The Crescent Textile Mills Limited

The Crescent Textile Mills Limited (PSX: CRTM) was set up in 1950 under the Companies Act, 1913 (now Companies Act, 2017). The company is in the business of textile manufacturing that comprises of spinning, combing, weaving, dyeing, bleaching, printing, stitching, etc. It also deals in yarn, cloth, and fabrics made from raw cotton and synthetic fiber. The production unit is located in Faisalabad, while the weaving unit is in Hattar, Khyber Pakhtunkhwa.

Shareholding pattern

As at June 30, 2020, over 9 percent of the total shares of the company were held by the directors, CEO, their spouses and minor children. Within this, Mr. Ahmad Shafi, one of the directors in the company, held the majority of the shares. Nearly 55 percent shares were owned by the local general public, followed by 23 percent in other companies, corporate bodies, etc. Associated companies, undertakings and related parties held another 9 percent shares; majority shares in this category were owned by Trustees- The Crescent Textile Mills Employees Provident Fund Trust. The remaining about 4 percent shares were with the rest of the shareholder categories.

Historical operational performance

Since FY14, topline has contracted thrice, in FY15, FY16 and recently in FY20. Profit margins have also been fluctuating, dipping in FY17 and FY18, rising slightly the following year, before dropping again in FY20.

Revenue in FY17 grew by close to 3 percent; local sales grew by nearly 10 percent, while export sales declined by 3.5 percent. Local sales grew because of increase in yarn prices that were pushed upward by increase in cotton prices. Export sales remained low due to low demand, particularly in the first half of the year. However, this gain was more than offset by the increase in cost of production that climbed to 91 percent of revenue, up from 87 percent seen last year due to increases in input costs. As a result, gross margin reduced to 8.9 percent. This also trickled down to the bottomline that shrunk to Rs 113 million compared to Rs 251 million in the previous year; net margin was also down to 1 percent for the year.

In FY18, topline increased by 4 percent, with majority of this increase coming from local sales; it grew by over 34 percent, while export sales, on the other hand, fell by 13.7 percent. The latter was due to subdued demand for the three quarters of FY18, with demand only picking up in the last quarter. Local sales grew due to “outright sale instead of in-house utilization of yarn”. With some improvement in cost of production, that made up 90 percent of revenue, gross margin increased slightly to 9.7 percent. Supported by the decrease in distribution cost due to export freight and commission, operating margin also increased. But the drastic escalation in finance expense from Rs 287 million in FY17 to Rs 638 million in FY18, caused net margin to drop to below 1 percent. This was attributed to the sudden rupee depreciation that led to a huge exchange loss on foreign currency loans.

The Crescent Textile Mills witnessed the highest topline growth in FY19 at over 23 percent, nearing Rs 14 billion in value terms. Local sales continued its growth momentum increasing by 4.6 percent, while export sales jumped by 42.6 percent. The latter was attributed to a volumetric gain as well as the impact of currency devaluation that made exports cheaper, hence favorable in the global market. Overall, too, all business segments of the company witnessed revenue growth. Cost of production fell below 90 percent of revenue, raising gross margin to 11.7 percent. With finance expense reducing and normalizing somewhat in comparison to that seen in the previous year, net margin also improved, to 1.7 percent. The company reduced its foreign currency loans to minimize exposure to exchange rate risk; it instead moved towards natural hedging.

After rising for three consecutive years, revenue contracted by nearly 5 percent. Both local sales and export sales fell by 7.5 percent and 3.2 percent, respectively. This was attributed to the loss in demand, particularly in the last quarter of FY20 when the Covid-19 pandemic hit the country. The spinning segment saw lower production due to plant shut down during lock down while processing and home textile segment saw subdued performance due to lower exports. While there was not much change in cost of production, thereby keeping gross margin flat at 11.7 percent, operating margin fell due to decline in other income; this was due to a significant decline in dividend income and the absence of net exchange gain. Thus, net margin again fell to below 1 percent.

Quarterly results and future outlook

Revenue in 1QFY21 was higher by nearly 10 percent year on year, owing to higher export volume of the home textile segment. While gross margin was flat year on year, operating margin was lower due to higher operating expenses that was offset by the lower finance expense, keeping net margin stable year on year at 2.6 percent. In the second quarter revenue was significantly higher year on year, by 35 percent. But with expenses growing simultaneously, net margin was again stable at close to 2 percent.

The third quarter also saw higher topline, by nearly 31 percent, due to a volumetric gain. Cost of production was lower year on year at 84 percent of revenue. The effect of both trickled down to the net margin that was higher year on year, at 3.9 percent. With the company present in nearly all stages of production, and at a high-capacity utilization, it has performed well during a pandemic.