FY19 seems to be going pretty well for Pakistan’s leading towel exporter, Feroze 1888 Mills Limited (PSX: FML) with an impressive rise in the bottom-line coupled with an increase in margins. FML saw its revenues increase by 32 percent for the first nine months of FY19 on the back of increased towel sales following the currency depreciation. As far as the 3QFY19 was concerned, it was probably the best quarter for the company in terms of revenue growth as sales hit the Rs8.5 billion, which is the highest quarterly revenue that FML has ever posted.
However, the fall in the value of the rupee has proved to be a mixed blessing for textile exporters. Even though companies like FML have seen an increase in export orders, much of the raw material used in the production of value added segments is imported. Therefore, the price of materials such as dyes and chemicals has gone up significantly as well, which is evidenced by the 22 percent rise in FML’s COGS for the 9MFY19 period as compared to the same period last year.
FML has done well when it comes to keeping its administration and distribution costs in check, which saw only 17 percent rise for the period under review. Other income has more than doubled for FML for 9MFY19, which seems to be a general trend amongst textile firms in light of the depreciation that has resulted in sizeable exchange gains on realisation of foreign denominated export receivables.
The finance cost picked up by 63 percent but given the company’s low leverage that should not be a cause for concern. In addition, the government has started processing the pending tax refunds, which will be good for the liquidity of textile exporters.
A big part of the company’s strategy is to keep increasing its production efficiency, which has allowed racking up its profitability margins. The management is also increasing its in house yarn manufacturing capacity to reduce dependence on outsourcing, which will also result in a rise in margins for the company.
FML’s gross and margins increased by a whopping 571 and 761 basis points, which can be attributed not only to the rupee devaluation but also the balancing, modernisation and replacement investment incurred by the company. The company’s bottom-line witnessed an impressive 126 percent growth during 9MFY19 period helping FML sail through the year with a solid performance.
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