Operations at ADMM are divided in three parts spinning, weaving and garments. The company as of June 30, 2019 consisted of 20,000 spindles and 864 rotors installed. Spinning facility has the capacity to produce over 18 million (Lbs.) annually. Weaving operations are equipped with 160 air jet looms with the annual capacity of producing 19 million (meters) of fabric. A dyeing facility is also in place which can process about 140,000 meters in one run. The final product that comes out after stitching (Garments) is then retailed. As per the company accounts the capacity of garments is indeterminable due to multi product plant involving varying processes of manufacturing and run length of order lot. The company also has its own power generation set-up with power production capacity of 15MW and a water treatment plant with a flow rate of 1,900 cubic meter/h.
Pattern of shareholding Shareholding in the company is mainly concentrated with the Directors, CEOs and their spouses holding about 81.4 percent of the total shares outstanding. This is followed by individuals with a percentage holding of 14.1 percent. Artistic Properties (Pvt) Ltd, an associated company holds a 1.7 percent ownership in the company while state life insurance has a shareholding of 2.1 percent.
Industry dynamics The importance of the textile sector is undeniable as it contributes to more than 50 percent of total exports. Pakistan economic survey FY 2016-17 highlights that the value added sector contributed one-fourth of industrial value added products and provided employment to about 40% industrial labor force.
The textile industry is structured as a value chain adding value at each node. Upstream activity starts with the ginning process which requires separating cotton fiber from the seed. The extracted fiber then goes through spinning, turning it into yarn which then moves over to weaving to complete the fabric. Once the fabric is in place, it goes for dyeing before making it to retail. The major exports by the industry are largely concentrated with downstream categories such as knit wear, bed wear and ready-made garments.
All Pakistan Textile Mills Association (APTMA) serves as a representative body of the textile sector in Pakistan. It consists of 396 member textile mills out of which 315 are spinning units, 44 are weaving units and 37 are composite units. Total installed capacity of APTMA members is over 9.5 million spindles in spinning, over 10,000 shuttle less/air jet looms and 1,897 conventional looms in weaving. The major cities representing textile industries include Karachi, Faisalabad and Lahore.
Textile faces a tough time as it struggles to compete in the already saturated international markets. International markets. The textile sector is subject to GSP plus status from the European Union (EU) which entitles Pakistan's export to tariff exemption. This serves as an opportunity for Pakistan, but historically regional competition on a level playing field has remained ahead. However, the industry has the opportunity in place and ready to be capitalized to its full potential.
On the domestic front, inflationary pressures, rising debt servicing, sales refund delays and lowers per unit export prices-refer to the article yarn exports disappoint, stand tall testing the resilience of the industry. Rupee devalued 20 percent during FY 19 resulting in higher costs for the imported input materials. Additionally, the incumbent government has rescinded the zero rated facility with the imposition of 17 percent sales tax. Debt servicing has become expensive for the companies as nominal interest rates have touched 13.25 percent. Industry sources say that the government in the form of refund has foot the bill with bonds. In the wake of FY20 we remain without a textile policy that will shape the future of the industry.
Current performance The company in FY19 witnessed a 6 percent trim in the top line. Company reports attribute the decline to slow demand and stiff competition in the international markets. Revenue is largely concentrated in exports, constituting more than 90 percent of the revenues. Latest data on trade published by PBS suggests domestic players fetching lower prices which corroborates to a 3 percent decline in exports for ADM. Although local sales dropped by 40 percent during FY19, they account for only 7 percent of the total revenue stream.
On the other hand, gross margins improved to 11.4 percent in FY19 (9.6 percent SPLY). In absolute terms, gross profit during FY19 recorded a 12 percent increase. Company accounts ascribe this to a rapid devaluation of Pakistani Rupee and effective cost control. Pakistani rupee depreciated more than 20 percent against the greenback during FY19. Raw materials accounted for 54 percent of the entire cost of sales as opposed to 51 percent in the preceding period. The second major cost for the company is salaries and wages which account for about 25 percent of the cost of sales. The company managed to curtail these costs by 8 percent year on year.
Net profit during fiscal year 2019 saw a massive 68 percent increase. It comes as a result of other income more than doubling during the year on the back of currency exchange gains. Net Profit Margin for the year stood at 11.1 percent, this was 6.27 percent during the preceding year. Again, the increase in margin comes mainly as a result of exchange gains
The company's liquidity as reflected by the current ratio saw a two percent decline while short term borrowing almost doubled. Cash flow from operations as a percentage of revenue amounted to 6 percent during FY19 which was 9 percent in the previous year, reflecting a tightening in the cash position. Days in receivables have increased to 102 days from 73 days during SPLY, implying delays in payments for the goods. Moreover, days in inventory stood 110 as opposed to 75 SPLY essentially pointing towards inventory piling up and turnover reducing.
Historical performance The five year period starting FY15-19 displays an erratic revenue stream. Highest revenue was recorded in FY18 at Rs8 billion. However, sales to related parties accounted for 19 percent of the total sales during FY18.
Gross margins have remained fairly stable at 12 percent (average from FY15-19). During FY18 gross margins dropped down to 9.6 percent (SPLY: 10.7 percent)-lowest in 5 years. Company accounts point at rising costs of doing business as the reason for lower margins. As for Net Profit margin, an average of 8 percent was recorded for the period FY15-19.
Future outlook Challenges lie ahead for the company in the form of higher taxation, higher input costs and financing costs. A further hike in interest rates will eat away on the bottom line and deter the liquidity position of the company. For the ongoing year the textile industry will be subject to a 31 percent higher gas tariff as proposed by the government. Additionally a 17 percent sales tax is now applicable as the zero rating facility was revoked earlier this year, effective 1st July, 2019.
Continued focus on balancing modernization and replacement (BMR) activities to bring about efficiency in operations will help the company stay buoyant. The company will also face challenges from the declining per unit prices of export in the ongoing fiscal year as a pattern emerges. A higher volumetric sale may offset the decrease in unit prices but requires the company to aggressively expand its customer base.
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Artistic Denim Mills Limited
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Rs (thousand) FY19 FY18 chg
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Sales 7,767,180 8,239,986 -6%
Cost of sales 6,879,080 7,448,166 -8%
Gross profit 888,100 791,820 12%
Distribution cost 214,006 198,557 8%
Administration expenses 128,308 127,802 0%
Other operating expense 60,457 40,475 49%
Other income 581,993 267,579 118%
Finance cost 111,844 92,488 21%
PBT 955,478 600,077 59%
Tax 88,658 83,546 6%
PAT 866,820 516,531 68%
EPS (Rs) 10.32 6.15 68%
GP Margin 11.43% 9.61%
NP Margin 11.16% 6.27%
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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) and minor children 81.4%
Associated Companies, and related parties 1.7%
Insuance companies 2.1%
Others 0.7%
Individuals 14.1%
Total 100%
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Source: Company accounts