Nishat Mill goes up the hill

With the announcement of its financial results, Nishat Mills Limited (NML) surprised market participants on Monday, after it said its profits boosted by 65 percent for the nine months ending March.
The firms revenues grew by 24 percent - surpassing the overall textile export growth of 6 percent (in dollar terms) during the period. The plausible reason behind this increase is NMLs diversified product mix, which helped the firm benefit from gradual demand recovery in developed markets, especially in the higher margin business segments.
Moreover, higher product prices as a consequence of higher cotton prices coupled with 8 percent rupee depreciation against the greenback also strengthened the firms topline. A rampant surge in sales of yarn is also well reflected in the revenue growth, especially during the third quarter, where cotton yarn exports went up by a significant 32 percent.
The major surprise factor is that of NMLs gross margins, which remained very much intact as opposed to the fears of massive decline after the campaign run by APTMA. In the absence of detailed accounts, the nearest guess could be the companys improved performance in high margin business of processing and home textile segments.
There is also a strong likelihood that NML benefited from its own power plant, possibly resulting in cheaper and readily available fuel and power. The firms other operating income also improved as it reaped dividends on its investments in equities.
Financial charges, however, declined expectedly as the mark-up rate support facility from the government lowered the burden, coupled with the companys emphasis on short-term borrowings from the export refinance facility.
Going ahead, cotton prices are likely to remain on the higher side given the increased export demand and Indias ban on raw cotton export. It may not be smooth sailing especially on the gross margins front, but the company size and its efficient management gives enough strength to NML to deal with tougher times.

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NML P&L

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Rs (mn)          9MFY10    9MFY09    % chg   3QFY10   3QFY09   % chg

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Sales            22,329    18,066     24%     8,176    5,582     46%

Cost of sales    18,253    14,571     25%     6,590    4,874     35%

Gross profit      4,076     3,495     17%     1,587      708    124%

Gross margin         18%       19%    -6%        19%      13%    53%

Other income        558       450     24%       223      134     67%

Finance cost        809     1,127    -28%       262      390    -33%

PAT               1,811     1,100     65%       800      (37)     NM

EPS (Rs)           7.47      6.79              3.30    (0.23)

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Source: KSE notice