen Company is currently in the works; and the "NC Electric Company Limited (NCECL)" has commenced operations and is expected to lower the power cost of the company.
Nishat Chunian is consistently making investments in innovation and up-gradation, improving the overall efficiency. Moreover, export duty drawback of Rs 173 million was booked in the recent quarter and is expected to be realised going forward.
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Pattern of Shareholding
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Shareholders Category Percentage
of holding
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Directors, CEO, their spouses and minor children 14.18%
Executives 0.00%
Associated Companies, Undertakings & Related Parties 16.64%
Public Sector Companies & Corporations 0.00%
NIT and IDBP (ICP UNIT) 0.00%
Banks, DFIs, Non-Banking Financial Institutions 10.29%
Insurance Companies 2.72%
Modarabas and Mutual Funds 4.52%
Joint Stock Companies 13.15%
Others 0.89%
General Public 37.61%
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