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, 2024, STJT has a total of 9.66 million shares outstanding which are held by 1144 shareholders. Local general public has the majority stake of 40.83 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 (2019-24)
Except for a dip in 2020 and 2024, STJT’s topline has been riding an upward trajectory over the period under consideration. Conversely, its bottomline slid thrice during the period i.e. in 2020, 2023 and 2024. 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. In 2024, gross margin posted a rise which operating and net margins deteriorated further. The detailed performance review of the period under consideration is given below.
In 2019, STJT’s topline grew by 21.97 percent to clock in at Rs.4787.65 milliom. This was on account of an increase in both local and export sales volume during the period coupled with depreciation of local currency which increased translation gain for the company. 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 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 posted 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 to clock in at Rs.4365.77 million. This was on account of lockdown imposed during the year which not only halted the operations of the company but also squeezed the 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 10.90 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 high-base effect as the company recorded tremendous exchange gain on its export sales 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 topline growth of 13.10 percent. This resulted in net sales of Rs.4937.49 million in 2021. This was on account of resumption of export orders which not only increased the sales volume but also resulted in upward price revisions. 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 the sale of old generators in 2020. During 2021, STJT made greater provisioning for WWF and WPPF and also incurred exchange loss versus exchange gain in the previous year. Operating profit picked up by 73.27 percent in 2021 with OP margin rising up to 6.78 percent. STJT was able to cut down its finance cost by 40.90 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 carried 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 which translated into net sales of Rs.7455.49 million. 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. 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 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 38.30 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. Net sales clocked in at Rs.8085.18 million in 2023. 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 as well as Pak Rupee depreciation inflated cost of sales 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 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 8.31 percent in 2023 due to lower shipping freight charges versus last year. 13 percent taller administrative charges incurred during the year was the result of mounting inflationary pressure. Other expense slipped by 34.43 percent in 2023 due to lower profit related provisioning done by STJT in 2023. Other income multiplied by 218.16 percent in 2023 due to higher exchange gain. Operating profit slid by 7.51 percent in 2023 with OP margin sinking to 5.58 percent. 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. This culminated into EPS of Rs.15.84 and NP margin of 1.89 percent in 2023.
In 2024, STJT recorded net sales of Rs.7953.43 million, down 1.63 percent year-on-year. This was due to lower sales volume and more sales order executed for weaving charges during the year. Capacity utilization stood at 91.12 percent in 2024 which translation into production of 59.503 million square meters of textile products. The company recorded 5 percent higher gross profit with GP margin of 8.47 percent in 2024 due to increase in local sales made under deferred LCs for which customers were charged markup expense in sales price during the deferred period. Distribution expense ticked up by 7.57 percent in 2024 due to higher ocean freight charges, export duty, travelling & conveyance charges as well as fee & subscription charges incurred during the year. Administrative expense also surged by 5.82 percent in 2024 due to higher payroll expense on account of inflationary pressure. On the contrary, the company streamlined its workforce from 481 employees in 2023 to 451 employees in 2024. Other expense escalated by 103.49 percent in 2024 due to massive exchange loss incurred during the year. This was on account of appreciation of Pak Rupee against the greenback in 2024. Other income shrank by 53.51 percent as unlike previous year, there was no exchange gain recorded in 2024. STJT recorded 9.97 percent thinner operating profit in 2024 with OP margin falling down to 5.11 percent. Finance cost surged by 48.36 percent in 2024 due to higher discount rate. Moreover, the non-availability of low-cost financing alternatives such as LTFF also inflated the overall finance cost during the year. Gearing ratio slumped from 49 percent in 2023 to 47 percent in 2024. STJT recorded net profit of Rs.27.19 million in 2024, down 82.23 percent year-on-year. This translated into the lowest EPS of Rs.2.81 and the lowest NP margin of 0.34 percent in 2024.
Recent Performance (9MFY25)
During the nine month period of the ongoing fiscal year, STJT recorded 14.26 percent thinner topline to the tune of Rs.5339.39 million. This was because the company has lately been focusing on sale orders against weaving charges only in which yarn is arranged by the customers. Operational efficiency, use of renewable energy by the installation of 1 MW solar power plant and effective inventory procurement enabled the company to record GP ratio of 9.1 percent in 9MFY25 versus GP margin of 8.25 percent recorded during the same period last year. In absolute terms, gross profit tumbled by 5.67 percent in 9MFY25. Distribution expense mounted by 11.54 percent in 9MFY25 due to considerable spike in ocean freight charges. Inflationary pressure pushed up administrative expense by 15.27 percent in 9MFY25. No exchange loss incurred during the period resulted in 70.46 percent decline recorded in other expense. Other income also slid by 38.78 percent during 9MFY25 due to drastic fall recorded in interest income on account of monetary easing. STJT recorded 14.19 percent lower operating profit in 9MFY25 with OP margin staying almost intact at 5.2 percent. Monetary easing coupled with cautious financial management which kept a check on financing requirements enabled the company to record 35.86 percent lower finance cost in 9MFY25. Net profit strengthened by 146.61 percent to clock in at Rs.52.83 million in 9MFY25. This translated into EPS of Rs.5.47 in 9MFY25 versus EPS of Rs.2.22 recorded in 9MFY24. NP margin picked up from 0.34 percent in 9MFY24 to 1 percent in 9MFY25.
Future Outlook
The downward journey of inflation and discount rate has added positivity to the textile sector. This coupled with STJT’s focus of renewable energy will further keep its cost in check. The ongoing geopolitical tension in the region may take its toll on the country’s textile exports which may also put STJT’s exports in jeopardy. However, as majority of the company’s revenue come from local sales, the hit may not be very substantial.