With results season behind us, one can now look at how the textile industry has fared in the first quarter of fiscal 16. For the purposes of this analysis, our textile universe will comprise of five of the major textile companies listed on the KSE100 – Nishat Mills, Gul Ahmed, Nishat Chunian, Kohinoor Textile, and Feroze1888.
Although each company is unique in its operations and quarterly performance, there are certain themes that are common to all five. Firstly, each of these companies is export-oriented, earning the larger part of their revenues from exports. Secondly, these companies are at the value-added end of the spectrum, and spinning (yarn) is not the largest segment (save for Nishat Chunian, where it accounts for over half of sales).
The season has undoubtedly been one of higher profitability, but top line growth has been iffy – although three of the companies had better sales, the cumulative sales are lower by 4 percent year-on-year. More than that, however, costs were lower by 7 percent over the period.
Save for Nishat Mills, all companies had higher gross profits as compared to the prior quarter, largely due to the lower costs in the form of depressed cotton and fuel prices. For those more focused on their value-added operations, lower yarn prices would have also been a plus.
In addition, the dollar depreciated in August, giving a little more competitiveness to exports and letting profitability improve. However, the Directors Report of some companies – Nishat Mills and Feroze1888 – mentioned this as having a negative impact, citing a resultant uncertainty in the international market and higher factor costs.
For the ongoing quarter, value-added textile businesses might take a hit thanks to APTMAs successful lobbying efforts of introducing 10 percent anti-dumping duty on Indian yarn. Though these companies own spinning segments will no doubt benefit, it must be remembered that spinning is not their focus. Moreover, yarn prices remain depressed and other issues such as high cost of doing business and loadshedding remain to be addressed.
Originally published: November 10, 2015 in the Business recorder (BR) research.
