Crescent Cotton Mills Limited

Crescent Cotton Mills Limited (PSX: CCM) was set up in 1959 under the provisions of Companies Act, 1913 (now Companies Ordinance, 1984). The company manufactures and sells yarn and hosiery items. It also trades in cloth and has an embroidery unit as well.

Shareholding pattern

As at June 30, 2022, about 29 percent shares are owned by the directors, CEO, their spouses and minor children. Mrs. Nazish Arshad and Mr. Nveed Gulzar are major shareholders within this category. The local general public owns close to 41 percent shares, followed by over 14 percent held under executives. The remaining roughly 16 percent shares are with the rest of the shareholder categories.

Historical operational performance

Crescent Cotton Mills has seen a fluctuating topline throughout the past decade, with profit margins, in the last six years rose between FY17 to FY21, before declining in FY22.

In FY18, the company witnessed the largest growth in revenue by nearly 53 percent, from almost Rs 4 billion in FY17 to Rs 6 billion in FY18 in value terms. This was attributed to the acquisition of a spinning unit. This is also reflected in the higher installed capacity for the year. But cost of production remained above 90 percent, as it consumed 96 percent of revenue, limiting gross margin to single digits, as seen at 4 percent. With lower gain on sale of investments and remeasurement of fair value investment properties for the year that contributed significantly to the bottomline in the previous year net margin for FY18 was reduced to 0.1 percent.

Topline in FY19 continued to grow, at over 21 percent to reach an all-time high of Rs 7.4 billion in value terms. This was attributed to local sales that registered a growth of 28.6 percent. Due to quality and production of cotton, export sales could not pick up as much despite currency devaluation. In addition, events like US-China trade war and Brexit also played a role in creating an adverse impact. Production cost was undeterred at 96 percent, keeping gross margin flat at around 4 percent. Coupled with an additional drop in other income, and a rise in finance expense, the company incurred a net loss of Rs 91 million.

In FY20, revenue fell by over 25 percent which was the biggest decline the company had seen since 2011. This was partially attributed to the outbreak of the Covid-19 pandemic in the second half of the year that led to strict lockdowns. As a result, production processes came to an abrupt halt in a lot of industries. The pandemic also led to supply chain disruptions due to border closures that caused an increase in prices. But despite the loss in revenue, gross margin improved to 6.6 percent as cost of production reduced to 93.4 percent of revenue. This also trickled to the net margin that was recorded at a positive 0.76 percent, with a bottomline of Rs 42 million.

Topline declined in FY21 as well, although marginally by 2 percent. This was a result of disposal of a spinning unit that was located in Hyderabad, Kotri. It had stopped operations in 3QFY20. This also resulted in a reduction of installed capacity. Moreover, local sales, that contributed the majorly to the total revenue, were lower by 8 percent, while export sales nearly doubled year on year. However, the latter had a smaller share in total revenue. With cost of production falling below 90 percent of revenue after seven years, gross margin reached a peak of 13.4 percent. Coupled with relatively higher contribution by other income, net margin was also at its highest of almost 6 percent. At Rs 321 million, bottomline too, reached a peak.

Recent results and future outlook

Topline bounced back in FY22 as it posted a growth of 31.6 percent to reach Rs 7 billion in value terms. Export sales improved incredibly from Rs 634 million in FY21, to Rs 1.6 billion in the current period. Local sales also witnessed a growth, of 14.6 percent, remaining the major contributor to total revenue. The improvement in revenue overall is attributed to inclusion of home textiles segment. But gross margin fell again, to 10.2 percent as cost of production inched closer to 90 percent of revenue as prices of inputs rose due to inflationary pressures. This also trickled to net margin that was recorded at a lower 3.5 percent. Bottomline was also lower year on year at Rs 249 million.

The damage the floods have created to crops is expected to spell disaster for the country as Pakistan is considered one of the largest producers of cotton. Moreover, the textile industry is considered to make valuable contributions to the country’s exports. As a result, prices are expected to increase. In addition, global demand has also been adversely impacted due to ongoing economic and political scenario, but the upcoming Christmas season is expected to bring in orders.