Ahmad Hassan Textile Mills Limited (KSE: AHTM) is one of the evolving textile composite unit of Pakistan, located in District Muzaffargarh and was incorporated in the province of Punjab in December 1989. Its shares are quoted on all stock exchanges in Pakistan. The firm is primarily engaged in spinning and weaving allowing for sale of yarn and fabric products. AHTM has an annual capacity of producing grey cloth of 40 million sq. meters annually.
AHTM has a solid export-oriented sales mix, constituting 70% of total company sales while holding 0.2% market share of total industry exports. The company supplies its products to customers in Europe, Africa and other Asian countries.
PERFORMANCE FOR 1H FY14 AHTM has a history of solid performance ever since FY10, with average growth in revenue of 10% over the past six years. Despite energy shortages and rising inflation, AHTM's recent performance on the whole has been consistently on an upward curve with impressive top line growth trickling down to striking bottom line.
Improved sales initiatives have resulted in revenue collection to increase by 9.7 percent year on year with net sales for the 1H FY14 clocking in at Rs 2.06 billion against net sales of Rs 1.9 billion. Sales performances in both local and export markets were encouraging during 1H FY14 due to the company's revenue being earned from a large mix of customers.
AHTM's gross profit was up by 14 percent year on year in 1H FY14 due to less proportionate increase in cost of sales which only grew by 9.2 percent. That mainly attributes to improved productions efficiencies and effective cost reduction strategies.
AHTM has also shown strong net profit after tax growth of 50 percent year on year on the back of strong revenue assisted by stable margins. Additional support to bottom line is provided by decline in other expenses and lower provision for taxation, of 70 percent year on year and 37 percent year on year, respectively. However, pressures have been witnessed with distribution and administrative costs increasing by 36 percent year on year and 26 percent year on year, respectively. Finance cost for the term also appreciated by 9 percent year on year, adding further stress to bottom line expansion.
The company's fixed assets have increased by 49 percent year on year mostly due to the addition of new machinery in their production facilities. Attrition in fixed asset turnover in 1H FY2014 to 0.54 and total asset turnover to 0.83 is attributed to under-utilisation of the capacities due to increased power shutdowns.
Strong performance in 1H FY14 allowed the company to reward investors by earnings per share of Rs 5.48 compared to Rs 3.66 for the same period of the previous financial year.
FUTURE OUTLOOK The global economic conditions have not improved much in the current half year but optimism prevails that world economy will rebound soon. The textile industry in Pakistan is also in the attention after the approval of the GSP+ status from the EU which may substantially enhance the country's textile exports to the EU. SBP has forecasted 6 percent increase in exports in the 2H FY14 due to the GSP+ status. AHTM appears to be favourably positioned to gain from this period of increased exports.
AHTM 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; AHTM may need better management of operational costs moving forward. AHTM is trying to minimise the cost of production by reducing energy costs by installing gas generator sets.
Based on historical track record, AHTM is anticipated to manage to gain a stronger client base in the EU through aggressive marketing and awareness, so solid growth can be expected in 2H FY14. However, energy crisis, law-and-order situation in the country and local and international market are the factors which can impact future results.