Gul Ahmed Textile Mills
When it comes to the textile industry of Pakistan, the name Gul Ahmed does not need an introduction. From the group's pre-partition roots in textile trading, Gul Ahmed Textile Mills (PSX: GATM) came into existence in 1953 and has since become a household brand in the country. The company became publicly listed in 1970.
Being a vertically integrated textile composite, GATM is involved across the textile value chain from producing cotton yarn to processed fabric and finished products. The company boasts of an installed capacity of more than 130,000 spindles as well as 300 modern weaving machines and yarn dyeing, processing & stitching units. It also has captive power generation which includes gas turbines as well as diesel backup engines.
GATM has also built a strong retail presence with more than 40 retail stores by the brand name of "Ideas by Gul Ahmed" operating across Pakistan. Shareholding, subsidiaries and stock performance GATM has a number of wholly owned subsidiary companies that include Gul Ahmed International Limited, GTM Europe Limited, GTM USA Corporation and Sky Home Corporation based out of the USA.
The majority stake of 76.38 GATM is owned by investment companies out of which Gul Ahmed Holdings (Private) Limited owns 67 percent of the company; whereas the next largest shareholder is Swisstex Chemicals (Private) Limited, which owns 3 percent of the company. Individual comprise the next largest shareholding at 11.74 percent as of 30 June, 2018 according to the company's shareholding pattern.
GATM stock closed at Rs52 at yesterday's market close and its market capitalization amounted to roughly Rs18.5 billion according to data by Standard Capital. The stock has continued to outperform the benchmark KSE-100 index since Apr-18 and the margin has increased considerably since the past three months on account of strong financial results.
The textile sector has had a rough five-year period with textile exports struggling to post a recovery. Even though the government has encouraged value-added segments by giving a PM Incentive Package to the tune of Rs180 billion that included various measures including duty drawbacks, problems have persisted because of a high cost of production.
Textile firms have lamented the rise in the cost of utilities with the industry arguing for a weighted average cost for gas as opposed to 78 percent of their gas needs being met by more expensive R-LNG. However, the recent decision by the ECC to grant Rs55 billion subsidies to the sector in this regard will provide relief to the sector.
It also wants that the Rs3.53/kWh surcharges on electricity to be removed so exporters can become competitive with their regional peers. There is also the issue of outstanding refunds, which now cumulatively amount to Rs262 billion according to industry sources and have hampered firms' cash flows.
On the positive side, textile exporters had long called for exchange rate adjustment and their wish has come true with the unprecedented rupee depreciation that has taken place in the past year.
However, now the industry believes anymore fluctuation in the exchange rate will only be counter-productive as the majority of raw materials are being imported which includes fabric, dyeing materials as well as yarn. The other positive factor in favour of the sector has been the retention of the GSP Plus status, which allows preferential access to international export markets.
· Financial performance
GATM's financial performance has been adversely affected over the years from low textile exports and the high cost of doing business. The company also attributed the fall in cotton prices and the strong rupee as reasons for its profitability taking a big hit in FY15. However, things have been relatively better for the company since then and revenues jumped by 24 percent in FY17 on a year-on-year basis on the back of decent uptick in export sales which increased by 28 percent.
GATM's revenues picked up by 14 percent in FY18 owing to an increase in both local and export sales which has helped the company to fully utilise its enhanced capacity which came about as a result of the company's balancing, modernisation and replacement activities. From a segment perspective, spinning division saw an increase in sales of 39 percent as compared to the previous year.
The company's weaving segment which mostly provides for in-house demand for home textiles and retail divisions saw a 23 percent growth in its top-line due to cumulative sales going up.
While retail sales showed negligible change on account of competitive market dynamics, the home textile division that accounts for the bulk of GATM's overall sales managed to increase revenues by 15 percent year-on-year and is the main driver behind GATM's top-line. The company's profitability margins improved in FY18 with gross and net margins increasing by 300 and 250 basis points, respectively.
Gul Ahmed continued its positive growth trajectory in 1QFY19 with its top-line surging by 29 percent on the back of strong demand in both international and local markets even as overall textile exports showed negligible change. The company's increased operational efficiency as a result of its BMR activities has helped it lend support to profitability margins.
· Future outlook
Value-addition is only way forward when it comes to being relevant in the modern textile space. Even though GATM is one of the largest players in Pakistan' sector, it has also been affected by the high cost of production for textile manufacturers and inconsistent policymaking by the government.
The new PTI government intends to make things easier for the sector and has not increased gas tariffs for the textile industry while also assuring priority in winters. There has been duty abolition on 82 tariff lines concerning raw material inputs for export-oriented sectors, which will also decrease cost of production. As GATM has invested in BMR activities over the year, it is in a good position to make further inroads in both the domestic and international markets.
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