Nishat Mills profit declines 7.5%

A drop owing to a heavy fall in cotton prices, which took down product prices.

KARACHI:

Nishat Mills witnessed a drop in profits by 7.5% to Rs1.9 billion in first half (July-December 2011) against Rs2.1 billion in the same period last year owing to a heavy fall in cotton prices, which took down product prices, coupled with an increase in manufacturing cost, due to alternative fuel usage.

Gross margins declined to 14.3% compared with the preceding period’s 15.4%.

Net sales only managed to crawl up by 1% to Rs21.62 billion in the first half of fiscal 2012.

Increased product prices in the value added segment resulted in a jump in net sales, while volumetric trends remained mixed within segments, said Global Securities analyst Sarfaraz Abid.

Profits from core textile operations moved higher by 2.5 times to Rs1.5 billion, while lower core profits pressured growth in core operations, added Abid.

In addition, declining cotton prices are also expected to prop up revenue from the spinning and weaving segment, supported by higher sales due to lower product prices. Cotton prices declined by 36% to Rs5,400 per maund at the start of the financial year, while prices have fallen further by 14%.

Moreover, depreciation of the rupee against the dollar and euro by 2% and 6%, respectively, benefitted the company as 80% of its sales are related to the export market.

However, this could not be sustained in the second quarter as net sales declined by 6%.

Other income remained a significant highlight as it improved by 34% to Rs1.62 billion during the period under review with support from higher dividend income from investments in associated companies, such as MCB Bank and Nishat Chunian among others.

Lastly, bottom-line was also supported by lower effective tax rate of 12% during the first half of fiscal 2012 compared with last year’s 16%.

Published in The Express Tribune, February 25^th, 2012.