Corporate results: Nishat Mills profit declines 27% year-on-year

Falling cotton prices, climbing finance costs, other expenses hamper growth.

KARACHI:

Nishat Mills – the flagship company of the Nishat Group – posted a full-year profit for fiscal year 2011-12 of Rs3.5 billion, a decline of 27% from Rs4.8 billion a year ago owing to serious challenges from all the corners in the form of a heavy fall in cotton prices, which pulled down finished product’s prices, coupled with higher finance costs and a significant increase in cost of production, due to expensive fuel usage.

Cotton prices during the year averaged at Rs5,837 per maund compared to Rs8,991 per maund in fiscal 2011, depicting a decline of 35%, according to JS Global Capital report. Resultantly, gross margins contracted to 15.1%.

Profit from core textile operations fell 31% to Rs3.2 billion during the period.

Full-year revenues registered a decline of 7.5% to Rs44.9 billion from Rs48.6 billion in the preceding year. Despite a rebound in the last quarter of the year attributable to higher realised prices in the value-added chain and rupee depreciation, the sales of the company remained under pressure on account of lower sales volume throughout the year owing to power outages and sluggish demand from the downstream textile sector, said BMA Capital analyst Bilal Qamar.

Moreover, depreciation of the rupee against the dollar by 9% benefitted the company as 80% of its sales are in the export market.

Finance costs surged 10% year-on-year to Rs1.76 billion on account of increased borrowing to fund the company’s six megawatts alternative fuel project. High administration and distribution expenses also dented the profits further.

Other income remained a significant highlight as it improved by 10% to Rs2.7 billion during the year with support from higher dividend income from investments in associated companies, such as MCB Bank and Nishat Chunian among others.

The results were accompanied by a final dividend of Rs3.5 per share or 35% for the financial year 2011-12.

Outlook

Going forward, the company can benefit from the cut in interest rates to lower its finance costs along with a downward revision in export refinance scheme.

The gradual shift to alternative power will also hold them in good stead as the demand for power grows and supply falls behind.

Nishat Mills’ strong core business will get a boost from the recent approval of duty-free access to the European Union. Pakistan will get the access from January 2013.

Furthermore, healthy dividend income from its subsidiaries will keep on providing support to the profitability.

The company also announced an investment of Rs600 million in Nishat Dairy – an associated undertaking in which Nishat Mills will hold a 22% interest, which will help bolster the already robust other income. The dairy venture will sell raw milk to the companies who operate in the dairy products manufacturing industry. At 2,500 milking cows the farm will be the largest in the country.

Published in The Express Tribune, October 6^th, 2012.