Gul Ahmed Textile Mills performance at a glance

Gul Ahmed Textile Mills (GATM) posted 3QFY20 consolidated NLAT of PKR453mn (LPS: PKR1.06), from a NPAT of PKR655mn (EPS: PKR1.53) last year. This took 9MFY20 NPAT to PKR617mn (EPS: PKR1.44, down 78% yoy). Gross Margins, fell 10ppt from 23.2% in 3QFY19 to 13.3% in 3QFY20, due to pressures from the Covid-19 pandemic.

Key highlights

  • GATM reported net sales of PKR46.6bn in 9M, up 12% yoy, with sales in the local market taking the lion’s share of c. PKR20bn (44%), followed by exports to Europe and UK of c.PKR19bn (40%), while sales to North America totaled c.PKR4bn (9%). Sales for 3Q were disrupted due to the lockdown since the third week of March, as exports are majorly shipped towards the end of a month.
  • During the lockdown (April-May), the overall utilization level reached zero due to plant closure. Operations slowly restarted in April, with capacity utilization below c.50%. Sales had already begun falling as lockdowns in China/Europe were imposed as early as January.
  • Due to the global lifting of restrictions (especially in Europe) and improvement in textile sales, the company is presently (June) operating at c.70% in the Spinning segment and c.90% in Weaving. The utilization for Home Textiles is c.80% level, while the Apparel segment (which is severely impacted) is operating at 50% utilization level.
  • The Retail segment of GATM (Ideas) has been the hardest hit because of the local lockdowns and restricted sales hours (stores closed in the evening and on weekends). This has led to below-par sales during the Ramadan / Eid season (typically, January-June period is the strongest period of the year for the Retail segment).

Outlook

GATM has focused heavily on BMR projects for the Spinning segment, as they believe opportunities exist for cost reduction by installing state-of-the-art machinery. There are plans for more BMR in the Home Textiles segment in future due to higher expected growth, while that in the Apparel segment may be delayed. However, these projects have presently been delayed due to the disruption in shipment of machinery and travel restrictions of foreign technicians.

GATM is expanding into the Healthcare segment by ramping up the export of patent gowns, suits and face masks for hospitals (US FDA approved). The management believes that the demand for this segment will remain healthy due to the uncertainties of a second wave of Covid-19 infections and lasting fear of pandemics in future; customers have thus been stocking up for future use. For GATM, this segment has comprised 20-25% of the total revenues in June 2020!

Globally, Home textiles have been less hard-hit by lockdowns as have garments and apparel (the demand for the latter group is heavily reliant on high-street sales, not so much online). However, demand for Home textile products have recovered faster, due to the proliferating work-from-home culture worldwide.

According to GATM management, Pakistan’s exports during June could cross the US$1bn mark again (pre-pandemic level). This can mean a quicker-than-expected rebound in the textile exports of Pakistan (almost V-shaped recovery).

GATM’s exports order book for the upcoming fall-winter season has been fully filled (July-November). Based on the trends seen so far, the management is expecting capacity utilization to reach close to the c.80-90% level during FY21f, with export sales in the first two quarters of FY21 likely to be higher than that last year.

GATM’s online sales during FY20 are expected to double yoy to around the PKR1bn level.( Intermarket Securities Limited.)

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