Gul Ahmed Textile Mills Ltd – a review of the performance

Gul Ahmed Textile Mills Ltd (GATM) believes that the present momentum in revenues is sustainable – expected to maintain a CAGR of at least 20% over the next two years – while closing FY21 with revenues close to PKR90bn, compared with PKR65bn in 9MFY21 (overall revenues worth c.US$560mn). Direct exports of GATM in FY22 are expected to cross US$320mn (from approximately US$265mn in FY21).

The company is presently operating at over 90% capacity utilization in all segments, which is likely to be sustained even after the capacity enhancements (Spinning and Home textile planned to commence by November; all expansions to commission within two years), due to the robust order flows. According to the management, GATM’s order book is fully booked until December 2021, while capacities have been booked (50%) for 2HFY22 (expects to book the remaining capacity between Jul-Sep 2021).

Gross margins are expected to hover around the 4-5yr average of c.20%, going forward. As per the management, GMs of the value added segment (c.4% in 3Q) are likely to improve substantially due to the planned increase in prices (as per the last briefing, 4-5% rise in unit prices can be expected each quarter), amid strong demand.

GSP+ Status resolution passed by the EU Parliament: The GATM management believes that Pakistan is safe from the withdrawal of the status for next two years, while the government will work closely with the EU member countries in order to ensure that Pakistan will comply with all of the conventions.

GATM plans on utilizing the proceeds from the Ideas IPO by setting up a new plant in a exports processing zone (which entails tax and other incentives), and investing further in the retail chain. The management also plans on introducing two new product lines in Ideas (a fashion line and an everyday essential item).

As for potential sales on Amazon, GATM will not be exporting products under the Gul Ahmed brand, but will sell products under other brands (in order to prevent the commoditizing of the GATM brand). The initial revenue target in FY22 through Amazon is US$2mn.

With the impressive booking of orders until December (likely to be fully booked until next June as well), experts believe GATM is well positioned to outpace the other listed textile scrips. The carving out of Ideas will unlock greater value for the stock, as Ideas is likely to fetch premium valuations (as opposed to Textile sector valuations).

Courtesy – Intermarket Securities Limited.

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