Tata Textile Mills Limited

INTRODUCTION: Tata Textile Mills Limited was incorporated in Pakistan by TATA Group in 1987 as a public limited Company and is listed on Karachi and Lahore Stock Exchanges. The Company is primarily involved in the manufacturing and sale of yarn. The company produces one of the finest yarns in Pakistan and its manufacturing facilities are located at District of Muzaffargarh, Punjab.
FINANCIAL ANALYSIS OF TATA TEXTILE MILLS LIMITED
Profitability Global recession, high interest rates, high inputs cost, poor law and order condition, energy shortages even in summers affected the competitiveness of the textile industry. As a result of all these problems, TTML was unable to perform to its potential and made a net loss of Rs 234 million in FY09. The loss may also be attributed to the increase in power tariff, a rise in the borrowing rate, increase in minimum wage and a sudden fall in the global cotton price (which is bought 6 months in advance).
In FY10, better product margins, improvement in the business performance and the management's focus on cost management led to the net earnings of R 440 million. Increase in domestic and international cotton demand caused the sales to increase by 35 percent, moving from Rs 2.805 billion in FY09 to Rs 3.78 billion in FY10. Despite these positives, the profit for the year was affected due to quota on yarn export, frequent energy shortages and regular changes in the government policies.
Cotton prices fluctuated a lot during FY11; even though demand remained the same, lower cotton production in China, India and Pakistan led to an increase in cotton prices. This adversely affected the textile demand, and although the company generated positive profits for the first three quarters of FY11, the fall in cotton prices in the final quarter covered up for the positive earnings. As a result, the company earned Rs 330 million in FY11, a decline of 31 percent compared with last year's earnings.
The company continues to operate in the challenging environment, marked with high interest rates, rising input costs, severe energy shortages, poor law and order situation and inflation. These added to the cost of sales, which increased by 56 percent from Rs 2.836 billion in FY10 to Rs 4.428 billion in FY11.
An indicator of the company's profitability is the EBIT ratio, which improved drastically as the company earned positive profit in FY10, after a loss making year of FY09. The ratio went up from 3.87 percent to 19.07 in a year. In FY11, with a decline in the profits, the ratio fell to 10.55 percent.
Liquidity The company's short term capital status has improved over the year as can be seen by the increase in the current ratio value. It increased from 0.74 in FY09 to 0.89 in FY10, increasing again by 11.24 percent to reach 0.99 in FY11.
However, the changes in the quick ratio reflect an overestimate of the company's short term financial strength shown by the current ratio. The company has struggled with its ability to meet its short-term obligations as can be analysed by the quick ratio values, which fell from 1.45 in FY09 to as low as 0.22 in FY11.
Debt Management As a result of the prudent management, the long term obligations of the company have declined over the years. Long term debt of TTML fell from Rs 475 million in FY09 to Rs 262 in FY11. Interest expense has also fallen from Rs 326 million in FY09 to Rs 182 million in FY11.
The decline in the value of the long term debt to equity ratio of the company highlights its strong equity position and low leverage. The ratio has fallen steadily from 1.55 in FY09 to 0.24 in FY11.
Operational Efficiency The management of the company has made constructive efforts in favour of the company's shareholders, with effectively converting the company's sales into cash. This can be seen by the progress in the fixed asset turnover value, which has increased by 89.17 percent over the past three years. The ratio has gone up from 1.20 in FY09 to 2.27 in FY11.
Future Prospects Going forward, the company plans to implement ERP (oracle E-business suite 12R) solution to help design a dynamic business solution that can be executed in a cost efficient manner.