Feroz1888 Mills Limited (PSX: FML) announced its 1HFY19 result for yesterday, which saw the company register decent growth in the top line. The company is Pakistan’s leading manufacturer and exporter of specialised yarn and textile terry products and has a good chunk of the towel export market. The company’s top line contribution comes from mostly North America due to the presence of its partner company 1888 Mills, which is based in the US.

The company managed to increase its top line by 25 percent while a less than proportionate increase in COGS allowed the company to book a 56 percent gain in its gross profit on a yearly basis. Gross profit margin also picked up by almost 500 bps in the 1HFY19. In its recent quarterly report, the company attributes its rising profits to currency devaluation, BMR investment as well as cost minimization efforts.

However, FML also notes that the currency devaluation also means inflationary pressures on raw materials such as dyes, spares and chemical costs. But the company’s healthy top line growth means it still has a lot of cushion in its profitability margins.

Other income for FML was another major boon for the company as it surged by almost 540 percent as compared to 1HFY18. This includes the exchange differences on realisation of export receivables amounting to Rs776 million.

As the finance cost of FML is low, the company managed to register an increase of 142 percent in its PAT while its net profit margins surged by an impressive 845 bps. The company is intent on implementing further efficiency in its production processes and has also focused on increasing its in house yarn manufacturing capacity to reduce dependence on outsourcing which will further bring down costs.

The government’s promise to clear pending refunds and the reduction in cost of utilities to textile firms as well as the abolition of duty on imported cotton will also give a boost to FML profitability in 2HFY19.