Corporate results: Nishat Mills’ earnings up 50%

Moreover, higher yarn demand from China bodes well for the textile company .

KARACHI:

Nishat Mills – the flagship company of the Nishat Group – reported a profit of Rs2.86 billion in the July to December period of the fiscal year 2012-13, up 50.5% from Rs1.9 billion in the corresponding half of fiscal 2012 on back of stronger margins and higher exports where rupee depreciation played its part.

On a consolidated basis, the company managed to double its profits to Rs4.91 billion in the period.

“The result was above analyst expectations due to higher than estimated revenue growth,” reported Zeeshan Afzal, analyst at Topline Securities.

According to a notice sent to the Karachi Stock Exchange, the textile company’s revenue clocked in at Rs26.32 billion in the period, up 22% compared to Rs21.62 billion in the corresponding half of previous fiscal, attributable to stable cotton prices and 9% depreciation in rupee’s value as 80% of its sales are in the export market.

Increased demand of yarn from China had been the major catalyst in driving textile exports in fiscal 2013. Textile exports in the first six months of current financial year touched $6.46 billion, depicting a growth of 8.6% year-on-year. International cotton prices averaged Rs6,525 per maund in the period, whereas local prices averaged Rs6,000 per maund.  One maund is equal to 37.325 kilogramme.

Higher yarn exports coupled with a depreciating rupee had been the main reason for the growth in textile exports, said Bilal Qamar, analyst at JS Global Capital, in the brokerage firm’s review of the textile industry for the period.

Yarn primary margins were up 20% in the second quarter, due to 8% higher yarn prices amid flat cotton prices due to abundant supply. Nishat Mills’ sales volume peaked in the second quarter of fiscal 2011, however volumes in the first quarter of fiscal 2013 were up 17%. According to Elixir Securities, yarn volumes clocked in at around 10 million kg in the outgoing quarter.

Absence of inventory losses and favourable textile prices in the region improved company gross margins by 230 basis points to 16.7% in the first six months of fiscal 2013 compared to 14.3% in first half of fiscal 2012.

On the flipside, 14% decline in other income to Rs1.394 billion, primarily due to lesser dividend from Pakgen Power and Lalpir Power diluted the earnings.

Nishat Mills’ present investment portfolio stands at Rs30 billion, or Rs85 per share, and the company is trading at a 20% discount to its portfolio value.

Outlook

The textile sector is likely to remain in the limelight due to a better export outlook, given the recent European Union relief package. Nishat Mills can benefit with the initiation of the package as 27 items of the 75 items under the package are related to the textile industry.

Furthermore, improvement in gas supply during the second half of fiscal 2013 (post-winter season) coupled with tie-up of new discoveries will not only reduce fuel/power cost but will also enable the sector to reap the benefits of recently granted EU duty waiver.

Published in The Express Tribune, February 23^rd, 2013.

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