Fazal Textile Mills Limited (KSE: FZTM) is one of the older mills of the country and is located in Karachi. FZTM was taken over by well-known trading house, the Yunus Brothers group in March 1987. The firm is primarily engaged in producing 100 percent grey cotton spun yarn for knitting and air jet weaving. FZTM also produces a wide range of blended and heather yarns.
FZTM is equipped with state of the art machinery and presently has 60,000 spindles installed for production. The company mainly exports its value-added product, knitted fabric, to US and South America, whereas its grey fabric is exported to Europe, mainly Italy. Other countries that buy from FTML include from North Africa and Middle East.
Performance for 1H FY14 Net sales of the company have been continuing to increase over the years since FY09. In 1H FY14, there was an 18.7 percent year-on-year growth in the turnover of FZTM, settling the figure at Rs 3.3 billion. This uptick was due to an increase in sale volume of fabrics and increase in capacity and production of yarn.
There was a corresponding increase in the company's cost of sales, which increased to Rs 2.9 billion, a rise of 20 percent year on year. The main cost drivers were salaries, repairs and maintenance and power. Also, gross profit of the FZTM witnessed a 12.6 percent year-on-year growth, on the back of an increase in the production of a value-added product, knitted fabrics.
During the period under review, the company recorded a net profit of Rs 142 million, compared to the net profit of Rs 175 million, down by 19 percent year on year. Notable pressure to bottom line is seen owing to severe electricity and gas load shedding. Further decline in pre-tax profit is due to the provision of deferred tax amounting to Rs 53.478 million. Hence, the effective taxation rate increased from 9 percent to 32 percent year on year.
In 1H FY14, the liquidity ratios demonstrated a decline mainly at the back on decrease in current assets by 18.8 percent year on year. The main driver was trade debts, declining by 55 percent, respectively. FZTM has been raising its long-term borrowings over the years, an upsurge of 99 percent year on year in 1H FY14. The loans were used to stay competitive in foreign markets and also to put some expansionary plans into action like the demolition of the old building and construction of the new Mall. Thus, finance cost of the company showed a significant increase of 233 percent year-on-year attributable to enhanced borrowings to meet working capital requirements for production. With a decline in the company's profits in 1H FY14, the EPS fell to Rs 23, a decline of 18 percent for the same period in previous financial year.
Future outlook The global economic conditions have not improved much in the current half year but optimism prevails that world economy will rebound soon. The size of cotton crop is short of domestic consumption, as a result the prices of lint cotton are a little high adding to cost of production. FZTM is in the process of replenishing its requirement of lint cotton for the 2H FY14 at competitive prices.
According to the newest decision taken by ECC, the government has imposed a 5 percent duty on imported yarn from India in order to support the local spinning industry. Therefore, the local spinning industry can now accommodate to the rise in local demand coming out of the GSP+ status, and increase their profitability levels.
However, the energy crisis, inflation, high-ocean and surface freight charges, and the pressure of yarn prices in local as well in international market are likely to exert pressure on margins.
Despite the challenges that keep posing threats to the textile industry, the management of FZTM is determined to do everything to combat difficulties and achieve satisfactory financial results.
=====================================================
1HFY12 1HFY13 1HFY14
=====================================================
Profitability
-----------------------------------------------------
Gross profit margin 7.5% 11.7% 11.1%
Operating profit margin 5.5% 7.9% 8.3%
Net profit margin 3.8% 6.3% 4.3%
ROE 4.6% 9.3% 6.3%
ROA 1.4% 2.5% 1.8%
-----------------------------------------------------
Liquidity
-----------------------------------------------------
Current ratio 0.71 1.05 0.79
Quick ratio 0.29 0.65 0.30
-----------------------------------------------------
Turnover
-----------------------------------------------------
Total asset turnover 0.38 0.39 0.42
Fixed asset turnover 0.72 0.77 0.65
Market
EPS - Rs 12.5 28.32 23.0
=====================================================
Source: Company accounts
Comments
Comments are closed.