Khyber Textile Mills

Khyber Textile Mills (PSX: KHYT) was incorporated as a Public Limited Company in Pakistan in 1961. The company was initially engaged in the manufacture and sale of cotton and polyester yarn and cloth, however, since 2017, the company has suspended the textile production line and is engaged in the agricultural livestock business. Moreover, it has been renting its excess buildings for warehousing and rental purposes since 2016 as an alternate line of business.

Pattern of Shareholding

As of June 30, 2022, KHYT has 1.2 million shares outstanding which are held by 474 shareholders. General public is the largest shareholders of the company with an ownership of 98.2 percent shares. The remaining shares are held by insurance companies, joint stock companies, financial institutions, investment companies etc.

Historical Performance (2018-2022)

While the topline of KHYT has been enlarging since 2018, its bottomline appears to be in the profit zone only in two years – 2018 and 2021. It is striking to note that even in 2018 and 2021, the company made operating losses just like other years but “other income” came to rescue the bottomline from making net losses. Another key observation is that the KHYT has been making gross profit in all the years under consideration; however, hefty administrative expenses don’t allow the gross profit to trickle down to net profit. Administrative expenses elevate to as high as 7 times of the company’s topline in 2018. However, over the years, the company has been able to shrink its administrative expenses proportionally which now stand at 1.05 times of its topline – still an enormous fraction.

Let’s delve into these two accounts – “other income” and “administrative expenses” which have been the game changers for KHYT’s bottomline. “Other income” account mainly comprises of trade creditors written back. In administrative expenses account, the main culprit is depreciation expense which inflates this account to an abysmally high value.

Another factor which tends to buttress the company’s bottomline is the rental income on its vacant buildings and warehouses, however, in the presence of giant administrative charges; all efforts to strengthen the bottomline appear to go in vain.

Unlike other industries which remained under severe pressure during 2020 owing to global pandemic, KHYT’s topline boasts the highest growth of 129 percent in 2020. The main source of revenue being the sale of livestock appears to be unaffected from the lockdowns imposed from March 2020 onwards; however, with the government restrictions on all non-essential business activities, the rental income of the company took a hit in 2020. Consequently, the company posted net loss worth Rs. 1.5 million in 2020. Other income in the form of liabilities written back lowered the magnitude of net loss by 46 percent year-on-year.

In short, in the absence of liabilities written back, the company’s sources of revenue – livestock sale and rental income don’t appear to be strong enough to translate into a positive bottomline in the presence of huge administrative expense mainly on account of depreciation charges. However, it is to be noted that it is a non-cash expense and doesn’t affect the liquidity of the company.

Recent Performance (1HFY23)

During 1HFY23, KHYT’s livestock and rental business remained strong with a year-on-year growth of 16 percent and 6 percent respectively. GP margin grew from 25 percent in 1HFY22 to 32 percent in 1HFY23. During the year, the company used its idle land for agricultural activities such as growing fodder for the livestock which reduced the input cost of the company. However, given the unabated administrative expenses, the company couldn’t make operating profit. Operating loss margin plunged from 26 percent in 1HFY22 to 14 percent in 1HFY23. There was no other income as apparently, there are no liabilities to write back in 1HFY23. Hence, bottomline stayed in the loss zone with net loss worth 0.187 million in 1HFY23 versus Rs. 1.07 million in the same period last year.

Future Prospects

The company doesn’t appear to be resuming its textile business in near future under litigation of default; however, its livestock and rental business are strong enough to fetch reasonable revenue for the company. The magnitude of losses have been declining as the company has been able to control its administrative expense which now stands at 70 percent of its revenue unlike as high as 700 percent. The net loss margin clocks in at 2 percent in 1HFY23 versus 12 percent in the same period last year. If the same continues, the company’s bottomline will soon enter the profit zone.