20000301

Brief recordings

BY SCANNER

Jute

Indus Jute Mills Limited

Year Ended June 30, 1999

Overview

This thirty four years old company is primarily engaged in the manufacture and sale of jute products and trading/export of rice. Sale of jute products declined by 20.6%, trading business almost made break-even, and income from Rice Division increased substantially to Rs 11.75 million over preceding year's figure of Rs 6.3 million by 85%. Out of jute products, although declined lack but not to the extent of lower demand, so inventory kept on monitoring. The company's profit distribution improved as the cash dividend pay-out rate was record highest at 27.5% relative to preceding six years'. Although the capital base is very small, there is large reserve fund. There is very small long-term debt balance. One important internal source of finances is gratuity account. In the external source of finance the company, has access to relatively large short-term bank credit lines. The future prospects depend mainly upon the import policy of wheat by the government.

About thirty four years ago, the company was incorporated in the province of Sindh. The shares in the company are listed at Karachi Stock Exchange. At present the share is trading at the stock exchange at Rs 19.25 carrying 92.5% premium at the par of Rs 10. Yearly peak prices of the share had been invariably much above the par value. Since 1995 the price band between highest and lowest price of the company remained quite wide. The last six year's lowest price had touched in 1995 at Rs 5.50.

Between 1994 and 1996, the track record of the profit distribution was not encouraging. However for the last three years the company's dividend policy made a turn around in its social response to shareholders and paid cash dividend at 10% in 1997. In 1998, the company announced 10% bonus stock dividend. The management made record payment of cash dividend at 27.5% for the financial year 1998-99 which is the period under review.

For the year under review, production and sales of jute products showed declining trend. This adverse situation emerged "due to lower demand for the jute bags as wheat imports were slashed down by approximately one million tons and although procurement agencies were able to fulfil their respective targets but this was done by them at the cost of new jute bags as more recycled bags were used by these agencies in view of the financial crunch faced by them." Resultantly, the directors were not happy "sales of your company declined by over 20% and resultant higher inventory escalated financial cost by well over 100%."

Output of jute products declined by 11.73% to 11.74 thousand tons from the previous year's production of 13.30 thousand tons in the preceding year. The capacity utilisation skidded by more than 10 percentage points as compared to the preceding year's. However, the output figure remained third highest since 1995, the highest being in the previous year.

Sales turnover registered marked decline by more than one fifth of last year's due to lower demand of jute bags by all major procurement agencies. However the managements efforts did prove deterrant to further decline. The directors reported:

"The gap in sales revenue would have been wider, had the adverse impact of the fall in the demand from the government sector was not partially offset through (a) sales to wheat importers in the private sector and (b) enhancing company's share in the local hessian market by boosting hessian production by over 50%."

The future outlook of the jute product business is marred by sluggish demand, higher inventory carry over, which in turn entails increased borrowings. The directors reported that during the first four months (July-Oct 1999) of the forthcoming financial year 1999-2000, the company's liquidity position deteriorated. This was mainly due to delay in finalizing wheat import contracts by the Ministry of Food. Furthermore the directors reported that there was continued ban on the import of wheat by the private sector. Since Oct '99 the position seems to be better as the Director General Food started taking deliveries of the bags. But the offtake of bags was due to delayed imports the procurements have been projected not before March/April 2000.

The directors, therefore, do not see better prospects for the forthcoming financial year.

"In view of the above scenario and expected lower demand for remaining period of the year, prospects of the current financial year (1998-99) do not seem promising and further setback of the operational and financial results cannot be ruled out."

The company's operation is branched out three distinct activity. First, the manufacture and sales of jute products; second, trading activity, and third activity is export as well as domestic sale of rice.

During the period under review, the company registered 30% decline in gross profit in the department of jute products from previous year Rs 104.05 million to Rs 72.06 million in the year under review. Gross margins also eroded by 2.55 percentage points.

In the trading department, sales at Rs 7.5 million (Fy 1997-98: Rs 12.94 million) drastically fell by 42.04% and force the department touch the break-even with nominal loss of Rs 59 thousand.

Rice Division showed progress with encouraging results. Sales increased by 31.3% to Rs 182.97 million from Rs 139.37 million. Nearly 96% of the total sales comprised export. Gross income in this business segment rose to Rs 36.96 million from Rs 28.56 million. Net income shot upto Rs 11.75 million from Rs 6.36 million in the preceding year. While gross income rose substantially by 29.4%, the increase in the net income was more pronounced nearly by 85% over the preceding year's.

The decline in the net profit was very steep at 48.07% as compared to the preceding year's. Hence the EPS works out to Rs 3.30 as compared to the preceding year's. EPS at Rs 6.99. At the present share price the PER is placed at 5.83x.

The financial health of the balance sheet remained robust because of relatively hefty reserves, negligible long-term debts, high deferred liability on account of gratuity, large short-term bank credit lines, and total adjustment of foreign bills payable. There was no problem of long-term debt coverage. On the other hand current ratio at 1.54 was much above the ratio of 'one' which is the minimum agreed threshold for availing finances from bank.

Performance Statistics (Million Rupees):

June 30 1999 1998

Capital & Liabilities:

Paid-up Capital: 28.10 25.55

Reserves: 57.50 58.05

Unapp. Profit: 0.80 1.26

Equity: 86.40 84.86

Surplus on Devaluation of F/A: 67.76 67.76

L.T. Debts: 1.48 2.20

Deferred Liab. Gratuity: 57.90 55.08

Deferred Liabilities - Taxation: 18.00 8.00

Current Liabilities: 132.71 159.09

Assets:

Fixed Assets Tangible: 154.68 163.34

L.T. Loans/Advances: 3.23 3.84

L.T. Deposits: 1.54 1.12

Current Assets: 204.80 208.69

Total Assets: 364.25 376.99

Sales, Profit & Payout:

Sales: 414.32 521.72

Gross Profit: 72.06 104.05

Trading Loss: (0.06) (1.75)

Operating Profit: 42.48 72.10

Net Income From Rice Division: 11.75 6.36

Other Income: 1.39 1.66

Depreciation: 12.55 13.44

Financial Charges: 19.86 11.07

Profit Before Taxation: 33.13 61.38

Prior Period Items: 0.14 (27.93)

Net Profit After Taxation: 9.27 17.85

Dividend Cash 27.5% (1998: Nil): 7.73 Ñ

Dividend Bonus Stock Nil (1998: 10%): Ñ 2.55

Financial Ratios:

Share Price (Rs) 22/2/2000: 19.25 Ñ

Book Value Per Share (Rs): 30.75 33.21

Price Book Value Ratio: 0.63 Ñ

Debt/Equity Ratio: 1:99 1:99

Current Ratio: 1.54 1.31

Asset Turn Over Ratio: 1.14 1.38

Days Receivables: 11 19

Days Inventory: 132 100

Gross Profit Margin (%): 17.39 19.94

Operating Margins (%): 10.25 13.82

Net Profit Margin (%): 2.24 3.42

EPS (Rs): 3.30 6.99

Price/Earning Ratio: 5.83 Ñ

R.O.E. (%): 10.73 21.03

R.O.A. (%): 2.54 4.73

R.O.C.E. (%): 4.00 8.19

PLANT CAPACITY & PRODUCTION (000' Matric Tons):

A. Jute Products:

Installed Capacity: 15.09 15.09

Actual Production: 11.74 13.30

Capacity Utilisation (%): 77.81 88.11

B. "The under-utilisation of the installed production capacity was attributable to changes in the product mix and continued absenteeism and turnover amongst workers".

Company Information:

Chief Executive: Mohammad A. Jamal; Directors: Ali Raza Ghulamali; Raza Hussain Virji Walji; NIT Nominee Directors: Farzana Munaf/Sara Jawad; Company Secretary: Arif Ahmed; Registered Office: Noor Chambers, M. A. Jinnah Road, Karachi (Sindh); Factory: Dhabeji Industrial Area, District Thatta (Sindh).