Ghazi Fabrics International Limited

Ghazi Fabrics International Limited was established in 1990 and is listed on Karachi Stock Exchange. It has a diversified marketing portfolio and is currently exporting fabric to the US, Europe and the Far East. The company produces the best quality fabric for apparel and work-wear. It also manufactures Grade-A Poly Cotton (PC) and Chief Value Cotton (CVC) yarn for weaving and hosiery.
Over the years, its "PANTHER" brand has been accepted as a top quality yarn in the Far East and European markets. Under the company's BMR (Balancing, Modernisation and Replacement) program, spinning machinery with state of the art technology has been installed to maintain a competitive edge in the market. Similar replacements have been introduced in the weaving mill to improve productivity and variety. GFIL specialises in producing a wide variety of fabrics, including basic twills, frills, and different kinds of denim fabrics.
The company plans to develop a dyed and finished fabric division, and is in the process of installing a new warping and sizing machinery to improve its back-process and help the company's extension plans in the future.
FINANCIAL ANALYSIS OF GHAZI FABRICS INTERNATIONAL LIMITED
Profitability The company faced major shocks including rupee devaluation, energy shortages and increases in financial cost, which affected its profits. As a result, the company incurred a loss of Rs 153.967 million in FY09 as well as a loss of Rs 184.251 million, last year.
The economy showed some improvement in FY10, registering an overall growth of 4.1 percent as compared to 1.2 percent in FY09. However, this recovery was fragile with the political tensions, negative impact of monetary tightening and the rising cost of doing business. Added to these factors was the impact of the worst hit floods which damaged almost 20 percent of the cotton cultivation area, affecting cotton prices for FY11.
Despite these challenges, the company's earnings improved significantly, with a net profit of Rs 112.208 million in FY10. Sales revenue increased by 25 percent amounting to Rs 3.827 billion during the year as compared to last year. Although there was tough competition from China, India and Bangladesh which led to pressure on prices and a resultant impact on industry's margins; the industry performance in FY 11 was exceptional in sales growth and profitability. This is due to the rise in the international cotton prices, which reached $2.40 in March 2011.
On the domestic front, the economy continued to face the mentioned challenges even in FY11. Added to these was a more significant power crisis, with gas load shedding taking place even during summer months. This affected the business cost as the company had to move to alternative energy sources. However, since the prices of the finished goods kept pace with the increase in raw material prices, the company was successful in increasing its annual net profits by 86.7 percent from FY10, reaching Rs 209.445 million in FY11.
Liquidity GFIL has been able to maintain a steady short term liquidity status. The current ratio has shown an improvement from 0.86 in FY09 to a healthy ratio of 1.00 in FY11.
Debt Management The management of the company has prudently focused on controlling the long term borrowings regardless of the economic situation. As a result, the company has been able to reduce its long term loans from Rs 1.3 billion in FY09 to Rs 1.002 billion in FY11.
Operational Efficiency The management of the company has been successful in converting its assets into revenue over the years. This can be seen by the significant improvement in the fixed asset turnover ratio, which rose from 2.02 in FY09 to 4.27 in FY11.
Market Value Earnings per share (EPS) of the company are determined by the company's profitability status. EPS moved from a loss per share of Rs 4.72 in FY09 to a profit of Rs 3.44 in FY10. With an improvement in the company's earnings, the EPS moved to Rs 6.42 in FY11.
Future Prospects After April 2011, a sharp decline was seen in New York futures caused by panic selling and inventory losses, with world cotton price settling on $1 per pound. In addition to this, the floods and heavy rains that hit Sindh will cause an increase in the cotton import bill of the country.
As a result, the management of GFIL believes the next year earnings will be affected. However, efforts are being made to optimize the processes and ensure that operational results are not compromised. All information and data used are from reliable source(s) and subjected to extensive research after diligent and reasonable efforts to determine the soundness of the source(s). This analysis is not for the benefit of or discredit to any person, scrip or tradable instrument.
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