Nishat Chunian Limited (PSX: NCL) is one of the largest textile composites in Pakistan and has had quite the journey. The company was set up in as a spinning mill of 14,000 spindles and now boasts of a vertically integrated unit with approximate annual production of 75,000 tons of yarn, 3 million metres of greige fabric and 4 million meters of finished fabric.
It has subsequently diversified its interests in the power and entertainment sector as well. The company set up a 200MW power plant, Nishat Chunian Power Limited (NCPL) in 2007 and also set up a chain of cinemas under NC Entertainment but has now divested its entire stake in the entertainment business.
Shareholding pattern and stock performance
NCL's majority shareholding lies with the general public while the next biggest chunk is with associated companies. Significant shareholders include Shahzad Saleem, CEO of NCL who owns 11.62 percent of the company while Nishat Mills Limited (NML) owns 13.61 percent.
Historical financial performance
Nishat Chunian Limited has made a good recovery following the plunge in profitability margins since FY14. The company has managed to increase its top line as well as considerably increase both gross and net margins from the lows of FY14. An interesting evolution has been its larger presence in the domestic market with the share of exports in the overall top line decreasing in the past five years. In FY13, the company's exports constituted 73 percent of the overall revenue mix while in FY18 this has dropped to 56 percent.
FY18 was a good year for NCL both in terms of revenue growth as well as the bottom-line. The company's sales picked up by 19 percent on a year-on-year basis while the bottom-line increased by 46 percent.
The increase in the top line came about due to multiple factors which included the considerable currency devaluation bolstering export volumes as well as the up tick in cotton prices which augmented its spinning revenues. Gross profitability also saw a decent increase of 20 percent helped largely by export rebates and inventory gains due to the firm's procurement of cotton on good rates. This was done by taking on additional borrowing which was reflected in a higher cost of finance.
However, the company's sizeable capex expenditures also had a role to play in the increased borrowing cost. NCL has invested considerably over the past couple of years in up gradation of its plant and equipment. A defunct spinning unit has gone live again while the company has also added 99 new looms in the weaving segment. The company has also invested almost Rs340 million in its dyeing and printing division.
Overall, the company's PAT registered a healthy growth of 40 percent as compared to FY17 which allowed giving final cash dividend of Rs4 per share in FY18 compared to the Rs2.75 given in the previous year.
The first half of this fiscal has been good for most textile firms including Nishat Chunian Limited (NCL). In its recently announced result, the company witnessed an increase of 15 percent in its top line largely from rupee depreciation and higher volumetric sales. Gross margins also picked up again due to cheaper cotton procurement by NCL. The other positive factor was a rise in other income of 173 percent as compared to 1HFY18. This might be attributable to positive exchange gains as well as dividends received from its subsidiary Nishat Chunian Power Limited (NCPL). The finance cost for the company continues to rise and registered an increase of 38 percent as compared to the same period last year which is due both capex as well as operational expenditures.
During his recent conversation with BR Research, Shahzad Saleem Chairman of NCL emphasised that the most pressing issue facing textile firms was the stuck refund payments, which have resulted in a liquidity crunch for most textile firms. Therefore, until the pending refunds are settled NCL's financing cost will continue to increase.
The company's PAT grew by an impressive 310 percent mostly on the back of top line growth and the surge in other income. The company announced a cash dividend of Rs1.5 per share for 2QFY19. From an operational standpoint, the company started operating the 26 Juki machines recently installed in its home textile division which has increased stitching capacity.
The BMR investment comes at a good time for NCL as most textile tycoons including NCL's Chairman Shahzad Saleem are bullish on the textile sector's future. And there is enough cause for the rise in optimism given that most if not all of the textile sector's demands have been met. A reduction in utilities particularly gas prices means a lower cost of production going forward while the considerable rupee devaluation means textile exports are much more competitive against peers Vietnam and Bangladesh. NCL's spinning segment has seen significant increase in turnover due to rise in capacity as a defunct spinning unit was made operational again. The company's retail presence also continues to grow and its flagship store
The Linen Company (TLC) has launched its retail outlet in Rawalpindi and is further looking to expand in other cities as well.
Pattern of Shareholding
Shareholders Category Percentage
Directors, CEO, their spouses and minor childre 14.21%
Associated Companies, Undertakings & Related Pa 16.64%
Public Sector Companies & Corporations 0.00%
NIT and IDBP (ICP UNIT) 0.00%
Banks, DFIs, Non-Banking Financial Institutions 8.04%
Insurance Companies 8.37%
Modarabas and Mutual Funds 7.28%
Joint Stock Companies 3.53%
General Public 36.86%
Source: Company accounts