One of the oldest textile groups in the country, Gul Ahmed Textile Mills Limited, has announced to hive out its local business segment into a wholly-owned subsidiary.
In a notification to the Pakistan Stock Exchange, the company stated that the Board of Directors of Gul Ahmed Textile Mills Ltd. authorized the company to formulate and propose the terms for a carve-out its local business segment (including retail business along with related assets) into a wholly-owned subsidiary and upon finalization of the same by the management, be presented to the Board of Directors for their consideration.
Furthermore, the company has also been authorized to incorporate a wholly-owned subsidiary for the purposes of the above and to appoint legal, financial and such other advisors and consultants as required.
An industry expert, who didn’t want to be named, said,
The biggest benefit of hiving off local business (wholesale) to any business in the textile industry is to discourage credit – considering today’s market and financial situation, it is very tough to get payments recovered from parties.
He further added that Gul Ahmed has grown so much that they are outsourcing production and still fully booked in-house on their production setup.
Moreover, hiving off the local end of the business allows them to primarily focus on their key strength i.e. in-house production and mix it with outsourced production to other vendors and develop a product for their retail end that gets them the returns they’re looking for.
He said that hiving off the local business is due to the sharp decline in sales post-2019 budget – so the general idea is to shut it down since its an added expense which incurs far more expenses than what it earns.
Waqar Hanif, who owns a textile indenting/trading business and is part of the industry since the last 24 years, said that Gul Ahmed might be looking to get the benefit of EOU (Export oriented unit) by getting duty & taxes free imports of Raw material & machinery.
He laid down the benefits that Export oriented units (EOU) enjoy under SRO 326-327. The total imports are duty & tax free which includes total raw materials like in Gul Ahmed’s case, chemicals, accessories for garments & home textile manufacturing, coal or other fuel for their power generation.
Waqar added that any new machinery (if they are planning for expansion) is duty-free for export-oriented units. Gul Ahmed also imports huge quantity of fine count yarn from Middle eastern units (previously from India but due to restrictions shifted to Oman etc)
The company also announced its financial results for the half-year that ended on December 31st, 2019.
The company has reported a profit of Rs. 1.02 billion, down by 52%, as compared to the profits of Rs. 2.13 billion earned in the corresponding period of last year. However, the sales of the company saw an increase of 15.80% to Rs. 31.83 billion as compared to Rs. 27.49 billion recorded in the same period last year. Growth in sales was due to the increase in volumetric growth due to currency devaluation.
The decline in profits was due to inflationary pressure on the manufacturing side and slow down in local sales. Pakistan was facing an overall economic slowdown but the performance of the company was above the market expectations.
The Cost of sales of the company increased by 20% to Rs. 25.28 billion which took the gross profit to Rs. 6.54 billion.
Finance cost saw a surge of 55% to Rs. 929 million as compared to Rs. 599 million due to higher short term borrowings. Earnings per share of the company decreased to Rs. 2.40 from Rs. 5.00.
At the time of filing this report, GATM’s shares at the bourse were trading at Rs. 42.80, up by Rs. 0.22 or 0.52%, with a turnover of 0.75 million shares on Wednesday.