April 3, 2018 REP‐057

Pakistan Equity| Textile| Sector Update

Textile Sector Profitability 2QFY18Textile Sector Profitability 2QFY18Sector Profitability flat during 2QFY18

Shankar TalrejaACh k @ li k

Best Local Brokerage HouseBrokers Poll 2011 14 2016 17shankar@topline.com.pk

Tel: +9221‐35303330Topline Securities, Pakistan www.jamapunji.pk

Brokers Poll 2011-14, 2016-17

Best Local Brokerage House 2015-16

Sector Profitability flat during 2QFY18

l l (h Pakistan Te tile Sector Sample CompaniesDuring 2QFY18, our textile sector sample (havingmarket cap of at least Rs1bn, representing 87% of totalmarket cap) witnessed rise of 10% YoY to Rs148bn in itsrevenue mainly on the back of 1) export package

Pakistan Textile Sector: Sample Companies

S.No Symbol M. Cap (Rsmn) Profit After Tax (PAT Rsmn) YoY(%)02‐Apr‐18 2QFY18 2QFY17

1 NML 55,806  2,203  1,499  47%2 SAPT 33,461  75  805  ‐91%3 FML 22,608  500  588  ‐15%

%revenue mainly on the back of 1) export packageannounced by Govt. of Pakistan and 2) currencydevaluation of 5% in Dec 2017.Fall in PKR/USD value coupled with export package

4 KTML 21,549  863  1,550  ‐44%5 SFL 17,719  229  267  ‐14%6 GATM 15,939  524  182  188%7 NCL 12,501  795  302  163%8 IDYM 8,867  138  419  ‐67%9 MSOT 6,504  278  185  50%10 ADMM 6 239 150 14 NMFall in PKR/USD value coupled with export package

provided some respite to the industry GP margins withaugmentation of 1ppts to 15% during 2QFY18 vs. 14%in 1QFY18 and 2QFY17 each. However, a narrow down

10 ADMM 6,239  150  14  NM11 GADT 6,748  244  23  NM12 FZCM 4,380  108  299  ‐64%13 MEHT 3,851  82  385  ‐79%14 SURC 4,876  98  134  ‐27%15 CRTM 2,522  67  43  55%16 FASM 3 192 142 112 27%

analysis says, cost curtailments, and higher spinningsegment sales amid better yarn prices were key reasonsfor few companies to advance their margins.

16 FASM 3,192  142  112  27%17 CTM 2,072  (141) 1  NM18 ZAHID 2,910  166  60  175%19 DINT 2,237  35  (23) NM20 BHAT 2,085  99  74  33%21 TOWL 1,481  110  62  77%22 KML 1,896  93  87  7%

Moreover, profitability of the textile sector remainedstagnant at Rs7bn during 2QFY18, despite of thegrowth in revenues and gross margins. The pressure on

fit bilit tt ib t d t i i fi t

,23 BTL 1,962  99  70  42%24 JKSM 1,571  11  9  16%25 SUTM 1,205  20  16  26%26 RCML 1,643  67  18  265%27 REWM 1,017  64  15  335%28 GLAT 1,732  1  (13) NM

Honda Atlas Cars (HCAR) 2

profitability was attributed to increase in finance costof the sample by ~29% YoY.

Pakistan Textiles

29 ANL 6,866  (17) (18) ‐9%30 PRET 1,079  44  21  111%

256,515  7,147  7,188  ‐1%Source: Topline Securities, Company Accounts

Sector Profitability flat during 2QFY18

Relative to KSE100 index, textile sector performance remained subdued by 13% (KSE100 return ‐2% FYTD vs.15% of textile) despite the export relief package given by the Govt. Underperformance of textile sector could beattributed to 1) liquidity crunch arising out of delayed receipts of rebates amount, 2) higher cost of production( i l i ) d i l d 3) l d i i l f(mainly energy prices) compared to regional peers and 3) lower cotton production in last few years.

Future Outlook: Textile manufactures in their budget proposal to government have requested to decrease cost ofdoing business primarily through decrease in electricity tariff in line with regional players. Similarly, manufacturesh l d f 1) i l l di f d 2) i i f d b k d i d 3)have also proposed for 1) timely release pending refunds, 2) continuation of draw back duties and 3)reduction/elimination of custom duties on import of synthetic yarn and Polyester stable fiber (PSF).

Key Risks may stem from 1) unavailability of raw material, 2) volatility in commodity prices & 3) further rise in/ l i i hpower/electricity charges.

Textile Sample Companies Income Statement Highlights Rsmn 2QFY18 2QFY17 YoYSales 147 652 134 510 10%Sales 147,652 134,510 10%Gross Profit 21,579 18,547 16%Other income 2,431 3,717 ‐35%Finance cost 3,703 2,871 29%Profit before tax 10,112 10,673 ‐5%

Honda Atlas Cars (HCAR) 3Pakistan Textiles

, ,Profit after tax 7,147 7,188 ‐1%Source : Company Accounts, Topline Research 

Sector Profitability flat during 2QFY18

Pakistan Textile Sector: Sample Companies AnalysisPakistan Textile Sector: Sample Companies Analysis

S.No Symbol Company NameM. Cap(Rsmn)

Sales (Rsmn)

Gross Profit (Rsmn)

Gross Profit Margin (%)

02‐Apr‐18 1QFY18 2QFY18 2QFY17 QoQ YoY 1QFY18 2QFY18 2QFY17 QoQ YoY 1QFY18 2QFY18 2QFY17 QoQ Δ1 NML Nishat Mills Ltd 55,806  19,958  20,146  19,231  1% 5% 3,311  3,435  2,927  4% 17% 17% 17% 15% 0% 2%2 SAPT Sapphire Textile 33,461  7,930  7,796  6,976  ‐2% 12% 1,400  1,197  673  ‐14% 78% 18% 15% 10% ‐2% 6%3 FML Feroze 1888 22,608  5,224  4,747  4,214  ‐9% 13% 909  882  811  ‐3% 9% 17% 19% 19% 1% ‐1%, , , ,4 KTML Kohinoor Textile 21,549  10,112  10,945  10,736  8% 2% 2,798  2,929  3,554  5% ‐18% 28% 27% 33% ‐1% ‐6%5 SFL Sapphire Fiber 17,719  7,357  5,566  6,362  ‐24% ‐13% 1,115  1,163  933  4% 25% 15% 21% 15% 6% 6%6 GATM Gul Ahmed 15,939  9,458  11,942  10,499  26% 14% 1,837  2,432  1,921  32% 27% 19% 20% 18% 1% 2%7 NCL Nishat (Chunian) 12,501  13,330  12,638  11,433  ‐5% 11% 1,820  2,158  1,611  19% 34% 14% 17% 14% 3% 3%8 IDYM Indus Dyeing 8,867  7,210  7,580  7,227  5% 5% 793  569  937  ‐28% ‐39% 11% 8% 13% ‐3% ‐5%9 MSOT Masood Textile 6,504  5,718  6,916  5,955  21% 16% 875  930  861  6% 8% 15% 13% 14% ‐2% ‐1%10 ADMM Artistic Denim 6,239  2,135  2,059  1,598  ‐4% 29% 221  190  68  ‐14% 177% 10% 9% 4% ‐1% 5%11 GADT Gadoon Textile 6,748  6,520  6,421  6,072  ‐2% 6% 379  418  219  10% 91% 6% 7% 4% 1% 3%12 FZCM Fazal Cloth 4,380  8,184  8,016  6,215  ‐2% 29% 814  797  587  ‐2% 36% 10% 10% 9% 0% 0%13 MEHT Mehmood Tex 3,851  4,294  4,222  3,973  ‐2% 6% 264  317  247  20% 29% 6% 8% 6% 1% 1%14 SURC Suraj Cotton 4,876  2,157  2,724  2,186  26% 25% 130  243  136  87% 79% 6% 9% 6% 3% 3%15 CRTM Crescent Textile 2,522  2,410  2,906  2,723  21% 7% 192  328  147  71% 123% 8% 11% 5% 3% 6%16 FASM Faisal Spinning 3 192 2 681 2 944 2 600 10% 13% 272 303 266 11% 14% 10% 10% 10% 0% 0%16 FASM Faisal Spinning 3,192  2,681  2,944  2,600  10% 13% 272  303  266  11% 14% 10% 10% 10% 0% 0%17 CTM Colony Mills Ltd 2,072  3,469  3,920  3,161  13% 24% 302  323  353  7% ‐9% 9% 8% 11% 0% ‐3%18 ZAHID ZahidJee Tex. 2,910  2,352  2,335  2,029  ‐1% 15% 243  239  137  ‐1% 75% 10% 10% 7% 0% 4%19 DINT Din Textile 2,237  2,042  2,266  1,908  11% 19% 56  205  88  266% 132% 3% 9% 5% 6% 4%20 BHAT Bhanero Tex. 2,085  1,479  2,055  1,631  39% 26% 186  241  184  30% 31% 13% 12% 11% ‐1% 0%21 TOWL Towellers Limited 1,481  621  770  800  24% ‐4% 91  104  146  15% ‐29% 15% 14% 18% ‐1% ‐5%22 KML Kohinoor Mills 1,896  2,752  2,687  2,909  ‐2% ‐8% 368  425  432  15% ‐1% 13% 16% 15% 2% 1%, , , , % % % % % % % % %23 BTL Blessed Tex. 1,962  2,389  2,410  2,035  1% 18% 215  252  198  17% 27% 9% 10% 10% 1% 1%24 JKSM J.K.Spinning 1,571  2,408  2,142  2,298  ‐11% ‐7% 172  182  139  6% 31% 7% 8% 6% 1% 2%25 SUTM Sunrays Textile 1,205  1,066  1,133  1,152  6% ‐2% 73  118  72  61% 65% 7% 10% 6% 4% 4%26 RCML Reliance Cotton 1,643  989  1,050  897  6% 17% 141  140  79  0% 77% 14% 13% 9% ‐1% 5%27 REWM Reliance Weav 1,017  3,334  3,120  2,584  ‐6% 21% 245  317  251  29% 26% 7% 10% 10% 3% 0%28 GLAT Glamour Textile 1,732  592  721  612  22% 18% 7  21  12  193% 81% 1% 3% 2% 2% 1%

Honda Atlas Cars (HCAR) 4Pakistan Textiles

29 ANL Azgard Nine 6,866  3,574  3,877  3,172  8% 22% 585  553  442  ‐5% 25% 16% 14% 14% ‐2% 0%30 PRET Premium Tex. 1,079  1,663  1,600  1,321  ‐4% 21% 137  167  115  22% 45% 8% 10% 9% 2% 2%Total Sample of 30 companies 256,515  143,407  147,652  134,510  3% 10% 19,950  21,579  18,547  8% 16% 14% 15% 14% 0.7% 0.8%Source: Topline Securities, Company Accounts, PSX

Sector Profitability flat during 2QFY18

Pakistan Textile Sector: Sample Companies AnalysisPakistan Textile Sector: Sample Companies Analysis

S.No Symbol Company NameOther Income 

(Rsmn)Finance Cost 

(Rsmn)Profit Before Tax 

(Rsmn)Profit After Tax 

(Rsmn)1QFY18 2QFY18 2QFY17 QoQ YoY 1QFY18 2QFY18 2QFY17 QoQ YoY 1QFY18 2QFY18 2QFY17 QoQ YoY 1QFY18 2QFY18 2QFY17 QoQ YoY

1 NML Nishat Mills Ltd 413  646  572  57% 13% 1,662  421  405  ‐75% 4% 408  2,655  2,168  551% 22% 1,655  2,203  1,499  33% 47%2 SAPT Sapphire Textile 181  105  997  ‐42% ‐89% 454  505  381  11% 33% 433  100  697  ‐77% ‐86% 137  75  805  ‐46% ‐91%3 FML Feroze 1888 ‐ ‐ ‐ NM NM 23  20  16  ‐9% 32% 468  444  449  ‐5% ‐1% 432  500  588  16% ‐15%4 KTML Kohinoor Textile 166  253  825  52% ‐69% 209  261  120  25% 117% 1,938  1,960  3,261  1% ‐40% 891  863  1,550  ‐3% ‐44%5 SFL Sapphire Fiber 192  126  221  ‐34% ‐43% 357  383  343  7% 12% 703  526  538  ‐25% ‐2% 470  229  267  ‐51% ‐14%6 GATM Gul Ahmed 51  104  45  105% 134% 225  235  192  4% 22% 152  589  237  288% 149% 94  524  182  456% 188%7 NCL Nishat (Chunian) 28  277  96  893% 188% 655  698  541  7% 29% 830  1,308  751  57% 74% 313  795  302  154% 163%8 IDYM Indus Dyeing 36  1  8  ‐96% ‐83% 68  70  75  3% ‐6% 436  213  591  ‐51% ‐64% 366  138  419  ‐62% ‐67%9 MSOT Masood Textile 55  245  61  344% 301% 200  (211) (148) ‐206% 42% 227  341  235  50% 45% 172  278  185  62% 50%10 ADMM Artistic Denim 13  87  12  550% 643% 18  29  20  62% 45% 125  158  3  26% 5893% 104  150  14  44% 1003%11 GADT Gadoon Textile 51  43  38  ‐14% 14% 127  123  91  ‐3% 35% 235  273  76  16% 258% 161  244  23  52% 969%12 FZCM Fazal Cloth 13  11  114  ‐13% ‐90% 294  334  225  13% 48% 310  193  264  ‐38% ‐27% 199  108  299  ‐46% ‐64%13 MEHT Mehmood Tex 133  280  443  110% ‐37% 142  169  101  19% 66% 80  134  418  67% ‐68% 32  82  385  157% ‐79%14 SURC Suraj Cotton (10) 40  134  ‐503% ‐70% 30  24  13  ‐19% 82% 23  102  178  336% ‐43% 23  98  134  336% ‐27%15 CRTM Crescent Textile 62  90  52  46% 73% 89  158  (66) 78% ‐340% (32) 39  88  NM ‐56% (44) 67  43  NM 55%16 FASM F i l S i i 12 19 12 54% 63% 25 35 38 37% 9% 141 179 138 27% 30% 107 142 112 32% 27%16 FASM Faisal Spinning 12  19  12  54% 63% 25  35  38  37% ‐9% 141  179  138  27% 30% 107  142  112  32% 27%17 CTM Colony Mills Ltd 10  46  3  350% 1312% 192  182  206  ‐5% ‐11% 28  (92) 31  NM NM (15) (141) 1  NM NM18 ZAHID ZahidJee Tex. 3  6  18  136% ‐67% 38  46  47  20% ‐3% 141  135  62  ‐4% 119% 126  166  60  32% 175%19 DINT Din Textile 0  ‐ 2  NM NM 74  85  69  15% 23% (65) 68  (26) NM NM (25) 35  (23) NM NM20 BHAT Bhanero Tex. 2  ‐ ‐ NM NM 16  26  17  60% 56% 90  124  91  38% 37% 71  99  74  38% 33%21 TOWL Towellers Limited 136  1  8  ‐99% ‐85% 1  1  2  ‐42% ‐50% 129  117  71  ‐9% 65% 124  110  62  ‐11% 77%22 KML Kohinoor Mills 10 22 17 115% 28% 62 68 76 10% ‐10% 109 123 115 14% 7% 81 93 87 15% 7%22 KML Kohinoor Mills 10  22  17  115% 28% 62  68  76  10% 10% 109  123  115  14% 7% 81  93  87  15% 7%23 BTL Blessed Tex. 1  1  1  ‐8% 70% 36  43  40  17% 5% 92  129  90  41% 43% 62  99  70  60% 42%24 JKSM J.K.Spinning 7  11  20  58% ‐47% 32  39  35  22% 13% 2  30  3  NM NM 21  11  9  ‐48% 16%25 SUTM Sunrays Textile 3  (15) 3  ‐634% ‐598% 7  27  3  310% 730% 23  20  30  ‐11% ‐32% 16  20  16  30% 26%26 RCML Reliance Cotton 1  4  1  501% 606% 22  18  19  ‐19% ‐5% 94  78  34  ‐17% 127% 77  67  18  ‐13% 265%27 REWM Reliance Weav 0  1  3  130% ‐76% 129  142  131  10% 8% 40  83  41  110% 103% 2  64  15  NM NM28 GLAT Glamour Textile ‐ 0  ‐ NM NM 11  5  10  ‐58% ‐51% (10) 9  (8) NM NM (16) 1  (13) NM NM

Honda Atlas Cars (HCAR) 5Pakistan Textiles

29 ANL Azgard Nine 5  27  6  485% 348% (264) (287) (170) 9% 69% 49  20  13  ‐59% 56% 15  (17) (18) NM NM30 PRET Premium Tex. 2  (1) 5  ‐158% ‐127% 44  52  39  18% 36% 47  54  34  14% 57% 30  44  21  45% 111%

Total Sample of 30 companies 1,575  2,431  3,717  54% ‐35% 4,981  3,703  2,871  ‐26% 29% 7,246  10,112  10,673  0  ‐5% 5,681  7,147  7,188  26% ‐1%Source: Topline Securities, Company Accounts

PKR‐USD Domestic vs. International Cotton Prices

90

100

7,200

8,000

US$/lbRs/maund Local Cotton Price Int'l Prices (RHS)

110 00

115.00

120.00

60

70

80

4,800

5,600

6,400

r-15

n-15

p-15

c-15

r-16 l-1

6

t-16

n-17

y-17

g-17

v-17

r-18

100.00

105.00

110.00

-15

-15

-15

-15

-16

-16

-16

-17

-17

-17

-17

-18

Source: State Bank of Pakistan, Topline Research Source: Karachi Cotton Association, Cotlook, Topline Research

Textile Sector vs. PSX Market Capitalization Pakistan Textile vs. Total Exports

Mar

Jun

Sep

Dec Ap

r

Ju Oct

Jan

May

Aug

Nov

Mar

Mar

-

Jun-

Sep

-

Dec

-

Apr

-

Jul-

Oct

-

Jan-

May

-

Aug

-

Nov

-

Mar

-

p p

8 0009,000 10,000 11,000

450

500

550 RsbnRsbn Textile Sector Mkt. Cap. PSX Mkt. Cap.

60%

62%

64%

15,000

20,000

25,000 US$mn Total Exports Textile Exports Share in Total

5,000 6,000 7,000 8,000

300

350

400

Mar

-15

un-1

5

ep-1

5

Dec

-15

Mar

-16

un-1

6

ep-1

6

Dec

-16

Mar

-17

un-1

7

ep-1

7

Dec

-17

Mar

-18

54%

56%

58%

-

5,000

10,000

FY14

FY15

FY16

FY17

FY18

Honda Atlas Cars (HCAR)Pakistan Textiles 6

Source: PSX, Topline Research Source: PBS, Topline Research

M J S D M J S D M J S D M

1H

The research analyst(s), denoted by an “AC” on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views expressed in this report accurately reflect his/her

Analyst Certification and DisclosuresThe research analyst(s), denoted by an AC on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views expressed in this report accurately reflect his/herpersonal views about all of the subject companies/securities/sectors and (2) no part of his/her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressedin this report.Furthermore, it is stated that the research analyst or its close relative have neither served as a director/officer in the past 3 years nor received any compensation from the subject company in the past 12months.Additionally, as per regulation 8(2)(i) of the Research Analyst Regulations, 2015, we currently do not have a financial interest in the securities of the subject company aggregating more than 1% of the value ofthe company.

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7Pakistan Textiles