Analysis of financial statements: Textile sector

Presented to;

Cotton textile production and apparel manufacturing are Pakistan's largest industries, accounting for about 66% of the merchandise exports and almost 40% of the employed labor force.

Pakistan is 4th world largest producer and supplier of Cotton.

The industry is comprised of 453 textile mills: 50 integrated units; and 403 spinning units, with 9.33 million spindles and 148,000 rotors.

The capacity utilization was 83% for spindles and 47% for rotors during 2003.

Pakistan’s textile industry has estimated a shortfall of around one billion dollars in its exports in the current financial year because of three major factors;

cotton crisisenergy crisis

political chaos in the country

About 300 textile units have virtually stopped their production because of electricity and gas shortage and their output is set to suffer in 2007-08.

The downward trend in textile might be observed from January 2008 to next few months because of the said factors.

FY08 the textile exports showed unimpressive growth of 1.03 per cent and amounted to 3.649 billion dollars.

All Pakistan Textile Mills Association (APTMA) has already announced to stop further investment in the sector, which would diminish the prospects of growth in the textile sector in the coming days.

Fazal Group is one of the oldest and largest Textile Groups in Pakistan, with operations in Cotton Ginning, Ring Spinning and Greige Woven Fabric Manufacturing.

The Group owns and operates five Ring Spinning Plants comprising 155,000 spindles, three Weaving Plants comprising 350 Air jet Looms and five Captive Gas Fired Power Plants with a capacity of 22 Mega Watts.

Continuous reinvestment is made to modernize and balance manufacturing facilities with an aim to diversify, improve and expand product base.

Fazal Cloth Mills Limited    Ahmed Fine Textile Mills Limited Fazal Rehman Fabrics Limited Amir Fine Exports (Pvt.) Limited

Unit No. 1Unit No. 2 Unit No. 3 Unit No. 4

Country’s leading textile manufacturers and exporters covering the complete range of operations from cotton farming to retailing.

Bed Sheet, Pillow Cover, curtains, quilt cover, bed spread, Napkin, Bags, Apron and various other items of daily use.

The principal business of the Company is export of all kinds of value added fabrics, textile made-ups, casual and fashion garments duly processed.

Chenab Group;

Chenab Spins finest quality yarns in counts of 10, 16, 20, 22, 24, 30, 40, 60 & 80 in carded as well as combed versions.

Modern mills use high-speed shuttle less weaving machines that perform at incredible rates and produce an endless variety of fabrics.

The Processing unit of Chenab is sub divided into:Preparation & Dyeing Printing Design Studio and Engraving Finishing

Stitching unit is categorized in home fashion and garments.Made Ups Garments

Ratios Chenab

Fazal

2005 2006 2007 2005 2006 2007

Current ratio (times)

1.04 0.91 0.90 1.02 1.15 1.14

Quick ratio (times)

0.31 0.30 0.29 0.46 0.45 0.49

Cash ratio (times)

0.03 0.023 0.02 0.14 0.19 0.16

Inventory turnover (times)

1.57 1.43 1.65 2.51 3.34 3.84

AAI(days) 229.3 251.7 218.2 143.4 107.8 93.8

ACP (days) 53 80.7 80.4 22.61 27.76 34.81

Ratios Chenab

Fazal

2005 2006 2007 2005 2006 2007

Debt ratio (%) 74 72 74 49 39 27

Time interest earned ratio(times)

1.55 1.29 1.20 2.47 1.57 1.46

Fixed charge coverage ratio (times)

1.65 1.27 0.38 1.17 0.69 0.56

Fixed charge coverage ratio [Non-cash] (times)

1.20 0.96 0.29 1.16 0.69 0.57

Ratios Chenab

Fazal

2005 2006 2007 2005 2006 2007

Earning per share (rupees)

1.25 0.67 0.01 12.12 6.68 11.08

Price/earning ratio

30.06 69.33 --- 11.03 18.7 4.07

Share prices in KSE

38.25 46.45 --- 137 125 45.1

Ratios Chenab

Fazal

2005 2006 2007 2005 2006 2007

Net profit margin (%)

3.18 2.16 0.92 5.8 1.2 1.7

Gross profit margin (%)

19.72 22.54 18.96 16.8 14.2 13.6

Total asset turnover (times)

0.58 0.49 0.54 0.79 0.99 0.72

Operating asset turnover (times)

0.59 0.52 0.54 0.81 1.05 0.74

Operating profit margin (%)

11.19 13.7 12.2 11 9.7 9.66

Ratios Chenab

Fazal

2005 2006 2007 2005 2006 2007

Return on assets (times)

0.0019 0.011 0.005 0.045 0.02 0.012

Return on operating assets (times)

0.0066 0.07 0.07 0.09 0.1 0.07

Return on equity (times)

0.07 0.05 0.03 0.24 0.09 0.08

Return on common equity (times)

0.3 0.01 0.0005 0.24 0.09 0.06

Return on investment (times)

0.05 0.047 0.03 0.08 0.06 0.03

short-term creditor’s point of view, Fazal Cloth Ltd is a better option, apparent from the trends of its liquidity ratios.

long-term creditor’s point of view also, Fazal Cloth Ltd appears to have a better and growing ,long-term debt paying ability.

Investor needs to consider certain points while making the investment decision;

due to a recession in the sector, market prices of both the companies have dropped over the past years.

Chenab appears to be a bigger and well reputed company in the sector but the trend of profitability ratios tells a different story .

Fazal, in spite of having a better profitability position, has lower earning per share and is still a smaller organization than Chenab.