Nishat Mills’ profits more than double, beat expectations

KARACHI: Nishat Mills’ net profit more than doubled on higher yarn prices in fiscal year 2010, beating market expectation.

The textile company’s net profit surged 129 per cent to Rs2.9 billion from last year’s Rs1.27 billion, according to a notice sent to the stock exchange on Thursday.

The consensus of two research firms revealed that they missed the net profit by 8.2 per cent as they estimated the profit to stand at Rs2.68 billion.

Nishat Mills Limited (NML) also announced a final cash dividend of Rs2.5 per ordinary share of Rs10.

All hail spinning segment

NML benefitted from improved profitability from the spinning segment which contributes about 30 per cent to its revenues, according to BMA Capital analyst Sana Bawani.

Yarn prices skyrocketed to Rs209 per kg during January-March and continued to move upwards to Rs220 per kg in June.

Yarn of higher counts fetches significantly more in export markets which can be one of the factors leading NML to book exorbitant profits, highlighted Bawani.

Additionally, the company also had low-cost inventories till August as the management hinted in a talk at procurement price of Rs4,000 per maund for cotton while the commodity had crossed Rs7,000 per maund in July, said Bawani in the company research report.

Other income gives further boost

In addition to its strong core performance, NML’s other income recorded a phenomenal growth of 64 per cent mainly led by higher dividend income from MCB Bank.

NML currently holds around 52.6 million shares of the bank in its investment portfolio which is likely to yield Rs538 million in dividend income for the company taking the cumulative other income to Rs982 million in fiscal year 2010.

MCB Bank constitutes 60 per cent of NML’s total other income.

Moreover, finance and other charges came down by a significant 29 per cent on yearly basis to Rs1.2 billion, further supporting the bottom line of the company mainly due to lower average six-month Karachi Inter-bank Offered Rate (Kibor) in fiscal year 2010.

NML also completed its acquisition of AES Power Projects including AES Lalpir and AES Pak Gen. However, dividend from the companies are expected from next year onwards, informed Bawani.

Cotton prices to  soar further

Although exact details of the damage to crops have not yet been released by the government, initial impressions and conversations with industry experts suggest that expected cotton crop damage is around two million bales, according to JS Global Capital.

This coupled with the news of fungus attack on the crop could exert an upward pressure on cotton prices in the near future, said JS Global Capital analyst Bilal Qamar.

Nevertheless, local cotton prices currently are trading around Rs6,500 per maund and look stable for the time being as import orders have already been placed to meet the expected supply shortfall in the country.

Published in The Express Tribune, September 10^th, 2010.