Maqbool Textile Mills Limited (PSX: MQTM) was established as a public limited company in 1989 under the repealed Companies Ordinance, 1984. The company essentially manufactures and sells yarn, cottonseed, and cotton lint.
As of June 30, 2021, over 81 percent of shares are held under the category of “individuals”; the details of this are not known. About 9 percent shares are held in mutual funds, followed by almost 5 percent shares held in each of the following: joint-stock companies, and funds. The remaining less than 1 percent of shares are within the rest of the shareholder categories.
Historical operational performance
Maqbool Textile Mills has mostly seen a growing topline except for in FY15 and then more recently in FY20, when it contracted by 18.5 percent and 6.3 percent, respectively. Profit margins in the last five years have largely followed an increasing trend.
In FY17, the company saw one of the highest growth rates in the topline, at 13.6 percent. Both export and local sales were major contributors to revenue, and both also registered increases in revenue, by 17 percent and 7.6 percent, respectively. Production cost decreased to over 93 percent of revenue, allowing gross margin to improve to 6.8 percent, from 5.3 percent in FY16. With other elements remaining more or less similar, this increase in gross margin also trickled down to the bottomline, with a net margin of 0.5 percent, compared to the negative net margins seen in the last two years.
Revenue in FY18 grew by 15 percent, crossing Rs 5.6 billion in value terms. The majority of the increase was seen in export sales, which grew by 28.5 percent; local sales also saw an increase, by 1 percent. Production cost reduced marginally to almost 93 percent, thus keeping gross margin more or less flat at close to 7 percent. With some support coming from the other income, the operating margin also improved to over 4 percent. But the rise in borrowing rates started to increase the finance expense, as reflected in finance expense making up 2.3 percent of revenue. Thus, net margin increased only marginally to close to 1 percent.
The company remained on its growth trajectory in terms of the topline, which grew by over 11 percent in FY19, crossing Rs 6 billion. Local sales posted a nearly 59 percent rise; it alone contributed Rs 4.8 billion to the topline, whereas export sales declined by over 43 percent. Cost of production was at its lowest thus far, at close to 92 percent, allowing gross margin to increase to 8.3 percent. This also trickled down to the bottomline, although net margin, recorded at over 1 percent, saw only a marginal increase. This was due to a rise in finance expenses as the economy saw high interest rates, high inflation, and currency devaluation. Finance expenses consumed close to 3 percent of revenue.
After growing consecutively for four years, the topline declined in FY20 by 6.3 percent. Export sales, which already saw a major drop in the last year, fell further by almost 11 percent, whereas local sales picked up, growing by 12.5 percent. As the Covid-19 pandemic was rampant, trade was halted, along with production, while supply chains were also interrupted. This, therefore, encouraged domestic consumption. Despite the fall in revenue, production cost made a lower share in revenue, at 89 percent; this was the first time that production cost fell below the 90 percent mark. As a result, gross margin reached an all-time high of 10.6 percent. While this was reflected in the operating margin, which grew to 6.7 percent for the year, the net margin declined to 0.4 percent, due to the escalation in finance expense and taxation. The former was due to a higher borrowing rate.
Recent results and future outlook
Revenue recovered in FY21 considerably as it increased by nearly 26 percent, crossing Rs 7.3 billion in value terms. Local sales registered an over 37 percent rise, while export sales continued to contract, by nearly 17 percent, despite international market demand shifting to Pakistan, as the neighboring competitors grappled with the Covid-19 pandemic. Production cost returned to the level of 90 percent of revenue, reducing gross margin marginally to 9.8 percent. This also trickled down to the operating margin, but the decline in finance expense due to the lowering of interest rates by the State Bank of Pakistan, allowed net margin to rise to an all-time high of over 2 percent. The State Bank of Pakistan reduced the interest rates to provide relief to the businesses during Covid-19; however, the decrease was seen towards the end of FY20, therefore, much of the decline in finance expense is more prominent in the current year, than in FY20.
The textile industry faces several challenges, such as the rising cost of manpower, raw materials and energy. The company has been undertaking BMR activities in order to improve quality and quantity; it also manages raw material procurement to reduce costs, as imported raw material becomes costly due to currency devaluation.