The Crescent Textile Mills Limited (PSX: CRTM) was founded in 1950 as a vertically integrated composite textile unit. It is a public limited company incorporated in Pakistan under the Companies Act, 1913 (Now Companies Act, 2017). The company's history in the industry stretches over a span of 65 years.

Since the company is a textile composite it is engaged in the business of spinning, combing, weaving, dyeing, bleaching, printing, stitching, buying, selling and otherwise dealing in yarn, cloth and other goods and fabrics made from raw cotton and synthetic fiber. In the past five years the sales mix has averaged 60 percent from exports and the rest from domestic sources. Exports of the company are largely concentrated towards Europe.

CRTM has managed to keep the turnover north of Rs 10 billion in the past five years. The company employs over 3500 workers. The manufacturing facilities are equipped to reach a capacity of 33 million (Kgs.) of yarn and 45 million (Sq. Mtr.) of fabric annually. The company power plant has the capacity to produce 258 MWH, but for at least the past two years the company has generated 30 percent of the labeled capacity.

Pattern of shareholding

Ownership of the company is mainly concentrated with the general public representing 57 percent of the total shares. Companies and corporates have a shareholding of about 20 percent in the company. Rest of the pie is shared by Directors, CEOs and their spouse(s) and minor children holding 9 percent of the ownership stake and associated companies account for 9 percent of the total shares as well.

Industry dynamics

The textile industry during FY19 felt downward pressures on export prices-which has paved its way to the ongoing fiscal year. Industry sources suggest that tough competition in the global arena from regional competitors has compressed prices, which led to a shutdown of 200 mills as reported by All Pakistan Textile Mills Association (APTMA).

There is a reason as to why the textile industry is known as the backbone of the economy-its sheer scale. It is responsible for generating more than 50 percent of the overall export of the country. More importantly, it employee about 40 percent of the industrial labor force.

The numbers look impressive from a distance but a closer look reveals challenges the industry is experiencing. More specifically, the industry is in the need to tackle issues emanating from the imposition of the 17 per cent sales tax, the CNIC condition for transactions, which has effectively blocked the flow of money, and a four percent withholding tax on every transaction within the sector.

The industry will struggle to remain buoyant unless these challenges are addressed in a way that implementation becomes a top priority as barely any implementation was witnessed in the last two policies.

Financial performance

Amid declining prices on export, CRTM witnessed its top-line at its highest yet, clocking in at Rs 14 billion. The company managed to increase the turnover during FY19 by 23 percent year-on-year. Both export and domestic revenue streams saw growth during the year under review. Exports for the company almost doubled during the year while growth in domestic sales remained largely flat. The company attributes the higher turnover to volumetric sales growth and the impact of rupee devaluation.

The industry dynamics are such that raw material makes up the most significant portion in cost of goods sold (COGS). During FY19, raw materials constituted about 30 percent of COGS, which in the preceding year stood at 40 percent. While COGS during FY19 increased by 19 percent, simultaneously gross profit increased by about 50 percent because of favourable revenue flows.

The gross margin for the period FY19 was recorded at 12 percent (SPLY: 10 percent). The increase in margins emanates from achieving economy of scales. Revenues during the year also improved due to favourable rupee devaluation while costs dropped due to government's subsidized gas and electricity. Finance costs as a share of revenue also dropped. The company associates this decline to exchange loss on foreign currency loans in corresponding period. The company also avails export refinancing facilities which are cheaper.

Operating costs kept downward pressures on operating margin as it stood at 6 percent during FY19 (SPLY: 6 percent increased). The year-on-year increase in operating costs is calculated at 37 percent. Company accounts attribute the increase to increasing distribution costs on account of export freight and commission.

The company in the past has seen sticky margins. Gross margins during FY14-19 averaged 11 percent while Operating margins averaging 6 percent during the same period. Sales mix has remained within a close range. The company is flexible on shifting the sales mix according to the changing business environment.