Bhanero Textile Mills Limited (KSE: BHAT) is a public limited company which was incorporated in Pakistan on March 30, 1980. The company is one of the constituent members of a large industrial group of companies, Umer group, which according to the company information enjoys an annual turnover of approximately $300 million.
BHAT, headed by Khurrum Saleem as CEO, is listed on all three stock exchanges and it's headquartered in Karachi. The company manufactures and sells cotton yarn, ring spun yarn, carded yarn and woven fabrics. BHAT production facilities are located at Kotri district Dadu in the province of Sindh and Feroz Watan district Sheikhupura in the province of Punjab.
The company maintains two separate units of which Unit I consists of 27,840 spindles and Unit II consists of 41,472 spindles. Reportedly, its installed annual spinning capacity is 23.2 million kilograms of yarn and fabric. The company is also involved in generating and distributing electricity.
PERFORMANCE FOR 1H FY14 In the face of energy shortages and increasing inflation, BHAT's recent performance on the whole has been consistently on an upward curve with impressive top line growth trickling down to a striking bottom line.
The turnover of the company is constantly improving as compared to the corresponding period of the preceding year. During the first half of the ongoing fiscal year, net sales of Rs 3.77 billion expanded significantly by 12.6 percent year on year against net sales of Rs 3.3 billion attained in the same period of last year.
BHAT's gross profit was up by 34.9 percent year on year in 1H FY14 due to less proportionate increase in cost of sales, which only grew by 9.4 percent year on year. That is mainly attributed by the company to improved productions, efficiencies and effective cost reduction strategies.
BHAT has also shown strong net profit after tax growth of 53 percent year on year on the back of strong revenue assisted by stable margins. Additional support to bottom line is provided by increase in other income by 211 percent year on year, respectively.
However, pressures have been witnessed with administrative costs and other expenses increasing by 14 percent year on year and 52 percent year on year, respectively. Finance cost for the firm also appreciated by 36.5 percent year on year, adding further stress to bottom line expansion.
Looking at the company's unconsolidated balance sheet, a comparison of current ratio and quick ratio reveals that the gap between the two has been widened significantly over the years with the highest disproportion witnessed in 1H FY14. In 1H FY14, the inventory accounted for 74 percent of the company's current assets. This represents that the company possesses huge inventory stock.
However, non-current liabilities declined by 1.5 percent year on year due to no previous long-term borrowing by the company. Strong performance in 1H FY14 allowed the company to reward investors by scoring earnings per share of Rs 40.52 compared to Rs 25.43 for the same period of the previous financial year. Break-up value of shares is Rs 1006.67 as at 31st December 2013.
FUTURE OUTLOOK The company expects an increase in orders from the EU countries in the near future which will prove beneficial for the whole sector. However, significant constraints remain. One is the chronic energy shortages, which may intensify throughout summer season. Second is inflation and third is social disruptions arising from law-and-order situation, which combine to stifle economic activity. The industry's cost of production has already risen due to instant increase in core inflation. The competitiveness of this industry in international market has been affected severely due to above-mentioned factors.
In the absence of gas, BHAT is being operated on alternative source of energy like furnace oil which resulted in extra fuel and power cost which had to be borne by the company. The company has successfully been able to enhance overall sales volumes due to improved internal control procedures and performance standards. Reducing and controlling the cost of production (cost per unit) is the key to get good top line and bottom line in corporate sector. The management anticipates sound profitability in subsequent period.
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1HFY12 1HFY13 1HFY14
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Profitability
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Gross profit margin 28.5% 27.8% 27.2%
Operating profit margin 13.5% 11.2% 10.8%
Net profit margin 8.4% 7.8% 7.3%
ROE 16.1% 12.9% 11.9%
ROA 11.4% 9.3% 8.8%
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Liquidity
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Current ratio 2.63 2.84 3.12
Quick ratio 1.13 1.46 1.81
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Turnover
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Total asset turnover 1.36 1.20 1.20
Fixed asset turnover 3.19 3.14 3.51
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Market
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EPS - Rs 17.28 15.57 16.93
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