Gul Ahmed’s profits slump

Gul Ahmed Textile Mill’s numbers for the nine months ended FY15 are alarming; an increase of four percent in sales year-on-year but a whopping 56 percent fall in net profit. This was due to higher cost of sales, which eroded gross margins, and higher other operating expenses, which contracted net margins.
Lower fuel prices should have had a positive effect on the costs (and subsequently margins), as costs related to fuel and energy accounted for over 17 percent of cost of sales as of FY14. But it appears that in order to remain competitive Gul Ahmed has been slashing prices and increasing its export volume at the expense of its margins.
Being one of the largest textile companies in Pakistan with a portfolio spanning yarn, fabrics, home textiles, and apparel, Gul Ahmed’s results reflect the fact that no corner of the textile business is safe these days.
Cotton prices have remained depressed globally. The demand from the world’ largest consumer of cotton (and Pakistan’s largest cotton market), China, is down. To make matters worse, exports are suffering because of an overvalued rupee and the availability of cheaper cotton from competitors like India. All this has hit Gul Ahmed particularly hard, considering that the bulk of its sales come from exports – as of FY14, the firm’s exports amounted to 65 percent of total sales.

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GUL AHMED TEXTILE MILLS LIMITED

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Rs (mn)                    9MFY15   9MFY14     YoY

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Sales                      25,516   24,499      4%

Cost of Sales              20,968   19,718      6%

Gross Profit                4,547    4,781     -5%

GP Margin                     18%      20%    down

                                           170 bps

Other Operating Expenses    3,089    2,683     15%

Other Income                  189       94    101%

Operating Profit            1,647    2,192    -25%

Finance Cost                1,053    1,012      4%

Profit Before Taxation        594    1,180    -50%

Provision For Taxation        151      180    -16%

Profit After Taxation         444     1000    -56%

NP Margin                      2%       4%    down

                                           230 bps

EPS                          1.94     4.38    -56%

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Source: company notice to KSE.

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