NMLs profits plunge by 11 percent

The massive surge in cotton prices got the better of Nishat Mills profits sending them down by 11 percent despite a sizeable increase in revenues.
The eight percent depreciation of rupee against the US dollar combined with higher volumetric sales helped the firm mitigate the effects of global slowdown in demand. NMLs commendable administrative cost control measures could not do much to save the bottom line from falling by as much as it did as the gross margins took a massive hit - high raw material prices being the main factor.
During the period, the company consumed 2 percent more local cotton than the previous year at 22 percent higher cost this year. Likewise, the consumption of imported cotton remained on a lower side - down 9 percent- priced 9 percent higher against the year ago period.
A significant support to the bottom-line was provided by 26 percent cut in the financial cost. - resulting from a 2 percent decline in average 6-month KIBOR during the period.
Moreover, an increased other income on the back of dividend received from MCB and reduced other expenses as a percentage of sales - from 5 percent to 4 percent this year - provided a breather to the bottom line.
The company benefited from the low cost stable electricity supply from its own captive power giving it an edge over the peers who mostly rely on conventional sources. In order to ease the pressure arising from increasing electricity cost, the company has increased its own power supply resulting in relatively reliable energy supply and improved energy cost control.
The company plans to raise Rs4.4 billion through the issuance of 45 percent right shares at a premium of Rs 30 per share for financing its power project and reduce leveraging on its balance sheet. However, investors do not seem excited to pay this premium at the time of dearth in liquidity.
Moreover, when the whole industry is in snags, textile export were hit by intense competition - down by more than 10 percent against last year - Nishat did extremely well in the first half of current fiscal year.
The company managed to run at full production capacity, taking advantage through aggressive marketing, strong customer base and diversified product range.

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NML P&L

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Rs (mn)          1HFY10   1HFY09  (+/-)%  2QFY10  2QFY09   (+/-)%

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Sales           14,152   12,484      13%   7,757   6,279      24%

COGS            11,663    9,697      20%   6,449   4,943      30%

Gross profit     2,489    2,787     -11%   1,308   1,336      -2%

Gross Margin       18%       22%    -21%     17%      21%    -21%

Finance cost       547      737     -26%     288     407     -29%

Other Income       336      317       6%     153     165      -7%

L/PBT            1,146    1,284     -11%     553     516       7%

Taxation           136      147      -8%      56      85     -34%

L/PAT            1,010    1,138     -11%     497     431      15%

L/EPS (Rs)        4.17     4.70             2.05    1.78

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Source: Company Results