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Nishat Mills Limited (PSX: NML) released its 1HFY19 result recently which saw the company beat market expectations and register decent growth in its top line. Revenues for the textile juggernaut rose by 20 percent on a year-on-year basis. The gross profit surged by almost 46 percent due to a lesser impact of cost of goods sold which saw a 17 percent increase.

But what really helped the bottom line was sizeable other income received during 2QFY19, which might be attributable to exchange gains on foreign currency receivables. Due to the delay in processing of refunds, the company’s finance cost jacked up by 46 percent for 1HFY19 as compared to the same period last year. The higher borrowing costs might be due to fund working capital requirements.

NML’s gross margin increased by 214 bps, while its net margin remained stable at 10 percent on a yearly basis. The company saw its PAT rise by 19 percent year-on-year helped by both its top line and other income while distribution and admin costs saw only a modest increase in 1HFY19.

Many of the woes of the textile industry have been addressed by the incumbent government, which has included a slash in utility prices. Gas prices for the textile sector have been brought down to $6.5/mmbtu which will help bring down the cost of production while duties on import of raw materials for the sector have also been removed.

Therefore, it came as no surprise that NML’s CEO Mian Mansha is bullish on the textile outlook and in a recent interview to BR Research disclosed that the company is looking to expand its production capacity by almost 50 percent on the value added segments side.

Even though the government has announced to issue promissory notes to deal with the Rs100 billion plus in stuck textile refunds, implementation is awaited by textile stakeholders. The 2HFY19 might see additional top line growth for NML and other textile firms given that most demands of the industry have been met.

Copyright Business Recorder, 2019

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