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Noon Pakistan Limited
Year Ending June 30, 1999
Estimated F & J Financial Performance Rankings
1995 1996 1997 1998 1999
NR A+ B++ B++ B
Noon Pakistan Limited (NPL) was incorporated thirty four years ago and was listed in 1970 on Karachi and Lahore stock exchanges. NPL is indexed in F&J Sector of 'Dairy Products'. The company produces dairy products including milk powder, butter, cheese, and pasteurized milk. NPL is the producer of Nurpur Butter which is of one of the strongest local brand names in dairy products. Recently the company has extended its product line and adapted modernization strategy by introducing products like Skimmed milk powder, which caters to the changing life styles of people.
Group chairman and chief executive Malik Manzoor Hayat Noon heads the board of directors. The head office of NPL is located in Lahore whereas production facilities are installed in Bhalwal, district Sargodha.
As per the latest shareholding pattern, individuals hold the largest portion (65.68%) of 394,080m shares, of the total shares outstanding. The shareholding pattern also reveals that NPL is one of the closely held companies as only four shareholders hold more than 80 per cent of the total outstanding shares. M/S Hameed Chaudhry & Company, the auditors has presented a clean report for FY 98/99.
Production Capacity and Utilization
Milk powder and butter plant, during the FY1998/99 has attained capacity utilization at 45.73 percent (FY1997/98: 45.40) by processing 11.61m Kgs of fresh milk and 0.34m Kgs of skimmed milk. The overall capacity utilization of this unit remained almost at the last year level, however, it can be observed that processing of fresh milk increased by 7.5 percent whereas skimmed milk registered decline by 67.88 percent during the year under review.
In the cheese plant the capacity utilization improved as the plant by processing 1.52m Kgs of fresh milk attained 75.85 percent processing efficiency as compared to 63.65 percent in the preceding year. Capacity utilization in the pasteurization plant remained low at 16 percent as it was the first year of operation in this division. The processing and pasteurization activities were restricted to the availability of milk to the company.
The balance sheet of NPL has grown to Rs. 86.14m from Rs. 79.03m a year ago. Operating fixed assets were up at Rs. 37.10m from Rs. 32.50m as the company has made a net addition of Rs. 9.73m during the year under review. However, this increase in assets have not pressurized the asset turnover ratio, which on account of higher revenues increased to 4.00x from last year's 3.48x (1996-98 median: 3.48x).
In the current assets, the most notable change was witnessed in trade debtors which went to Rs. 8.05m from last year's Rs. 1.92m. This has considerably deteriorated the collection period pushing it to 13 days from 3 days last year (1996-98 median: 4 days). Inventory age, on the other hand, improved to 29 days from 45 days (1996-98 median: 46 days) primarily on account of lower inventory level at the yearend which stood at Rs. 15.33m as compared to last year's Rs. 18.95m.
The current ratio declined to 1.21x from 1.43x last year (1996-98 median: 1.38x)because of a higher increase in current liabilities than that in current assets. Total current liabilities soared to Rs. 36.76m from Rs. 28.5m. This notable increase could be attributed to an increase of 142.3 per cent in trade payables. Short term finances utilized during the year were Rs. 9.05m as compared to last year's Rs. 9.51m.
On the long term side, there are no long term debts on the balance sheet. The long term liabilities are mainly composed of liabilities against assets subject to finance lease which stood at Rs. 11.51m at the year end. The paid up capital of NPL stood flat as compared to last year at Rs. 6.0m whereas the unappropriated profit has lost some weight on account of loss incurred during the current year's operations.
Solvency ratio increased 0.78x from 0.72x (1996-98 median: 0.78x). Breakup value per share stood at Rs. 63.12 which was nominally lower than last year's Rs. 66.88.
Profit and Loss Account
NPL has generated a net revenues of Rs. 209.51m, which exhibits an increase of 17.1 per cent over the last year's revenues of Rs. 178.90m. However, due to higher cost of sales, the gross profit declined to Rs. 25.45m from Rs. 29.76m last year. Accordingly, the gross margin also declined to 12.15 per cent from 16.63 per cent last year (1996-98 median: 22.12%). After accounting for selling and administrative expenses of Rs. 1911m, the operating profit stood at Rs. 6.35m which is considerable lower than last year's Rs. 14.77m.
Financial charges stood at Rs. 4.80m as compared to last year Rs. 4.56m. However, times interest earned ratio decreased drastically to 1.26x from 3.14x last year (1996-98 median: 4.35x) because of fall in profit.
After providing for taxation of Rs. 2.31m, NPL has incurred a net loss of Rs. 1.06m. Interestingly, the management has opted for a 20 per cent dividend despite the bottom line in the red.
Share Trading and Turnover
During the 1999, the share price remained within the price band of Rs 52-55. During the last six years the highest price was quoted at Rs 91 in 1996. No share turnover was recorded in company's shares during 1999.
The company is currently experiencing both direct and indirect competition. In a way that there are numerous brands of cheese (both local and imported) and butters available in the market that is having direct competition with the company's products. On the other hand, the changing life style and eating habits of the people are encouraging them to quit desi ghee and high fat containing products. The products like skimmed milk are threatening company's existing products. NPL can tap this market of health conscious people by expanding the product line. Still heavy budget of advertisement will be needed by the company to attract more and more customers and retaining the existing ones as Pakistani market is price sensitive market and customer loyalty is a rare thing.
As the uncertainty in the market decreases, the consumer demand and company's supply position of the raw material is likely to improve. The directors are optimistic about the performance of the coming year as expressed by them in their report.
Nishat Mills Limited
Year Ending September 30,1999
Estimated F&J Financial Performance Rankings
1995 1996 1997 1998 1999
B+ B+ B+ B++ B++
Nishat Mills, the flagship company of the Nishat Group, is a public limited company incorporated in Pakistan and listed on the Stock Exchanges in Pakistan. It is the largest textile composite unit with 166,792 spindles and 518 looms. Nishat Mills, located in Faisalabad, Punjab, was established in 1948 by the Nishat Group. Before the merger of Nishat Fabrics and Nishat Tek with Nishat Mills in October 1996, the company was involved in textile-related activities. Today, however, the company is engaged not only in the business of textile manufacturing, spinning, combing, bleaching, dyeing, printing, stitching, and dealing in yarn, cloth and fabrics but also in the generation and supply of electricity. Nishat Mills is one of the largest exporter of textile, exporting 86per cent of its production. The product mix includes cotton and blended yarn, grey cloth and processed fabric. Besides textiles, the Nishat Group has interests in cement, power and finance.
Nishat Mills has equity stake in the following associated companies: D.G. Khan Cement Company Limited (32.47per cent equity held), Umer Fabrics Limited(22.44per cent equity held), D.G. Khan Electric Company Limited (24.30per cent equity held ) and Nishat (Chunian) Limited(1.55per cent equity held). The total cost of this equity portfolio is Rs.1,809.6m. The market value of the portfolio was Rs.289.26m and Rs.605.5m as of September 30, 1999 and February 28, 2000. Aggregate break-up value, on the other hand, was Rs.1,269.97m as at September 30, 1999.
BMR & EXPANSION
The company is planning for an expansion program by installing a Dyeing Unit and a Weaving Unit of 120 looms near their stitching plant in Lahore. Dyeing Unit will consist of 2 Thermosole dyeing machines with complete back process. Letter of credits for the import of Dyeing machinery have been established and trial production is expected by the end of this year. In addition, the company is setting up a spinning unit of 21,672 spindles at Ferozewatwan near Sheikhupura. This unit will provide yarn to the Weaving unit nearby.
Market for yarn has been diversified to increase the customers' base. Under this diversification program, Nishat has initiated business with Malaysia, Korea, Taiwan and UK. Product range has also been increased to cater for the different needs of increased number of buyers. Production volume was increased by concentrating more on coarser counts with a result of increase in volume from 90-95 containers per month to approximately 115 containers per month. In order to reduce dependence on a few markets, especially Far East, new markets were developed for grey cloth. This diversification has not only reduced dependence on Hong Kong but also gave better profit margins. Under this market diversification, Nishat Mills started business with South Africa, Australia, Japan, Taiwan, Sri Lanka, and Italy. The business with some old buyers in Europe was also revived during this period after intensive marketing efforts. This revival provided both: good volumes and better profit margins. The company has developed fancy and special items like Cavalry Twills, Bedford Cords and dobby items which are being sold at premium prices.
In processed fabric, Nishat is expanding its existing product range by introducing Printed fabric in Middle East and Made-ups in South Africa. Moreover, in FY98/99, capital expansion was made in processing and stitching unit by inducting one rotary machine and 42 stitching/overlock machines which has substantially increased Company's turnover as well as existing production capacities.
Total assets on September 30, 1999 amounted to Rs.10.78b registering an increase of 8.5per cent over last year's figure. Major increase in the total assets was due to the 81per cent increase in the stock-in-trade which was Rs.1.82b on September 30,1999. Tangible fixed assets stood at Rs.4.05b and account for 37.6per cent of the total assets. The inventory age increased from 52 days to 86 days in FY98/99 mainly due to lower level of local sales. Collection period, on the other hand, decreased by 17 days to 50 days in FY98/99.
Current Liabilities accounted for 90per cent of the Total Liabilities and registered an increase of almost 20per cent mainly due to a 31per cent increase in short-term finances obtained from various banks. The current ratio has improved slightly to 0.89 in FY98/99 from 0.85 but still remains below one. Total long-term loans (including current maturity) stood at Rs.1.016b on September 30, 1999. Short-term finances obtained from banks amounted to Rs.4.48b. The debt leverage of Nishat Mills increased slightly from 1.50x in FY97/98 to 1.59x in FY98/99.
PROFIT & LOSS ACCOUNT
The company's turnover increased to Rs.9.4billion in FY98/99 (FY97/98:Rs.8.9billion) depicting an annualized growth rate of 5.8per cent. Export sales accounted for 86per cent of total sales and registered an increase of 8per cent. Local sales, on the other hand, declined by 4per cent. Gross profit registered a decline of 13.6per cent and was Rs.1.69b in FY98/99. Gross margin, thus, declined from 22per cent in FY97/98 to 18per cent in FY98/99. The company earned a pretax profit of Rs.439.733million, 6.8per cent higher than last year's figure.
This increase is primarily due to the twofold increase in income from other sources which was Rs.68.5m for FY98/99 and an almost 100per cent decrease in other charges. Income from other sources mainly comprised of sale of export quota, mark-up on advances to associated companies and sale of scrap and inventories. Net profit after tax has increased to Rs.380m (FY97/98:Rs.344.4m). The Earning per Share comes to Rs.3.41 per share for FY98/99 (FY97/98:Rs.3.09 per share), registering an increase of 10.4per cent. The company has been consistently paying dividends for the past two years and in FY98/99 also it has proposed a 17.5per cent dividend. It is also making a rights issue of 20per cent to raise funds for their expansion program.
A comparison of Nishat's key ratios with the sector's median over the last three years is given below:
Key Ratios 1997 1998 1999 Industry Average
Current Ratio (x) 0.81 0.85 0.89 0.86
Debt Leverage 1.32 1.5 1.59 1.59
Times Interest Earned 1.48 1.38 1.55 0.94
Net Profit Margin % 3.79 3.86 4.03 -0.57
Return on Equity % 8.5 8.68 9.15 -12.64
Earning per share (Rs.) 2.92 3.09 3.41 -0.71
Dividend per share (Rs.) 1.5 1.75 1.75 NA
It is evident from the above table that Nishat Mills has been consistently outperforming the industry. Though the liquidity and coverage ratios of Nishat Mills, like the rest of the textile industry, are on the lower side but they have been improving steadily over the years. The profitability ratios of Nishat have remained more or less constant over the past three years. In comparison with the industry averages, Nishat's profitability has clearly surpassed that of the industry. The main reasons for such outstanding performance, despite poor economic conditions prevailing in the country, are the high quality and value-addition of Nishat's products, which it sells mostly in the international market.
SHARE TRADING & TURNOVER
Nishat Mills Limited has proposed an 17.5 percent final cash dividend to its shareholders in the FY98/99, thus paying out 51.3per cent of FY98/99 net profits. Total share turnover during FY98/99 was 22,029,000. Nishat Mills' highest share price in the year under review was Rs.13and lowest was Rs.6.8. Currently, the share is trading at Rs.33.95.
Pakistan had a bumper cotton crop of more than 10 million bales that resulted in a steep fall in cotton prices. Several textile units that were not operating due to high costs restarted their operations to take advantage of the low cotton prices.
With emphasis by the government to increase exports in order to overcome precarious balance of payment position, textile industry has a major role to play since it contributes 60per cent of exports. After a dismal performance in FY98/99, exports in the 8-month period from July to February 2000 increased by 9.6per cent. Bumper cotton crop has helped the textile sector in improving its export performance.
The Company has a positive outlook for the FY99/00. The management is making continuous efforts to improve the quality of their products. In order to compete in a highly commoditized industry, efforts are also underway to explore new markets in search of new horizons. Decrease in cotton prices and lower interest rates would significantly increase the profitability of the Company.