No roses in Gul Ahmed's bottomline

In September 2016, the directors of Gul Ahmed Textile Mills (GATM) said they were optimistic for a positive bottomline growth in the remaining nine months of FY17. Investors who had pinned their hopes to that optimism must be grinding their teeth yesterday when the firm announced its second quarter results.

GATMs results released yesterday shows that while the firm managed to increase its sales substantially in the first half FY17, its bottomline simply crashed no thanks to eroding margins.

The firms first half topline recorded at nearly Rs19 billion, on account of higher prices fetched in both local and international markets as well as growing domestic retail sales. Cotton prices increased noticeably year-on-year, whereas according to 1QFY17 report, GATMs exports equaled 73 percent of its total sales in quarter ending September 2016, as against 61 percent in the year-ago period. That trend is expected to have kept pace in second quarter FY17 as well.

Meanwhile, the firm struggled with lower productivity due to debottlenecking of its processing plant which eroded its margins. As per 1QFY17 report, the debottlenecking of its GATMs plant was supposed to be completed by November 2017 as against the targeted date of August 2017 due to late shipments by machinery suppliers. From the looks of second quarter results, further delay until December cannot be ruled out.

With focus on exports as well as domestic retail sales, GATM is its way to meeting its own full-year target of Rs40.7 billion, but with after-tax profits down by nearly 80 percent, investors arent too excited about the firms stock.

GATMs stock was down by about 1 percent in a market that was up nearly 1 percent. Market sources say investors were also puzzled by the 20 percent proposed rights issue. The company said it wants to raise that money for the purpose of automation, efficiencies enhancement, and meeting funds requirement for expansion of retail business. But brokers wondered what is the purpose of raising funds for expansion of retail business, when the firm is already in a process of bringing an IPO of its retail business. Perhaps, an analyst briefing would clear matters, and soon.