Faisal Spinning Mills Limited (PSX: FASM) was established as a public limited company in 1985 under the repealed Companies Ordinance, 1984 (now Companies Act, 2017). The principal business of the company is manufacture and sale of yarn and fabric. It is part of the Umer Group of Companies that span various sectors such as textiles, dairy, leather, power generation, construction, etc.
Shareholding pattern
About 45 percent of the shares are held under associated companies, undertakings and related parties which includes Admiral (Private) Limited that holds close to 13 percent shareholding. The next major shareholder category is that of directors, CEO, their spouses and minor children- at almost 44 percent. Of this, Mrs. Samia Bilal, holds 5 percent shares. Around 8.5 percent is distributed with the local general public whereas the remaining about 3 percent is with the rest of the categories.
Historical operational performance
The company has largely seen positively growing revenue and profit margins, with the exception of FY15 and FY16 when the margins bottomed out before picking up again in FY17 and onwards.
Faisal Spinning Mills saw its revenue contracting in FY15 for the first time in six years by a little over 5 percent. This is attributed to the fall in prices of yarn and fabric. The decline was seen in the export sales of the company, while domestic sales doubled during the year. Due to the high cost of production, exports from Pakistan are uncompetitive in the international market. Moreover, with lower prices, the manufacturers found better margins in the local market and thus redirected their products. Apart from the loss in revenue, cost of production also hurt profitability as the former increased to more than 90 percent of the revenue. Crude oil prices reduced, however the benefit of this was not passed on to the industries. Given that mostly fuel and energy expense is the next prime cost driver after raw material, any hikes there can cause significant changes in profitability. Thus, the year ended with a net margin of close to 2 percent, down from 6 percent in FY14.
Topline was flat in FY16; there was negligible change in sales in both exports and local market. However, costs continued to increase to claim nearly 93 percent of the topline. This was due to the rise in salaries and wages, and a general recession in the spinning sector owing to the low global demand. Some support was brought in by other income sourced from gain on disposal of property, plant and equipment. Thus, profit margins reduced only marginally.
Sales revenue regained growth in FY17 as it increased by nearly 14 percent. This increase was largely supported by export sales which grew by 23 percent, whereas yarn exports increased by 31 percent; both segments of the company, spinning and weaving saw a rise in its production for the year. Cost of production also reduced to make up 90 percent of the revenue. This was attributed to a stringent control on overhead expenses. Eventually the year concluded with improved profit margins throughout.
Faisal Spinning Mills remained on its growth trajectory as topline witnessed a 12 percent in FY18. Despite the currency depreciation which was the rationale for a lot of companies in the textile sector for the growth in revenue in FY18, Faisal Spinning Mills rather saw a flat trend year on year. On the other hand, local sales had picked up. The company generally generates higher revenue from its spinning segment. Over the years, the demand for products from the spinning segment had degenerated. This could serve as a plausible explanation for why exports failed to pick up for Faisal Spinning Mills. Instead local sales for woven fabric took the lead. With costs remaining under control, the company managed to grow its margins.
The company saw its highest revenue growth in FY19 at 18.5 percent. This was brought in by improvement in both, local and export sales. A further breakdown reveals that export sales for fabric saw a whopping 41 percent increase. Installed capacity for the weaving segment also saw an expansion in FY19. Cost of production went further down marginally to 86 percent of the revenue. Apart form the finance cost that increased due to short term borrowings, most other elements remained more or less similar, thus improving profit margins. Some support was also brought in by share of profit of associated undertaking.
Quarterly results and future outlook
The company saw a nearly 17 percent increase in its topline during 9MFY20 year on year. However, this was accompanied by a more than corresponding increase in cost of production, driving down profits. The effect of this trickled down to the bottomline, with other income and share of profit of associated undertaking providing unchanged support. Thus, net margins reduced year on year.
While the country was still in its recovery stage with the stabilization measures taken by the government, a pandemic gripped the world economy. This inevitably gave rise to socio-economic problems. The company hopes for government measures such as tax relief for a few years. The company was also in the midst of setting up a new plant, for which the plant and machinery shipments had been received, however, delays have occurred in erecting the same due to the nation-wide lockdown.
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