Allaswasaya Textile and Finishing Mills Limited (PSX: AWTX) was established in 1958 as a private limited company; later in 1965 it was converted into a public limited company under the Companies Act, 1913 (now Companies Act, 2017). With a capacity of 38,712 spindles, the company produces Polyester Cotton Blended Yarn.
An overwhelming majority, at more than 95 percent, of the shares is held under the category of “individuals” while an insignificant number of shares are owned by joint stock companies and investment companies.
Historical operational performance
The company’s financial performance in terms of topline and profit margins have been on a gradual decline despite improvement in revenue; albeit the latter has been inconsistent. It is also noticed that cost of production has, for the most part, been above 95 percent of revenue level.
In FY15, the company saw its highest ever decline in topline at nearly 19 percent. Globally, the demand for yarn fell. China has been a major export market for Pakistan. With a fall in demand from China, textile exports of the country witnessed a slump. Prices for yarn also fell which caused a further slump in revenue. Allawasaya Textiles, since primarily sells yarn, felt the hit on its profit margins. On the cost side, cost of production rose to 99 percent, consuming nearly all the revenue, leading to the inevitable negative bottomline. Overheads in Pakistan, in comparison to regional peers, have been on the higher side. With a fall in revenue, the company found it difficult to cover expenses.
Topline further contracted in FY16 by almost 5 percent. Textile exports of Pakistan reduced by about 7 percent in FY16 with China shifting its demand to less expensive alternatives. Failing to command a high price in the international market, a lot of the spinning units directed their sales to the local market, causing prices to fall domestically as well. Thus, despite a higher sale figure volumetrically, in value terms, revenue declined. Cost of production, although still on the higher side, reduced to 97 percent of the revenue allowing some improvement in the gross margins.
There was some recovery in FY17 as sales revenue increased by 17.5 percent. There was a 9 percent gain in sales volumetrically. Although the company itself is not present in the global market, however, as part of the industry it may cater to players downstream that do export. But despite the double-digit growth in the topline, net margin remained flat at negative 2 percent since cost of production continued to claim 97 percent of the revenue. This was due to a rise in minimum wages, raw material expense, as well as an energy crisis that persisted, and costly RLNG fuel. These factors collectively did not allow for exports from Pakistan to compete in the global market.
Sales revenue continued to increase by 10 percent in FY18. This was a result of an improvement in both the prices of yarn as well as higher volumes sold. Cost of production also fell to 94 percent of revenue allowing some room for absorption of other costs which mostly were unchanged. Thus, the effect of better sales was reflected in the bottomline which stood at a profit of Rs 18 million- a positive figure after incurring losses for three years in a row.
Topline fell once again in FY19 by close to 4 percent, with nearly 21 percent decline in volumetric sales. It must be noted that apart from subdued demand in the near past, the domestic industry was also marred by the presence of cheaper imported yarn that gave competition to the local manufacturers. In addition, the company also undertook BMR activities during the year which resulted in one of its spinning to remain shut for a major part of the year. This not only resulted in lower production but it also meant that the burden of fixed costs fell on only one operational unit. Thus, the company ran into a loss during the year.
Quarterly results and future outlook
There was a significant improvement year on year in topline during 9MFY20, as sales revenue increased by more than 50 percent. The results for 3QFY20 saw revenue almost doubling year on year. The fact that one of the spinning units last year was non-operational for a significant nine months, the difference in results between the two periods is more pronounced. The prices for cotton and polyester fibre- the raw materials increased but this was not accompanied by a corresponding rise in yarn prices. Despite this, owing to better topline the company managed to double its gross and operating margins and post a positive net profit figure for the period.
Textile sector is a major contributor to the GDP of the country, yet it faces problems such as insufficient raw material owing to poor cotton crop, despite being one of the prominent cotton producers of the world. Moreover, problems such as high overheads render the country’s products unfavorable in the global market allowing other countries to easily take the place. With the ongoing pandemic, and lockdowns in place, subdued trade and cancellation in orders, has further aggravated the situation. It could be long before recovery would be in sight.