The first quarter saw all the stars aligning together to make for an overall improved dynamic within the textile sector. And making good use of the fact is the countrys largest composite textile set-up, putting in another well rounded performance at the close of 1Q FY14.
For starters, textile dispatches during the period enjoyed a favorable stimulus lent by the depreciation of the local currency; the countrys exports for the quarter resultantly reported a healthy 10 percent growth over the same period of last year. NMLs humble top line growth was hence aided by higher export earnings-despite the fact that the firms volumes reportedly remained flattish year on year.
NMLs margins during the quarter also remained intact, despite the higher prices of cotton in the domestic market during 1Q FY14. This is because Nishat Mills has been reportedly stocked up to the hilt-having made full use of the low prices during FY13 glut season, which has perhaps taken off the edge on the raw material price front, at least for now. Additional support to the margins was also lent by a strong hike in yarn margins and a reportedly increased contribution of the higher margin value-added textiles in NMLs sales mix during the quarter.
Other factors that aided NMLS profitability during the first quarter also included a mere one percent increase in selling expenses and an 11 percent reduction in financial charges. But, the biggest support to the firms bottom line of course came from Nishats portfolio earnings, which have propelled other income this quarter by 43 percent compared to the previous year.
Overall, this quarter NML remained a strong beneficiary of the dividends gained from associate companies including MCB, Lalpir and Pakgen-which have taken the firms bottom line up by a hefty 48 percent year on year-a figure that the otherwise humble revenue growth may have not afforded the firm on its own.
But going forward the Companys dynamics are only going to get better. A continuous stimulus is going to be the Chinese demand for yarn and another expected dose of hike in spinners margins. Additionally, NMLs last quarterly report hints at exciting plans for capacity expansion, which will see NML reportedly adding another 28,000 spindles to its spinning capacity-making full use of the incoming demand.
One blot on the horizon, however, will be the higher prices of cotton in the domestic market this year, and going forward, some erosion of the firms margins on that front can be expected. However, to offset any major slippages, NMLs heavy investment into securing supply of cheaper energy to run its operations should likely come in handy as we progress into winters.
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NISHAT MILLS LTD
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Rs (mn) 1QFY14 1QFY13 chg
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Sales 13,579 12,955 5%
Cost of sales 11,080 10,916 2%
Gross profit 2,499 2,039 23%
Gross profit margin 18.4% 15.7% 2.66 ppt
Operating profit 2,136 1,625 31%
Financial cost 383 429 -11%
Other Income 672 470 43%
NPAT 1,572 1,063 48%
EPS (Rs) 4.47 3.02 -
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Source: KSE notice
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