Gul Ahmed is a fully vertically integrated textile unit, operating in all segments of the textile value chain. The firm's most differentiating factor is its prominence in Pakistani fashion. The textile giant entered the retail industry with its flagship store 'Ideas by Gul Ahmed,' and today has an extensive chain of more than 40 retail stores across the country. These stores offer a range of products - from home accessories to fashion clothing.
Stock performance & pattern of shareholding Gul Ahmed Textile Mills Limited is a subsidiary of Gul Ahmed Holdings (Private) Limited, which owns over 67 percent of the company. Another associated company is one Swisstex Chemicals (Private) Limited, with a three percent share. But by and large, Gul Ahmed stock remains within the family. Foreign investors make up the next largest shareholder at around 12 percent. These foreign investors are just five in number, but their details are not available.
As for the stock's performance on the bourse, GATM has more or less remained around the KSE100; underperforming from March to August but outperforming from then until January. However, in the latest quarter, GATM stock has taken a tumble well below the KSE100.
Prior Performance Over the past six years, Gul Ahmed's top line has seen slowing growth, with FY16 being the year of decline (-3.2% YoY). However, the firm's gross profit has taken on a growing trend, and actually peaked that same year. As per the Director's Report, the decline in sales in FY16 was due to lower prices and decreased exports. Meanwhile, the growth in gross profit and margins was due to replacement of inefficient machineries, cost controls, improvement of processes, and change in product mix. Moreover, the management decided to reduce yarn exports in favour of catering to its own weaving requirements. This was another reason for the lower top line in FY16, but it helped curtail losses in the spinning segment and gave a boost to the company's margins.
A segment analysis will further highlight this point (up until FY15, Gul Ahmed had only two reportable business segments - spinning and processing; however, in FY16, the weaving segment was added). The graph illustrates the declining sales and gross margins from the spinning segment, which had seen plummeting gross profits and made a net loss in FY16. However, the processing segment performed outstandingly well, in spite of weak demand in export markets and a strong PKR-USD parity, for the same reasons listed above. The newly recognised weaving segment has the lowest margins, and is primarily contributing to the company's internal requirements.
Regarding exports, it's the same as the rest of the Pakistani textile industry; the graph illustrates how Gul Ahmed's exports have been on a decline since the past couple of years. This has been due to lower international yarn prices and demand, and loss of competitiveness in the made-ups division due to a high cost of doing business and an overvalued Rupee. However, the company has been compensating for this, as local sales have been increasing over the period.
Recent Performance The ongoing fiscal year has been hard on Gul Ahmed Textile Mills. For the first half ended FY17, the company's bottom line dropped 80 percent year-on-year in spite of a massive 35 percent growth in the top line. Gul Ahmed's costs have escalated tremendously over the period, eroding away its margins.
As per the Director's Report, the period under review saw increasing raw material costs, gas tariff, and minimum wage. Cotton production again was below par this year. Moreover, the sales tax input was disallowed on packaging material.
Nevertheless, the enormous sales growth in spite of these challenges is commendable. Finance cost was lower due to efficient utilisation of funds. Moreover, other income more than doubled over the period, helping keep the bottom line afloat.
Outlook The textile package, announced in the second half of FY17, should play a role in improving the company's performance. As per the half-yearly Director's Report, Gul Ahmed has invested heavily in value additions and is expecting these efforts to yield long-term positive results. Moreover, it is working to attain further cost rationalization.
Going forward, Gul Ahmed is expecting a better second half on account of 'growth in exports and local sales, resulting from penetrating new areas and products, along with measures taken for improving the margins through rationalization and process improvements.'
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GUL AHMED TEXTILE MILLS LIMITED
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Rs (Million) 1HFY17 1HFY16 YoY
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Sales 18,525 13,757 35%
Cost of Sales 15,220 10,558 44%
Gross Profit 3,305 3,198 3%
GP Margin 18% 23% down
540 bps
Operating Expenses 2,787 2,319 20%
Other Income 101 47 115%
Operating Profit 618 927 -33%
Finance Cost 425 479 -11%
Profit Before Taxation 193 448 -57%
Taxation 111 26 327%
Profit After Taxation 83 423 -80%
NP Margin 0% 3% down
260 bps
EPS 0.28 1.61 -83%
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Source: company accounts.
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PATTERN OF SHAREHOLDING
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Shareholders Category Percentage of holding
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Individuals 10.85%
Investment Companies & Mutual Funds 3.38%
Insurance Companies 3.34%
Joint Stock Companies 70.38%
Modarabas 0.01%
Financial Institutions 0.22%
Foreign Investors 11.72%
Charitable Institutions 0.04%
Government Departments 0.06%
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Source: Company accounts.
Copyright Business Recorder, 2017