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Nishat Mills Limited (PSX: NML) needs no introduction. The company is the foundation stone upon which the Nishat Group was built and is one of the biggest textile composite juggernauts in Pakistan. Established in 1951, NML now boasts of 238,032 spindles and 794 Toyota air jet looms. It has state of the art textile dyeing and processing units, two stitching units for home textile and two stitching units for garments. The company is self-reliant in its energy needs with a 130 MW captive power plant. Nishat Mills Limited has a plethora of associated companies, which include D.G Khan Cement Limited, MCB Bank Limited and Adamjee Insurance Limited.

Shareholding pattern and stock performance

NML has a diversified share-holding pattern spread across the general public, mutual funds and modarabas and insurance companies. One fourth of the company is held by the general public whereas Mian Umer Mansha (CEO) and Mian Hassan Mansha (Chairman) hold 12.6 percent each. D.G Khan Cement which is an associated company holds 8.6 percent. NML's stock has underperformed the benchmark KSE-100 index throughout the past year but textile stocks might see better times given the renewed government support.

Textile sector overview

Although beleaguered for the past several years, the textile sector in Pakistan is ready to make a comeback. The new government has resolved almost all pressing issues facing the sector which include bringing down the cost of utilities, clearing pending tax refunds and reducing the cost of raw materials for the industry. For utility prices, the gas prices have been revised downward to $6.5/mmbtu for the textile sector. Promissory notes are set to be issued later this month to clear the more than Rs100 billion plus stuck refunds of the sector which have resulted in a liquidity crunch for most players and have delayed expansion plans for the bigger players. Then there is the rupee devaluation, which had been a major demand of textile exporters. In light of these positive developments, most major textile players are looking to expand on the value added side. In a recent interview with BR Research, Mian Muhammad Mansha Chairman of the Nishat Group said he believes almost five times the current capacity is on the cards for the sector when it comes to value added segments while Nishat Mills Limited is looking to increase its capacity in the same by almost 50 percent.

Recent financial performance

NML has seen an increase in revenues over the past two years with FY16 being a slow year for the company due to tough international competition as well as slow international demand. In FY18, NML managed to increase its top line by a decent 10 percent, which included an increase of Rs2.1 billion in export sales on account of positive rate variances as well as good marketing efforts. NML's total export for FY18 was Rs38.8 billion. However, profitability remained under pressure due to fluctuating raw material prices, low international demand for textile products and high cost of production.

NML managed to post 10 percent growth in yarn and griege cloth exports in dollar terms in FY18 as compared to the same period last year which allowed it to take advantage of the remaining 50 percent duty drawback incentive allowed on achievement of 10 percent growth in exports under the textile incentive package by the government.

More recently, 1QFY19 has been good for the company and saw NML increase its PAT by almost 41 percent as compared to the corresponding quarter in FY17. The growth in profits came on the back of strong top line growth of 16.5 percent on a year-on-year basis. During the quarter, the company found its decision of shifting its product mix from narrow to wider width fabrics to be fruitful as it gives it more room to sell more specialised items, which boosted sales value in both export and local market. The weaving division's major export market is now Germany with strong demand in fashion wear, technical and workwear fabric according to the most recent company quarterly report.

The company's home textile division managed to keep its profitability intact by utilising full production capacity. Moreover, NML believes the trade tensions between the US and China will result in favorable opportunities in the American market due to enhanced competition and US buyers looking to shift to other suppliers as a result.

Future outlook

NML is well positioned to take advantage of the host of incentives offered to textile exporters by the government and is looking to further expand its value added capacity by 50 percent. The company might be able to reverse the decreasing share of exports in its overall revenue mix in light of the plethora of incentives awarded by the government. The decrease in cost of production due to a reduction in gas prices and the removal of duties of raw material input prices will also help the firm consolidate profit margins. In addition to the company's already strong presence in the European market, NML might also make further inroads in the US market as a result of a shift in buyer preference to source from Pakistani textile firms as a consequence of trade tensions with China.





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Nishat Mills Limited

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Rs (Mn) 1QFY19 1QFY18 YoY Chng

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Revenue 14298 12278 16%

Cost of sales 12496 10996 14%

Gross profit 1802 1283 40%

Distribution cost 627 588 7%

Admin expenses 268 264 2%

Other income 511 668 -24%

Finance cost 212 216 -2%

PBT 1148 849 35%

Tax 153 142 8%

PAT 995 707 41%

EPS 2.83 2.01 141%

Gross margin 13% 10% down 159 bps

Net margin 7% 6% down 154 bps

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Source: Company accounts





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Pattern of Shareholding (as on June 2018)

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Categories of Shareholders Share

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Directors, CEOs and their spouse(s) 25.20%

and minor children of which

Mian Umer Mansha (CEO) 12.60%

Mian Hassan Mansha (Chairman) 12.62%

Associated companies and related parties 8.66%

of which

D.G. Khan Cement Limited 8.61%

Banks, DFIs and NBFCs 2.42%

Insurance companies 5.78%

Modarabas and mutual funds 13.00%

NIT and ICP 0.02%

Public 25.35%

Others 19.55%

Total 100%

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Source: Company accounts

Copyright Business Recorder, 2019


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