DS Industries Limited

DS Industries Limited (PSX: DSIL) was incorporated in Pakistan as private limited company and later changed its status into a public limited company. The company commenced its commercial operations in 2004. The company is engaged in the manufacturing and selling of yarn.

Pattern of Shareholding

As of June 30, 2022, DSIL has a total of 83.685 million shares outstanding which are held by 1658 shareholders. Local general public has the highest stake of 59.17 percent in the company. This is followed by associated companies and related parties holding 16.26 percent shares of DSIL. Directors and Chief Executive account for 11.8 percent shares of DSIL. Foreign general public hold 9.7 percent shares of DSIL while joint stock companies have 2.44 percent shares. The remaining shares are held by other categories of shareholders.

Performance Trail (2018-22)

Except for an uptick in 2021, the topline of DSIL has been plunging in all the years under consideration. The bottomline also posts a negative figure in all the years except in 2022. The net loss peaked in 2019 and then started dipping thereafter to turn into net profit in 2022. However, it is to be noted that even in 2022, DSIL has posted gross loss and operating loss. The detailed performance review of each of the years under consideration is given below.

In 2019, DSIL’s revenue dropped by 19 percent year-on-year. The company produced less because of shortage of raw material i.e. cotton in the local market. Consequently, it had to import expensive raw material from the international market. This magnified the gross loss by 98 percent year-on-year in 2019. Market induced rise in salaries as well as freight charges pushed the distribution and administrative expense up by 32 percent and 19 percent respectively in 2019. Other expense wreaked havoc in 2019 as it multiplied by a massive 1790 percent in 2019 on the back of impairment allowance for expected credit losses, impairment allowance on property, plant and equipment as well as loss on the sale of property, plant and equipment. Other income also grew by 566 percent as DSIL received waiver on debt finances and accrued markup. Operating loss inclined by 129 percent in 2019. Finance cost grew by 80 percent year-on-year in 2019 on the back of higher discount rate. To make things worse, the share of loss from associate companies also grew by 19 percent year-on-year in 2019. While the loss before tax surged by 207 percent in 2019, the tax benefit attributable to the origination and reversal of temporary differences bridged the gap to a large extent. Resultantly, the net loss of Rs.81.53 million recorded in 2019 is only 8 percent higher than what recorded in 2018. Loss per share inched up to Rs. 0.97 in 2019 from Rs.0.91 in 2018.

In 2020, the topline further fell by 80 percent year-on-year as the demand tamed on the back of outbreak of COVID-19 and the associated slowdown of economic activity. During 2020, the company shifted its operations from the manufacturing of yarn to the manufacturing of value-added ladies garments. This resulted in a gross profit of Rs.2.32 million in 2020 after successive years of posting gross loss. The GP margin, however, is only 2 percent in 2020. Distribution expense climbed by over 900 percent in 2020 due to excessive advertising and sales promotion drives as the company entered a new line of business. Freight and forwarding as well as commission charges also significantly increased during the year. Drastic fall in salaries and benefits as well as directors’ remuneration pushed the administrative expense down by 53 percent year-on-year in 2020. Other expense dipped by around 100 percent in 2020 due to high-base effect as the company booked massive impairments in 2019. Other income also dropped by 72 percent in 2020 as the company received waivers and wrote back liabilities in the previous year. The operating profit shrank by 86 percent in 2020. Finance cost provided some breather in 2020 as it nosedived by 6 percent as DSIL’s short-term borrowings considerably plunged during 2020. The net loss dwindled by 59 percent in 2020 to clock in at Rs.33.48 million while loss per share descended to Rs.0.40.

2021 proved to be blissful for DSIL as its topline boasted a 14 percent year-on-year increase. The cost of sales mounted by 12 percent year-on-year which drove the gross profit up by 127 percent in 2021. GP margin climbed to 4 percent in 2021. Distribution expense slightly increased because of freight and forwarding charges, however, stayed at 21 percent of sales which was in line with last year. Administrative expense fell by 40 percent year-on-year in 2021. Other expense which considerably shrank in 2020 again mounted on the back of GIDC arrears. Other income couldn’t lend any support either as it declined by 45 percent because there were no reversals of impairment allowance on expected credit losses in 2021. This drove up the operating loss by 135 percent in 2021. Finance cost slashed by 30 percent year-on-year in 2021 on account of lower discount rate. The company also earned share of profit from associate companies in 2021 as against the share of loss in 2020. This coupled with deferred tax attributable to origination and reversal of temporary differences reduced the net loss by 71 percent in 2021 to clock in at Rs.9.68 million with a loss per share of Rs.0.12.

After registering a growth in 2021, the topline crashed by 88 percent in 2022 as the company didn’t have enough working capital to ensure sustained production during the year. The banks also didn’t provide any line of credit because the company had earlier defaulted on its loans. This rendered the company short of funds to continue its operations. The company sold its land and building worth Rs.303 million in 2022 to meet its liabilities and prevent potential litigation from its creditors. The gross profit earned by DSIL during the past two years again turned into gross loss in 2022. Distribution expense tumbled by 97 percent in 2022 while administrative expense also declined by 27 percent. The absence of GIDC arrears in 2022 also pushed the other expense down by 93 percent in 2022. Other income grew by 49 percent because of waiver of accrued interest received during the year. The operating loss shrank by 78 percent in 2022. Finance cost ticked down by 1 percent in 2022. The recognition of deferred tax assets in 2022 pushed the bottomline into net profit worth Rs.28.61 million in 2022. The EPS clocked in at Rs.0.34 in 2022.

Recent Performance (9MFY23)

During 9MFY23, net sales marginally grew by 8 percent year-on-year. Due to reduction in the cost of sales, the company was able to post a gross profit of Rs.5.83 million in 9MFY23 as against the gross loss of Rs.14.07 million during the same period last year. GP margin clocked in at 35 percent in 9MFY23. While operating expense significantly increased during the year, there were no other expenses during the period under review. Other income jumped by over 700 percent in 9MFY23 maybe because of waivers on accrued interest. This made DSIL able to post an operating profit of Rs.7.10 million in 9MFY23 as against the operating loss of Rs.26.91 million in 9MFY22. OP margin was recorded at 42 percent, even higher than the GP margin. Finance cost also dipped by around 100 percent which might be because of the waivers on accrued interest given by the creditors. The share of loss from associate companies also dropped by 81 percent in 9MFY23. Consequently, DSIL posted a net profit of Rs.4.89 million in 9MFY23 as against the net loss of Rs.33.15 million in 9MFY22. The company posted an EPS of Rs.0.06 in 9MFY23 as against the loss per share of Rs.0.40 during the same period last year.

Future Outlook

Having defaulted on its liabilities in the past, DSIL is facing a dearth of net working capital as the creditors are skeptical of the company’s abilities to pay off its liabilities in the future. As the company starts making profit, it should seek equity financing to reduce its debt burden and lower its finance cost.