Zahidjee Textile Mills Limited

Zahidjee Textile Mills Limited (PSX: ZAH-ID) was established as a public company in 1990 under the Companies Ordinance, of 1984. It primarily exports value-added fabrics, while also manufacturing and selling yarn. Its manufacturing facilities are located in Faisalabad.

As of June 30, 2022, over 96 percent of shares are owned by the company’s directors, CEO, spouses, and minor children. Within this category, the majority of shares are owned by Mr. Ahmad Zahid. The local general public holds 2.5 percent shares. A breakup of the shareholding is given in the illustration.

Historical operational performance

Zahidjee Textile Mills Limited has consistently seen a growing topline, albeit at varying rates. Profit margins, in the last six years specifically, have followed an upward trajectory.

In FY18, revenue registered a growth rate of close to 20 percent. This was attributed to a rise in both, export sales as well as local sales, by 14.4 percent and 32.7 percent, respectively. This, in turn, was a result of capacity expansion that increased production. The company installed 17,472 spindles during the year. While the gross margin remained more or less flat at 10 percent, as the cost of production continued to consume around 90 percent of revenue, the net margin increased marginally to over 3 percent, compared to 2.7 percent seen in FY17. This was due to a slight decrease in finance expense as a share in revenue, coupled with an additional Rs13 million contributed by trading profit.

Zahidjee Textile Mills Limited witnessed the biggest revenue growth in FY19 seen thus far at over 30 percent, crossing Rs13 billion in value terms. Export sales and local sales continued their double-digit growth momentum as they increased by almost 16 percent and 35 percent, respectively. Currency devaluation encouraged export sales as the formerly made goods were competitive in the global market. On the other hand, the cost of production reduced marginally to 89 percent of revenue, allowing the gross margin to increase to almost 11 percent. While this also trickled into the operating margin, the net margin, recorded at 5.8 percent, was higher by a somewhat greater margin due to a positive tax figure of Rs37 million compared to a taxation expense of Rs249 million in the previous year. However, the profit before taxation margin is stagnant at 5.5 percent for the years FY18 and FY19.

Zahidjee Textile Mills Limited witnessed single-digit growth in FY20 for the second time since FY13, at 3.4 percent. This was a reflection of a general economic slowdown at the start of the year, combined with the outbreak of the Covid-19 pandemic in the second half. Local sales decreased by less than 1 percent, whereas export sales grew by 19 percent, but it must be noted that local sales are the major contributor to revenue. Moreover, capacity utilization remaining above 80 percent consistently for almost a decade is indicative of the fact that demand for Pakistan’s textile products is considerable. Production cost was reduced to almost 88 percent of revenue, allowing the gross margin to increase to 12 percent. Growth in net margin was again contained, rather reduced to 5 percent due to the highest taxation expense seen thus far. However, the profit before taxation margin increased to 7 percent for the period.

Revenue bounced back in FY21 for Zahidjee Textile Mills Limited as it experienced a growth of 19.5 percent year-on-year. This was the highest seen thus far. Export sales more than doubled year on year, while local sales saw a decrease of 6 percent, yet it continued to be the major contributor to total revenue. This is attributed to demand recovery, particularly for the value-added segment of the textile sector as trade resumed that had halted or was minimal with a large number of countries under a lockdown. With the cost of production reduced to 85.7 percent, the gross margin improved to 14.3 percent. Coupled with the lower share in the revenue of operating and finance expenses, the net margin also improved to 9.4 percent, whereas the bottom line was recorded at over Rs1.5 billion.

Zahidjee Textile Mills Limited witnessed an all-time high revenue growth of over 68 percent, in FY22 with the topline also reaching a high of almost Rs28 billion. While export sales fell by almost 29 percent, local sales that make up most of the total sales more than made up for the loss as it more than doubled. This was attributed to a better pricing mechanism. Combined with the cost of production falling to an all-time low of almost 80 percent of revenue, the gross margin peaked at 20 percent. With little changes in other elements of the financial statement, the net margin also reached a peak of over 14 percent, followed by the bottom line which was recorded at its highest.