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Din Textile Mills Limited (PSX: DINT) was incorporated in Pakistan in 1988. The company is engaged in the manufacturing and sale of yarn and fabric.

Pattern of Shareholding

As of June 30, 2023, DINT has a total of 52.467 million shares outstanding which are held by 851 shareholders. Directors, CEO, their spouse and minor children have the majority stake of 46.64 percent in DINT followed by local general public holding 27.78 percent shares of the company. Associated companies, undertaking and related parties account for 23.16 percent shares of the company. Around 1.53 percent of DINT’s shares are held by NIT & ICP. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

DINT’s topline has been riding an upward trajectory over the period under consideration while its bottomline declined twice i.e. in 2020 and 2023. In 2023, the company registered net loss. Its margins which considerably improved in 2019 fell in 2020. This was followed by two successive years of resurgence of margins. In 2023, DINT’s margins collapsed. The detailed performance review of the period under consideration is given below.

In 2019, DINT’s net sales posted a healthy year-on-year growth of 21.96 percent due to considerable improvement in both local and export sales. Improved local sales volume coupled with Pak Rupee depreciation which made export sales highly lucrative drove DINT’s gross profit up by 63.17 percent in 2019 with GP margin climbing up to 11.4 percent versus 8.5 percent in 2018. Selling & distribution expense tumbled by 10.37 percent in 2019 due to lower ocean freight and air freight charges incurred during the year while local freight charges continued to built up signifying higher sales volume in the home market. Administrative expense also picked up by 9.5 percent in 2019 on account of higher payroll expense as additional human resources were hired during the year to cater to high demand. In 2019, DINT’s workforce comprised of 2632 employees versus 2586 employees in 2018. 159.85 percent escalation in other expense in 2019 was the consequence of higher profit related provisioning as well as loss on sale of fixed assets. Operating profit mounted by 79.66 percent in 2019 with OP margin rising up to 9.1 percent versus 6.2 percent in the previous year. DINT’s financial charges surged by 78.83 percent in 2019 on account of higher discount rate as well as increased external borrowings. As a consequence, the company’s gearing ratio built up from 65.12 percent in 2018 to 69.59 percent in 2019. Net profit rebounded by 150.16 percent in 2019 to clock in at Rs.362.45 million with EPS of Rs.10.46 versus EPS of Rs.4.97 in 2018. NP margin also spiraled from 1.5 percent in 2018 to 3.1 percent in 2019.

In 2020, DINT’s net sales multiplied by 7.89 percent. Sales volume plunged during the year owing to COVID-19. Low capacity utilization resulted in lower absorption of fixed cost during the year, culminating into 1.82 percent year-on-year decline in gross profit. GP margin also shrank to 10.4 percent in 2020. Distribution expense mounted by 15.56 percent in 2020 on the back of higher local freight charges as well as increased clearing & forwarding charges. Administrative expense also mounted by 25.53 percent in 2020 due to higher payroll expense as number of employees increased to 2656 in 2020. DINT curtailed its profit related provisioning during the year. This coupled with no loss incurred on the sale of fixed assets unlike last year drove other expense down by 15.91 percent in 2020. Other income magnified by 1301 percent in 2020 to clock in at Rs.6.95 million due to gain on sale of fixed assets as well as government grant received during the year. Operating profit contracted by 5.42 percent in 2020 with OP margin dropping down to 8 percent. Finance cost grew by 29.17 percent in 2020 due to increased long-term borrowings as well as higher discount rate for the initial three quarters of 2020. Net profit descended by 89.89 percent in 2020 to clock in at Rs.36.63 million with EPS of Rs.0.86. NP margin slipped to 0.3 percent in 2020.

In 2021, DINT’s net sales posted robust recovery of 41.33 percent on the back of sound growth in both local and export sales. During the year, the company also setup a weaving unit with the capacity of 144 looms. Higher sales volume coupled with better yarn prices in local and international market as well as cost control measures implemented by the management resulted in 140.71 percent higher gross profit recorded by the company in 2021 with GP margin ascending to 17.6 percent. Distribution expense posted a steep hike of 96.48 percent in 2021 due to higher ocean freight and local freight charges as well as elevated clearing and forwarding charges. Increased capacity utilization and commissioning of weaving unit required additional resources which took the total human resources count to 3405 in 2021. This resulted in 44.81 percent higher administrative charges in 2021. DINT also made greater provisioning for WWF and WPPF during 2021 which combined with loss incurred on the sale of fixed assets pushed other expense up by 202.59 percent. This was partially offset by 1011.43 percent higher other income recorded by the company in 2021. Superior other income was the result of government grant of Rs.76.97 million received during the year. Operating profit posted staggering growth of 165.77 percent in 2021 with OP margin picking up to 15 percent. Monetary easing resulted in 14 percent drop in finance cost in 2021 despite hefty long-term loans obtained during the year. Net profit progressed by 4166.31 percent in 2021 to clock in at Rs.1562.92 million with EPS of Rs.29.79. NP margin mounted to 8.9 percent in 2021.

During the period under consideration, 2022 stands out on account of highest year-on-year topline growth of 77.72 percent. This was the result of better local and export sales made during the year coupled with higher yarn prices. Increased volume and prices as well as higher margin on export sales due to Pak Rupee depreciation drove gross profit up by 91.79 percent in 2022 with GP margin rising up to 19 percent – the highest during the period under consideration. Distribution expense soared by 186.66 percent in 2022 particularly due to significantly higher ocean freight charges and local freight charges on the back of improved volume as well increase in petroleum prices. Administrative expense escalated by 23.79 percent in 2022 due to significantly higher payroll expense due to inflation as well induction of additional resources which took the workforce to 3488 employees. Increased profit related provisioning and provisioning for doubtful debt pushed other expense up by 101 percent in 2022. Other income also grew by 63.76 percent in 2022 due to government grant of Rs.116.846 million received during the year. Operating profit multiplied by 94.19 percent in 2022 with OP margin boasting its highest value of 16.3 percent. Monetary tightening coupled with elevated short-term borrowings pushed finance cost up by 98.21 percent in 2022. Net profit spiraled by 120.31 percent year-on-year in 2022 to clock in at Rs.3443.297 million with EPS of Rs.65.63 and NP margin of 11 percent.

DINT’s net sales growth couldn’t impress in 2023 as it stood at a meager 3.07 percent. This was due to decline in sales volume both locally and globally owing to world-wide recession, elevated prices of gas & electricity, removal of subisidies, import restrictions, Pak Rupee depreciation, and unprecedented level of discount rate, political headwinds and scarcity of locally produced cotton due to floods at the onset of FY23. All these factors inflated cost of sales by 15 percent in 2023 resulting in 48 percent year-on-year plunge in gross profit with GP margin falling down to 9.6 percent. Distribution expense surged by 53.53 percent in 2023 due to exceptionally high freight charges on account of spike in petroleum prices. Administrative expense picked up by 6.76 percent in 2023 on the back of high vehicle running & maintenance charges, utility expense, repair & maintenance and miscellaneous expenses incurred during the year. While number of employees grew from 3488 in 2022 to 3507 in 2023, DINT was able to trim down its payroll expense. Other expense plummeted by 86.62 percent in 2023 due to no profit related provisioning made during the year. Other income performed well as it enlarged by 48 percent in 2023 due to gain on translation of foreign currency account and government grant received during the year. Operating profit dwindled by 53.36 percent in 2023 with OP margin sliding down to 7.4 percent. 116.96 percent bigger finance cost incurred during the year was the effect of higher discount rate as increased short-term and long-term borrowings obtained during the year. DINT incurred net loss of Rs.867.523 million in 2023 with loss per share of Rs.16.53.

Recent Performance (1HFY24)

During 1HFY24, DINT’s net sales posted robust 43 percent year-on-year rise. However, 60 percent year-on-year surge in cost of sales due to high cost of raw materials particularly elevated cost of electricity trimmed down DINT’s gross profit by 78 percent year-on-year in 1HFY24 with GP margin drastically falling from 12.4 percent in 1HFY23 to 1.9 percent in 1HFY24. Due to sluggish demand, the company was able to record 15 percent decline in its distribution expense during the period, however, administrative expense ticked up by 6 percent on account of inflationary pressure. DINT cut down its other expense by 79 percent in 1HFY24 by making lesser profit related provisioning. Conversely, other income recoiled by 15 percent during the period maybe on account of government grant. Despite keeping a check on its expenses, DINT posted 96 percent lower operating profit in 1HFY24 with OP margin falling down to 0.3 percent from 9.5 percent in 1HFY23. Finance cost continued to escalate during the period due to historic high level of discount rate. As a consequence, DINT posted net loss of Rs.1960.69 million in 1HFY24 versus net profit of Rs.24.93 during 1HFY23. Loss per share stood at Rs.37.37 versus EPS of Rs.0.38 during the same period last year.

Future Outlook

The availability of ample, good quality and cheaper local cotton will have a positive impact on DINT’s cost of sales. However, increase in power tariff and appreciation of Pak Rupee against the greenback will tend to squeeze the margins.

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