20000204

Brief recordings

BY SCANNER

Synthetic & Rayon

Al-Abid Silk Mills Limited

Year Ended June 30, 1999

Overview

This unit in the synthetic and rayon sector, has posted 6.4% growth in the revenue generated from export sales, domestic sales and service, in stitching of bed-sheets, curtains and garments as well as cloth processing in printing and dyeing. Sales increased to Rs 1.67 billion from the preceding year's figure of Rs 1.56 billion. However the margins were under pressure, additionally, financial and depreciation charges increased. The company made substantial additions in fixed the assets. In addition to large equity, the balance sheet carries relatively substantial director's loan. High cost running finance facility has been phased out but low cost running finance availed through three banks remained. Long term debt to equity ratio was excellent, current ratio just reached the desirable proportion. The company earned Rs 9.34 per 10-rupee share and paid cash dividend at Rs 4 per share.

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Thirty one years ago the company was incorporated in the province of Sindh as a private limited company. After nearly two decades the company was incorporated as a public limited company in December, 1987.

The share in the company has always carried high premium. The share was listed at Karachi Stock Exchange in 1989. The 6-year highest price had been recorded at Rs 161.00 in 1994, while the lowest price is probably in these days. As of 20th January, 2000, the share was transacted at Rs 36 per share at 3.6 times of its par value of Rs 10.

The company has large asset base relative to its paid-up capital. The total size of the balance sheet is Rs 1.47 billion while its paid-up capital amounted Rs 59.40 million nearly 4.05% of total asset. However, large capital reserve at Rs 39.6 million plus retained profit of Rs 177.68 million has substantially beefed-up the equity base to Rs 277 million which figures out to nearly 466% of the paid-up capital. This substantial finance came from internal source for the enterprise. The external source of finance on long term basis came from director and from lease finance.

The long term debts remained small relative to the equity so there is easy debt coverage position as depicted by the long term debt to equity ratio at 31:69. The director's loan amounted to Rs 68 million which has been rolled over from the previous financial year and carries no mark-up. In a way it is quasi-equity. So the sponsors have major stake in the enterprise. The lease finance carries higher rate of interest relative to normal bank rate. In this case the interest rate is between 19.5% and 21.5% p.a.

This is financially sound and profitable enterprise. So it could have garnered bank borrowings at relatively lower interest rate than lease finance.

The company has been availing short term finance mainly for export shipment and working capital. Export finance carries concessional mark-up of 8% while working capital finance was in the shape of running finance which caused 17.50% interest per annum.

At the end of the financial year under review running finance account had no outstanding balance. So all of the short term finance comprised export finance. The export finance has been availed from three banks i.e. HBL, Citibank and HB AG Zurich. H.B. AG Zurich's export finance has been collaterally securitised against legal and equitable mortgage of Al-Abid Silk Mills of plot No. A-34/A with building and machinery.

HBL export finance has been secured against different contracts/LCs of export and hypothecations of stock and charge on trade debtors.

Export finance through Citibank has also been securitised against charge on trade debtors.

But one of the largest sources of external finance are trade creditors. At the end of FY 1998-99, and 1997-98 their account carried outstanding balances of Rs 271.86 million and 282.77 million respectively.

During the year the company has added substantial fixed asset aggregating Rs 93.71 million mainly in the accounts of plant and machinery and building.

The company's principal activity is manufacturing and processing of various kinds of fabircs; export of printed and dyed cloth, bed-sheets and garments, made-ups. Revenue is generated from both domestic and export sales, as well as services provided for cloth processing (printing and dyeing) and stitching (bed-sheets, curtains and garments). Nearly 2.9% of total revenue come from exports while nearly 8.5% of total revenue came from services.

The balance sheet carries large balance in the inventory account and low balance in the receivables account. In terms of inventory period, the period shot-up for 28 weeks from 21 week at the previous year's closing date.

Margins remained on the lower side compared to the last year's. Depreciation rose become of additions in fixed assets while finance charges also escalated.

Inevitably, lower margin, higher depreciation and financial charges downsized pre-tax profit by 10.1% despite growth in sales by 6.4%. The company posted net profit at Rs 55.47 million which declined by 14.3%.

The leadership in the management is inclined to make profit distribution each year. In the past, did not cater to the shareholders expectations of return on investment to match even the lowest interest rate on one year's bank deposit. However, the change in thinking came and this time the cash dividend is 40%. Better late than never.

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Performance Statistics (Million Rupees)

June 30 1999 1998

Capital & LiabilitiesÉÉÉ

Paid-up Capital: 59.40 59.40

Capital Reserves: 39.60 39.60

Unappropriated Profit: 177.68 145.97

Shareholders' Equity: 276.68 244.97

L.T. Debts: 124.86 87.51

Other Non Current Liabilities: 14.43 12.12

Current Liabilities: 1,050.67 873.39

AssetsÉÉÉ

Fixed Assets: 456.31 356.41

Other Non Current Assets: 3.39 2.66

Current Assets: 1,006.94 859.19

Total Assets: 1,466.64 1,217.99

Sales, Profit & PayoutÉÉÉ

Sales & Services: 1,665.15 1,565.55

Gross Profit: 255.01 245.88

Operating Profit: 160.52 164.83

Other Income: 3.21 2.68

Depreciation: 49.88 36.41

Financial Charges: 94.79 90.77

Profit Before Taxation: 65.49 72.88

Profit After Taxation: 55.47 64.71

Dividend Cash 40% (1998: 7.5%): 23.76 4.45

Financial RatiosÉÉÉ

Share Price (Rs) 20/1/2000: 36.00 Ñ

Book Value Per Share (Rs): 46.58 41.24

Price/Book Value Ratio: 0.77 Ñ

Debt/Equity Ratio: 31:69 26:74

Current Ratio: 0.96 0.98

Asset Turnover Ratio: 1.13 1.29

Days Receivables: 6 10

Days Inventory: 197 166

Gross Profit Margin (%): 15.32 15.71

Operating Margin (%): 9.64 10.53

Net Profit Margin (%): 3.33 4.13

EPS (Rs): 9.34 10.89

Price/Earning Ratio: 3.85 Ñ

R.O.E. (%): 20.05 26.42

R.O.A. (%): 3.78 5.31

R.O.C.E. (%): 13.36 18.78

Plant Capacity & ProductionÉÉÉ

"The production capacity of the plant cannot be determined as it depends upon the process, the quality of cloth used for printing and dyeing, which may compose of different kinds of fabrics and textures having different construction and weights."

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Company information: Chairman & Chief Executive: Naseem A. Sattar. Director: Azim Ahmed. Director (Nominees of NIT): Nasim Beg, Mohammad Shafi, Mohammad Ashraf. Secretary: S.M. Jawed Azam. Registered Office: A-39, SITE Manghopir Road, Karachi (Sindh). Phone: NA. E-mail: NA. Mills: A-39, A-51, A-34/A, D-14/C-1, SITE Karachi (Sindh).