Established in 1990, Ghazi Fabric International Limited (GFIL) is a vertical composite unit that comprises of two spinning mills as well as a weaving mill. The company is catering to the Far East and European markets through its yarn brand "Panther".
According to the company's website, GFIL produces A-grade PC (Poly Cotton) and CVC (Chief Value Cotton) yarns in different blend ratios. The company also has the capability to produce both carded as well as combed yarns for weaving and hosiery.
In addition, GFIL also makes core-spun yarns using Lycra for consumption by its own weaving mill. The company has invested in BMR activities to replace its spinning machinery as well as its weaving machines. Currently GFIL exports fabric to Europe, USA and the Far East.
Shareholding pattern and stock price
An overwhelming majority of GFIL's stock lies with the directors, CEO and their spouses. According to the shareholding pattern in its most recent annual report, Mr. Mohammad Arshad Chaudhry holds almost 50 percent of the company whereas the remainder is held by the local general public (28.49%) and foreign general public (19.78%).
As far as the price of GFIL is concerned, the market has not been too kind its assessment of the script given its deteriorating fundamentals. The stock price of GFIL has continued to descend throughout the past year. Even though the stock outperformed the benchmark KSE-100 index from Mar-17 till Sep-17, it continued to decline and has been underperforming the benchmark since then.
Historical performance
The state of the textile sector during the past several years has been anything but enviable. Resultantly, the financial health of textile companies especially those involved in the lesser value added segments of spinning and weaving has suffered.
It seems the fate of GIFL has been similar with the company's revenue continuing to dwindle over the past four years. Moreover, the fall in revenue has been accompanied by a severe plunge in both gross and net profitability margins of GFIL.
In FY17 the company posted an after tax loss of Rs 334 million, which was preceded by a loss of Rs 269 million in FY16. GIFL has attributed its dismal performance to the non-conducive business environment in the country. This includes the rising cost of production in the form of expensive electricity and gas.
Recall that the majority of the textile industry lies in Punjab. However, with the shortage of gas in Pakistan, the province is being supplied R-LNG, which is almost double the cost of system-based gas. Most textile companies including GIFL have also blamed the increase in minimum wage and the imposition of the Gas Infrastructure Development Cess (GIDC) for their poor financial performance.
Then there is the issue of liquidity. GIFL's liquidity ratio has fallen to a dangerous level and the company notes in its recent annual report that a sizeable amount of its working capital has remained stuck because of the delay in payment of pending sales tax refunds by the government.
Future outlook
The Rs 180 billion PM Textile Incentive Package has yet to make the impact required to bring the textile sector out of its dire straits. GIFL's revenues have been shrinking on account of lower export as well as domestic sales. If the rising cost of production is not brought at par with regional competitors including Bangladesh and Vietnam, it will continue to get more difficult for firms such as GFIL to operate. Keeping in view the energy shortage and gas outages, GFIL has installed a 9.5 MW HFO based power house in FY16 which might alleviate some of the burden incurred by high cost of utilities.
As global trends shift towards better fabric variants and increased quality, textile firms need to adopt these modern best practices. In addition, the focus should be on generating more value-addition as that is where the future lies. Already readymade garments, knitwear and home-textiles are the primary contributors to textile exports in terms of value and this trend is only expected to accelerate in the future. GIFL in a bid to generate higher value addition in its spinning segment has replaced the production of coarse cotton yarn with more fine counts of yarn.
The recent currency devaluation has been another boon for textile firms and might impact export sales of GIFL in a positive manner. Going forward, a lot will depend upon the kind of incentives the government is able to provide in the upcoming budget to the textile sector.
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CRTM: Pattern of Shareholding
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Shareholders Category Percentage of holding
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Directors, CEO, their spouses and minor children 50.80%
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of which:
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Mohammad Arshad Chaudhry 49.9%
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General Public
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of which:
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Local 28.49%
Foreign 19.78%
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Source: Company accounts.