Textiles yet to reap benefit of GSP Plus

Published June 30, 2014
Nishat Chunian Limited has a ring-spinning capacity of 210,000 spindles and produces 85,000 tonnes of greige yarn per annum.
Nishat Chunian Limited has a ring-spinning capacity of 210,000 spindles and produces 85,000 tonnes of greige yarn per annum.

TWO companies, among the 175 textile firms listed on the Karachi Stock Exchange, have continued to capture investors’ interest: Nishat Mills Ltd and Nishat Chunian Ltd.

As Nishat Mills (NML) was discussed in a previous article, we now look at Nishat Chunian Ltd (NCL). The Nishat Chunian group has under its fold three companies: Nishat Chunian Ltd, Nishat Chunian USA Inc. and Nishat Chunian Power Ltd. Yet, the first of the three stands out as perhaps the second most favourite company on the textile sector, after Nishat Group’s flagship Nishat Mills Ltd.

NCL made a modest start in 1990 with a spinning mill of only 14,400 spindles. Over the years, it has transformed into a vertically integrated textile company that prides itself on being the fourth largest textile company in Pakistan in terms of turnover. The company earned Rs21.2bn in revenues in 2013.


According to SBP data, textile exports declined by 3pc to $1.14bn in May, from $1.17bn in April. “Despite the GSP Plus status, the textile sector has failed to reap any material benefit thus far”


“Since its inception as a single spinning unit, the company has expanded and diversified into a manufacturing and finishing complex, consisting of six spinning units, one weaving unit, one dyeing and printing unit, and one stitching unit. Today, NCL operates with 210,000 spindles and 293 air jet looms with a monthly production capacity of 7.5m pounds of yarn and 4m yards of greige fabric”, the company says.

Its progress went as follows: it set up the first spinning mill in 1991, diversified into weaving in 1998 and into home textiles in 2006, and then established a subsidiary company in the US last year.

Financial figures of the company over the last six years also show considerable progress. Its net sales rose to Rs21bn in 2013 from Rs9bn in 2008, while total assets stood at Rs22bn by end-2013, twice that of Rs11bn in 2008.

Ever since textile companies’ fortunes turned for the better, NCL has made regular dividend payouts to investors of Rs2 per share for each of the last three years. “Due to a prudent payout-retention policy of the board, the company also has a cushion of healthy reserves at Rs6.2bn,” a senior company official claimed.

NCL finds favour with the investing public mainly due to its comfortable free float of shares in the market. The number of its outstanding shares at end-2013 stood at 182m, leading to a paid-up capital of Rs1.819bn. Its associated companies held 16.64pc of the shares, directors/CEO and their spouse and minor children over a quarter of the firm’s equity; and mutual funds with a sizeable stake of 20.45pc. That leaves a substantial 46m shares or 25.18pc of its paid-up capital with the general public. This is why the Nishat Chunian stock is briskly traded at the market.

Although the company recorded a stellar growth in profit-after-tax, which went to Rs2.276bn in 2013 from Rs699m a year ago, its recent accounts have been depressing. Analysts at Taurus Securities point out that NCL posted net earnings of Rs1.3bn in the first nine months of FY14 (9MFY14), down 22pc over the corresponding period of the previous year. The analysts believe that lower yarn demand and depressed margins, the rupee’s appreciation and raging power costs were major reasons for the decline in the company’s gross margins.

Shahzad Saleem, chairman and CEO of Nishat Chunian, observed in the director’s report for the quarter ended March 31 that revenues dipped 12.7pc over the corresponding period last year due to overall depreciation in textile industry, severe foreign exchange fluctuations and increasing energy costs.

He also informed, “The acquisition of Taj Textile’s operating assets has been completed and modernisation of those spinning units has been undertaken”. The chairman commented that the company’s new fully automated spinning unit — NCL 6 — equipped with 22,128 spindles, had gone into production in January 2014.

Most investment gurus admit that the recent slump in textile sector earnings is not specific to NCL.

Muhammad Tahir Saeed, an analyst at Topline Securities, points out that the country’s largest manufacturing segment, textiles, posted a 9pc decline in earnings in 9MFY14. The main culprit was the rupee appreciating by 6pc against the dollar during January-March 2014, which dented the profits of export-oriented textile companies by a staggering 73pc in the quarter. “This significant drop in profitability in the last quarter wiped out the overall earnings of the textile sector for nine months”, analyst said.

Taurus Securities research states that as per data released by the SBP, textile exports declined by 3pc to $1.14bn in May, from $1.17bn in April. “Despite the awarding of GSP Plus status to Pakistan, the textile sector has failed to reap any material benefits thus far.”

Sabir Mohiuddin, an analyst at Shajar Capital, argues that the government has tried to facilitate the largest exporting sector by providing relief in the budget. However, the budget came with a pinch of salt, i.e. enhancement in the gas infrastructure development cess, which has created concern.

Published in Dawn, Economic & Business, June 30th, 2014

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