The thought of the rupee’s impending depreciation against the US dollar sends shivers across financial markets and stock exchanges where foreign portfolio investors have been pulling out, fearing a loss. But the event may be a celebratory one for export-oriented industries.
Major exporters, such as the textile sector, see themselves on the winning side. Shahzad Saleem, the CEO of Nishat Chunian, was not available for comments at the writing of this report.
Analyst Syed Khurram Mohiuddin at brokerage BMA Capital Management Ltd believed that Nishat Chunian Limited (NCL) was likely to benefit from the recently announced export package given that exports constitute 75 per cent of company’s sales.
Besides the currency depreciation, going forward, the company was likely to benefit from energy diversification initiatives, the prospect of higher income from the sale of power to external customers, by a wholly owned power subsidiary, and a potential upside from a retrospective application of the textile package.
On the other hand, key risks that could upset the apple cart included non-materialisation of rupee depreciation, sharp rise in coal and cotton prices, non materialisation/non-payment of duty drawback, failure to increase home textile exports by 10pc, change in duty structure of cotton, yarn and grey fabric imports, and higher than expected increase in interest rates.
NCL started out in 1990 with a spinning mill of only 14,400 spindles; it is now a vertically integrated textile company with a yearly spinning production of 75,000 tonnes of yarn, 3 million metres of fabric in weaving and 4m meters of finished fabric. The company has 222,708 spindles and 363 looms.
In 2007, the Group diversified into the power sector by setting up a 200MW Independent Power Plant. It was followed by incorporation of Nishat Chunian USA Inc in 2013.
At the moment Nishat Chunian Group comprises five companies — Nishat Chunian Limited (a textile company), Nishat Chunian Power Limited (a power generation company), Nishat Chunian USA Inc. (Incorporated in the US), Nishat Chunian Electric Corporation Ltd. (a captive power generation company) and Nishat Chunian Entertainment Pvt. Ltd. (an entertainment company).
At the close of FY17, NCL had paid-up capital of Rs2.40 billion in total outstanding shares of 240m of Rs10 each. Of the total paid-up shares, 17pc were held by associated companies, undertakings and related parties; 12pc by directors and family members and 13pc by banks and DFIs, while 37pc of the company stock was held by the general public. At the close of trading at the stock market last Thursday, the share in NCL was valued at Rs61.69.
NCL has a total investment portfolio at the book value of Rs3.9bn which comprise 51pc stake in 200MW fuel power plant — the Nishat Chunian Power Limited and three wholly owned subsidiaries.
NCL has expanded and diversified to augment revenue.
In the past year, the company has completed two major investments which include installation of 46MW coal fired power plant through a wholly owned subsidiary ‘NC Electric’. The plant became operational in 3QFY2017 and will supply 29MW electricity to NCL and sell remaining to the grid.
Capacity expansion in its spinning/weaving/home textile divisions has been undertaken. NCL is also exploring fresh pastures in unlikely areas. The company now owns ‘NC Entertainment’ which operates a cinema in Multan and has inaugurated Pakistan’s biggest multiplex cinema in Emporium Mall, Lahore.
For FY2017, NCL announced unconsolidated profit at Rs1.6bn, up 22pc over earnings an earlier year. That was on the back of revenue growth of 16pc.
While all three areas of business showed growth in revenue, directors said that the spinning mill remained the main revenue generator for NCL. The major drivers being improved margins available in the local market for spinning and in the export market for Home Textile and Weaving divisions.
But they also complained that the textile business faced a number of challenges where both demand and margins fell considerably.
However, the favourable effect on profitability was attributed to efficient cost management through revamping of old machinery, significant increase in exports of Home Textile Divisions, efficient tax planning and prudent investment decisions. The financial figures of the company over the last seven years were claimed to show steady and durable growth.
Total assets of NCL at the close of FY17 stood at Rs35bn. Among assets, the investment in subsidiary companies at Rs3.90bn was the second biggest item after fixed assets valued at Rs11.97m.
Going forward, additional dividend is envisaged from NC Electric and NC Entertainment. Syed Faraz Abbas, an analyst who follows the textile sector for brokerage Insight Securities, said that he expected the company’s revenue to improve 13pc in FY2018 on the back of rising demand for value added segment and focus on domestic sales.
Published in Dawn, The Business and Finance Weekly, October 23rd, 2017