Zephyr Textiles Limited

Zephyr Textiles Limited (KSE:ZTL) was initially started as a brokerage and merchandising firm under the name of "Agentex" in 1996. In 1999 however, Zephyr Textiles (Pvt) Ltd was established to capitalise on the rapidly growing weaving sector. By mid-2005, the company was listed and today its market capitalisation is north of Rs 439 million.
Zephyr is a producer and exporter of greige fabrics made from various blends of cotton and polyester yarns. This fabric is used by both home textile and garment manufacturers. In addition, the company offers an array of bleached, dyed, and printed fabrics with an extensive range of fabric finishes. The company also produces terry products in a range of qualities and weights such as towels, bath robes, and bathmats to cater to the basic and luxury ends of the laundry and retail markets. These are manufactured as plain-dyed and yarn-dyed using different varieties of imported and local cotton.
The company has made continuous investments to improve its plant capacity and productivity. As of FY15, it had 251 looms in the greige fabric unit and 30 looms in its towel unit which can weave 11.5 metric tons per day in a variety of designs.
Prior Performance Zephyr Textiles has witnessed decent top line growth from FY12 to FY14, but its profitability has always been erratic - particularly in FY12, where the Director's Report cites domestic and international recession and decrease in sales prices as the main cause of declining profitability. However, the most recent fiscal year of FY15 has been one of solid profitability despite lower top line growth year-on-year. This was the period where cotton and fuel prices hit all-time lows, giving the margins a decent boost.
An interesting trend to note is that of exports and local sales. The company's exports have been falling as of late, while local sales have been on an uptrend; exports went from accounting for over 45 percent of the company's sales in FY12 to just 29 percent in FY15. The company seems to be losing its market share internationally. A lower Rupee-Dollar parity didn't help either.
In terms of operations, the company's greige fabric and towel production do not follow any definite trend. However, the towel dyeing and processing unit has reported a steady increase over the past four years, increasing by 60 percent over this period.
Although the company's books don't contain segment-wise reporting, one can only assume that greige fabric is the weakest of the segments, as it is the least value-added and thus fetches the lowest price.
Recent Performance For the first quarter ended FY16, Zephyr Textile's performance has not been too promising; the company's sales have fallen by 11 percent year-on-year, while gross profits also fell by 13 percent. Gross margins stayed flat year-on-year, which means the company has been getting a lower price in the market for its products.
The bottom line figure has more than doubled over the prior year, and net margins were up by a marginal 50 basis points year-on-year. However, this was solely due to a 26 percent lower finance cost over the prior year.
Being an exporter of greige fabric and towels, it's a surprise that the company's profitability has been lower, given the decline in yarn prices. Back-of-the-envelope calculations indicate that the profitability of Pakistan's cotton cloth and towel exports both increased in the first quarter of FY16 over last year.
In its last yearly Director's Report, the company cites production bottlenecks due to load shedding, not to mention high energy and labour costs. If that is the case, Zephyr needs to get its house in order because every textile industry in Pakistan suffers from the same problem yet most give a respectable profitability.
Outlook Last year, Zephyr Textiles launched a line of men's wear fabric for the domestic market under the "Zebrands" division. The initial results were encouraging, and this division is expected to grow by 100 percent with further growth planned over the next three years, as per the Director's Report.
The company is also looking to enhance towel capacity, with a plan to invest Rs 120 to 150 million in additional equipment in the areas of terry weaving, terry finishing, yarn dyeing and automated stitching.

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Zephyr Textiles Limited

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Rs (Million)               1QFY16    1QFY15           YoY

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Sales                         876       989          -11%

Cost of Sales                 800       901          -11%

Gross Profit                   77        88          -13%

GP Margin                      9%        9%   down 10 bps

Operating Expenses

(Admin & Selling etc)          30        33           -9%

Other Operating Income          2         2            0%

Other Operating Expenses        1         2          -50%

Finance Cost                   35        47          -26%

Taxation                        5         6          -17%

Profit After Tax                7         3          133%

NP Margin                      1%        0%     up 50 bps

EPS                          0.11      0.04          175%

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