Gul Ahmed Textile Mills Limited (PSX: GATM) was established in 1953 and is amongst the oldest textile groups of Pakistan. It was subsequently listed on the Karachi Stock Exchange in 1970 and has since been a leading player in the textile sector of the country.
The company is a vertically integrated textile composite operating across the entire textile value chain. GATM has an installed capacity of more than 130,000 spindles, 300 state-of-the-art weaving machines and modern yarn dyeing, processing & stitching units.
Gul Ahmed has also built up strong presence in the retail business with its flagship store Ideas, catapulting the company into the retail sphere. Starting from Karachi, Gul Ahmed now has an extensive chain of more than 40 retail stores across the country, offering a diverse range of products from home accessories to fashion clothing.
Historical performance
GATM has remained stagnant over the past years and is reflective of the general state of the textile sector. Given the tough conditions that the textile sector has been facing in the form of a higher cost of doing business as compared to regional competitors, an overvalued rupee, and pending tax refund issues, it certainly has been a tough time for Gul Ahmed as well.
There was little growth in revenue from FY13-FY16 but things have picked up nicely for the top line in FY17. Taking a closer look at the segment-wise breakdown over the years, the yarn segment's performance has been lacklustre with lower margins and revenues.
In today's textile sector value-addition is the key ingredient for success and companies who managed to undertake vertical integration have been better off. Gul Ahmed's processing segment proves this with its rapid growth and considerably better margins. The company's move into home textiles has borne great results, and it has managed to create a lucrative brand image.
While gross profits have been improving, net profits have experienced volatility. As of FY15, the bottom-line had halved year-on-year, which the firm cited to lower exports, a fresh plummet in cotton prices, an overvalued rupee, and high cost of doing business.
GATM has largely been an export-oriented company with exports accounting for over 60 percent of the company's sales as of FY15. In this regard, the GSP Plus status helped the company grow its international sales, as indicated by the spike in FY14. But in FY15, this growth could not be sustained owing to the rupee overvaluation compared to regional competitors including Bangladesh and Vietnam.
Even though export sales and local sales jumped up by 28 and 12 percent respectively in FY17, rising raw material costs as well as an increase in the minimum wage coupled with higher utility charges kept pressure on gross margins which dropped by 4 percent.
The sales tax input was also disallowed on packaging material during the period, further increasing indirect expenses for the company. Therefore, GATM's PAT and EPS also fell by 36 percent on account of considerably higher administrative expenses.
The company continues to focus on capitalising on its retail brand and local sales whereas a pickup in consumer spending in the EU has also led textile exports from Pakistan to increase in the previous year.
Recent snapshot
FY18 has been going reasonably better for the textile sector so far and the same holds true for GATM. The company managed to increase its top line by 13 percent, which the management attributes to renewed focus on profitable avenues. As noted previously, Gul Ahmed is steadily increasing its domestic presence, and the recent BMR activity has helped it to cater to the growing domestic market as well. This is evidenced by the increment in local sales, which registered an increase of almost 50 percent on a year-on-year basis. On the other hand, export sales that still have the majority contribution to the top line witnessed a fall of 5 percent year-on-year.
The company's profitability metrics also witnessed considerable improvement on the back of efficient production and cost rationalisation measures. The gross profit increased by 24 percent, whereas the profit after tax showed an impressive increase of 645 percent as compared to 1HFY17.
Stock performance /Shareholding pattern
GATM has closely tracked the benchmark KSE-100 during the past year. Since December 2017, the company has managed to outperform the benchmark and the renewed interest in textile firms in the recent past comes on the back of rupee depreciation and an up tick in export of value added segments. GATM's 1HFY18 result has also been above market expectations, which has also caused the stock price to increase over the past few months.
The shareholding pattern indicates that Gul Ahmed Textile Mills Limited is a subsidiary of Gul Ahmed Holdings (Private) Limited, which owns over 67 percent of the company. Another associated company is one Swisstex Chemicals (Private) Limited, with a three percent share. Therefore, the stock is majorly held within the family.
Future outlook
The PM Textile Incentive Package has so far failed to provide the impetus required to boost textile exports. Pending sales tax refunds and the rising cost of production, which include the high cost of energy utilities in particular continue to be a bane for textile firms.
However, silver linings during the recent past are the rupee depreciation of 9 percent against the US Dollar, which might allow textile firms to improve their exports. Another boon has been the retention of the EU GSP plus status, which the firms such as GATM can utilise to boost their value added exports.
It is also pertinent to mention that the package has been adjusted to remove the requirement for incremental 10 percent exports on 50 percent of drawback will aid companies like GATM and NML going forward. There is also an incentive for a 2 percent additional duty drawback if the exports are to non-traditional markets. GATM can take advantage of this by pushing exports into new geographical regions.
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GATM: Shareholding Pattern % held
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Individuals 14.85
Investment Companies & Mutual Funds 74.78
Insurance Companies 3.09
Joint Stock Companies 4.1
Financial Institutions 0.22
Foreign Investors 2.75
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Source: Company accounts
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GUL AHMED TEXTILE MILLS LIMITED
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Rs (Mn) 1HFY18 1HFY17 YoY
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Net Sales 20,925 18,525 13%
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of which
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Export sales 12,125 12,823 -5%
Local sales 8,800 5,702 54%
Gross profit 4,106 3,305 24%
PAT 618 83 645%
EPS (Rs) 1.73 0.26 565%
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