Shahtaj Textile Limited (PSX: STJT) was incorporated in Pakistan as a public limited company in 1990. The company is engaged in the manufacturing and sale of textile products.
Pattern of Shareholding
As of June 30, 2023, STJT has 9.66 million shares outstanding held by 1148 shareholders. The local general public has the majority stake of 40.71 percent in STJT followed by the company directors, CEO, their spouse, and minor children holding 38.03 percent of its shares. Associated companies, undertakings, and related parties account for 15.53 percent shares of STJT while NIT and ICP hold 4.92 percent shares. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-23)
Except for a dip in 2020, STJT’s topline has been riding an upward trajectory over the period under consideration. Conversely, its bottom line slid twice during the period i.e. in 2020 and 2023. The company’s margins posted a significant rise in 2019. In 2020, gross margin inched up while operating and net margins fell. This was followed by a considerable growth in all the margins in 2021. For the next two years, STJT’s margins continued to erode. The detailed performance review of the period under consideration is given below.
In 2019, STJT’s topline grew by 21.97 percent due to an increase in local and export sales volume during the period coupled with depreciation of local currency, which increased the company’s translation gain. Owing to increased demand, the company operated at 90.71 percent capacity to produce 58.624 million square meters of textile products (converted to 60 picks) versus 89.44 percent capacity utilization achieved by the company in 2018. Cost of sales didn’t hike proportionately as the government reduced RLNG price at USD 6.5 per MMBTU as well as power tariff to 7.5 cents for each unit of electricity for export sector. This greatly kept energy cost in check and resulted in a 51.7 percent year-on-year enhancement in gross profit in 2019. GP margin also improved from 7.54 percent in 2018 to 9.37 percent in 2019. 5.97 percent higher distribution expense incurred in 2019 was on account of higher export duty, increased claims from buyers, elevated fee & subscription charges as well travelling & conveyance charges incurred during the year. Administrative expense also inched up by 4.79 percent in 2019 primarily on the back of higher payroll expense. Other expense mounted by 167.38 percent year-on-year in 2019 due to higher profit-related provisioning and stores and spares written off during the year. However, it was conveniently offset by 335 percent higher other income recorded by STJT during the year which was the result of robust exchange gain as well as gain on sale of fixed assets. Operating profit multiplied by 140 percent year-on-year in 2019 with OP margin picking up from 3.6 percent in 2018 to 7.08 percent in 2019. Finance cost climbed up by 54.48 percent year-on-year in 2019 due to higher discount rate and increase in external borrowings during the year. Net profit magnified by 176 percent year-on-year in 2019 to clock in at Rs.188.05 million with EPS of Rs.19.47 versus EPS of Rs.7.05 in 2018. NP margin also improved from 1.73 percent in 2018 to 3.93 percent in 2019.
After posting staggering performance in 2019, STJT’s topline eroded by 8.81 percent in 2020. This was on account of lockdown imposed during the year which not only halted the operations of the company but also squeezed demand both locally and internationally. STJT’s capacity utilization fell to 84.79 percent in 2020 owing to sluggish demand. Gross profit tumbled by 6.12 percent in 2020, however, GP margin slightly improved to clock in at 9.65 percent in 2020 due to increase in selling prices. Distribution expense went down by 10.9 percent in 2020 due to lower sales volume which kept a check on export duty and ocean freight. Furthermore, there were no claims from buyers in 2020 unlike last year. Administrative expense inched up by 7.66 percent in 2020 due to inflationary pressure. Other expense expanded by 146.47 percent in 2020 due to loss incurred on the sale of old generators which were replaced by the new ones. Conversely, other income shrank by 99.68 percent in 2020 due to tremendous exchange gain on export sales recorded by the company in the previous year. Operating profit diminished by 42.93 percent year-on-year in 2020 with OP margin dropping to 4.43 percent. Finance cost inched down by 8.15 percent in 2020 due to considerable decline in short-term borrowings coupled with the start of monetary easing cycle from the latter half of FY20. Net profit nosedived by 61.41 percent year-on-year in 2020 to clock in at Rs.72.57 million with EPS of Rs.7.51 and NP margin of 1.66 percent.
In 2021, STJT attained top-line growth of 13.10 percent. This was on account of the resumption of export orders which not only increased the sales volume but also resulted in upward price changes. Capacity utilization stood at 89 percent in 2021 which translated into production of 57.535 million square meters of textile products. Improvement in selling prices translated into 30.62 percent higher gross profit recorded by STJT in 2021 with GP margin mounting to its optimum high of 11.14 percent. Distribution expense inched up by 1.53 percent in 2021 as high ocean freight charges were offset by low export duty, fee & subscription charges as well as travelling & communication charges incurred during the year. 6.75 percent higher administrative expense signified high inflation in 2021. Other expense slumped by 38.62 percent in 2021 due to high base effect as the company incurred loss on sale of old generators in 2020. During 2021, STJT made greater provisioning for WWF and WPPF and incurred exchange loss versus exchange gain in the previous year. Operating profit picked up 73.27 percent in 2021, with OP margin rising to 6.78 percent. STJT was able to cut down its finance cost by 40.9 percent in 2021 due to monetary easing coupled with lower outstanding short-term borrowings. Long-term borrowings increased during the year; however, they were obtained under schemes such as TERF and SBP Refinance facilities which carry lower rates. STJT’s gearing ratio moved down from 42 percent in 2020 to 36 percent in 2021. Net profit mounted by 198.95 percent year-on-year in 2021 to clock in at Rs.216.959 million with EPS of Rs.22.46 and NP margin of 4.39 percent.
In 2022, STJT recorded the highest-ever topline growth of 51 percent. This was mainly on the back of a staggering rise in the sales price of fabric. During the year, the company’s rated capacity increased from 64.627 million square meters to 65.304 million square meters. STJT operated its plant at 88.66 percent capacity in 2022. Sharp increase in the price of yarn coupled with Pak Rupee depreciation and elevated energy cost didn’t allow STJT’s GP margin to flourish. Consequently, it fell to 9.83 percent despite 33.21 percent higher gross profit recorded by the company in 2022. The 60.90 percent higher distribution expense incurred by STJT in 2022 was the result of higher export sales and hike in ocean freight and local freight charges due to escalating oil prices. Administrative expense also multiplied by 11.28 percent in 2022 due to higher payroll expense in the wake of inflationary pressure. Other expense dropped by 7.04 percent while other income improved by 6146.72 percent in 2022 as exchange loss was replaced by exchange gain in 2022. All these factors translated into 45.75 percent healthier operating profit recorded by STJT, however, OP margin slightly dipped to 6.55 percent in 2022. There was a substantial increase in the company’s working capital requirements during the year on the back of an increase in raw material prices, built-up of trade receivables and piling up of finished goods inventory due to delay in lifting by the buyers. These factors coupled with monetary tightening caused finance cost to spike by 82.35 percent in 2022. STJT’s gearing ratio also surged to 52 percent in 2022. Net profit grew by 38.3 percent year-on-year in 2022 to clock in at Rs.300.049 million with EPS of Rs.31.06 and NP margin of 4.02 percent.
STJT recorded 8.45 percent topline growth in 2023 on account of higher sales volume. Capacity utilization stood at 88.17 percent in 2023 which translated into production of 57.58 million square meters of textile products. High raw material cost, conversion cost and Pak Rupee depreciation inflated sales cost by 10.74 percent in 2023. The company couldn’t pass on the impact of high cost to its customers due to intense competition and the global recession. This resulted in 12.56 percent thinner gross profit in 2023. GP margin also declined to 7.93 percent in 2023. Distribution expense tumbled by 8.3 percent in 2023 due to lower shipping freight charges compared to last year. 13 percent taller administrative charges incurred during the year were the result of mounting inflationary pressure. Other expense slipped by 34.43 percent in 2023 due to lower profit-related provisioning made by STJT in 2023. Other income multiplied by 218.16 percent in 2023 due to higher exchange gain. Operating profit slid by 7.5 percent in 2023 with OP margin sinking to 5.58 percent. The unprecedented level of discount rate pushed up finance cost by 147.92 percent in 2023 resulting in 49 percent smaller net profit of Rs.153.02 million recorded by STJT in 2023 with EPS of Rs.15.84 and NP margin of 1.89 percent.
Recent Performance (1HFY24)
The growth trajectory of STJT’s topline couldn’t continue in 2024 as the company recorded 6.7 percent lower net sales in 1HFY24. This was due to lower sales volume and more sales orders executed for weaving charges during the period. Sales for the period also included a larger volume of piled stocks. This kept the company immune to further increase in cost of sales during the period and resulted in 10.5 percent higher gross profit recorded by STJT in 1HFY24. GP margin also enhanced from 7.31 percent in 1HFY23 to 8.66 percent in 1HFY24. Distribution expense slid by 3 percent due to curtailed sales volume. However, inflation didn’t spare administrative charges which grew by 3.3 percent in 1HFY24. 186 percent higher other expense and 20.5 percent lower other income was the result of exchange loss on export receipts recorded in 1HFY24 due to appreciation of Pak Rupee versus exchange gain recorded in 1HFY23. Operating profit grew by 4.7 percent in 1HFY24 with OP margin clocking in at 5.7 percent versus 5.08 percent in 1HFY23. Finance cost escalated by 67.3 percent in 1HFY24 due to elevated working capital requirements, high interest rate, and discounting charges on local LCs. Net profit dwindled by 70.9 percent in 1HFY24 to clock in at Rs.24.8 million with EPS of Rs.2.57 versus EPS of Rs.8.83 during the same period last year. While STJT improved its operating and gross margin during the period, its net margin gave in to high finance cost and clocked in at 0.6 percent in 1HFY24 versus 1.92 percent in 1HFY23.
Future Outlook
With global demand promising no significant recovery in the coming times coupled with the stumbling blocks of high energy cost, high inflation and finance cost, the company’s profitability and margins warrant no improvement. The stability of the Pak Rupee of late has also reversed the translation gain on export receipts and has made value-added textile exports uncompetitive in the international market.
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