20000322

Brief

recordings

- BY SCANNER -

Textile Composite

Dawood Cotton Mills Ltd

Year Ended September 30, 1999

Overview.........

The market value of the company share improved significantly since last year's despite one of the lowest sales figures of last ten years and consecutive gross and operating losses for the second year. However, the company generated one of the highest net profits of last ten years. The main reason for the improved profitability is the strict financial controls of the surplus funds which were mostly invested in shares. "During the year under review a sum of Rs 26.72 crores were invested in shares on which cash dividend of Rs 1.80 crores and 655,080 bonus shares were received, the market value of which as of balance sheet date, is Rs 5.38 crores." The company posted net profit of Rs 53.7 million almost identical to the last year's Rs 53.9 million. The EPS works out to Rs 7.23 while cash dividend is at Rs 6 per share. At the ruling price of its share at Rs 33.10 the PER is placed at 4.6x.

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Dawood Cotton Mills Ltd is one of the oldest textile units of the country. It is textile composite unit located on the prime industrial land in the Landhi Industrial Area Karachi. The company was registered in the province of Sindh as a corporate entity limited by shares. Its registered office is located in Dawood Centre on Moulvi Tamizuddin Khan Road which is another land mark for several decades.

The company was listed at the Karachi Stock Exchange in 1953. At present the share in Dawood Cotton is trading at Rs 33.10 carrying 231% premium over its par value of Rs 10, showing invincible trust of the investors in the share. However, the present market value also signifies 59% diminution in market value as compared to its 6-year's peak price of Rs 80, recorded in 1994.

But the present price is a definite swing upward relative to the last year's average market value. Last year the price went as low as Rs 18, which was almost in the range of yearly lowest prices since 1994. The last fiscal year's highest price was recorded at the double of the lowest price. So the spread between the lowest and highest prices were quite wide.

In its economic sector of nearly 54 textile composite units, the company's share is fortunately placed among half of the textile units whose shares are trading above the par value. In its sector the shares of only eight companies are above the market value of its share.

The dividend payout record of the company has been more than satisfactory as since 1994, the company has invariably announced cash dividends every year except for 1995.

Since 1994, the highest dividend payout was recorded at 60% in 1999 which is an improvement over the second highest payout rate at 45% announced in 1997. Last year the payout was at 40%.

This textile unit has not been able to produce cloth during the year under review, although it has annual rated production capacity of 7.649 million square metres of cloth.

The unit is equipped with 53,724 spindles and the production capacity has been assessed at 6.988 million kgs of yarn converted into 20/s. This department also did not work for the full year so production capacity was grossly under-utilised.

The capacity figures are based on the capacity assessed by the government under Excise Duty Capacity Rule 1968 and adjusted on the basis of 300 working days and number of actual spindles and looms installed. During the year the company produced 0.389 million kgs of yarn which figures out to 23% of last year's output of 1.674 million kgs and 5.6% of the annual production capacity.

The Chief Executive lamented about the crisis in the textile sector which deepened to such an extent that the mills had to be closed for several months. He said,

"The cotton crop failure of 1998-99 season, crop estimate failure and unregulated export policy of cotton are factors mainly responsible for the crisis in textile sector. The imposition of Sales Tax @ 16% and subsequent increase to 18% has added further burden on costs and the ensuing reduction in Sales resulted in the building-up of inventory. In these conditions continuing production would have only compounded the already difficult situation, hence the management was compelled to close down the plant in March, 1999 and decided to review the situation to re-start the production when favourable market condition permits."

The company has fixed asset base of Rs 106.22 million at book value or Rs 352.36 million at cost. During the year the deletion/sale of the fixed asset was to the tune of Rs 43.59 million as compared to Rs 20.95 million whereas there was no addition in the fixed asset.

Since the last year the sale of fixed assets has become an on going process. The directors reported, "management also disposed off some of the absolete machinery on which the company has earned a profit of Rs 73.58 lakhs."

During the year under review the company posted sales at Rs 77.15 million (1997-98: Rs 73.69 million) which was much lower than the 10-year's highest sales of Rs 526.95 million recorded in 1991. Export sale has been discontinued since 1995. The company turned large operating loss of Rs 22.7 million, although it was significantly lower than last year's Rs 28.12 million. The company, however posted highest net profit after taxation of the last ten years except for in 1992. The profitability improved because of non operating income, strict financial control of surplus funds, sale of surplus fixed assets and writing back of surplus of deferred tax.

This year the net profit at Rs 53.65 million (1997-98: Rs 53.85 million) works out to EPS at Rs 7.23.

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Performance Statistics (Million Rupees)

September 30 1999 1998

Capital & Liabilities.........

Paid-up Capital: 74.24 74.24

Reserves & Profit: 288.38 279.28

Equity: 362.62 353.52

Deferred Liabilities: 50.16 59.06

Current Liabilities: 136.87 140.26

Assets.........

Fixed Assets: 106.17 122.51

L.T. Investments: 9.68 9.68

Other Non Current Assets: 1.43 1.43

Current Assets: 432.37 419.22

Total Assets: 549.65 552.84

Sales, Profit & Payout.........

Net Sales and Operating Revenue: 77.15 73.69

Gross (Loss): (12.71) (17.89)

Operating (Loss): (22.71) (28.12)

Non-Operating Income: 58.24 95.38

Profit on Sale of 7/Assets: 7.36 2.32

Depreciation: 11.90 13.76

Financial Charges: 0.13 0.13

Profit Before Taxation: 53.65 68.85

Profit After Taxation: 53.65 53.85

Dividend Cash 60% (1998: 40%): 44.54 29.69

Financial Ratios.........

Share Price (Rs) 14/3/2000: 33.10 -

Book Value Per Share (Rs): 48.84 47.62

Price/Book Value Ratio: 0.67 -

Debt/Equity Ratio: 0:100 0:100

Current Ratio: 3.16 2.19

Asset Turnover Ratio: 0.14 0.13

Gross Loss to Sales (%): (16.48) (24.28)

Operating Loss to Sales (%): (29.44) (38.16)

Net Profit Margin (%): 69.54 73.08

EPS (Rs): 7.23 7.25

Price/Earning Ratio: 4.59 -

R.O.E. (%): 14.80 15.23

R.O.A. (%): 9.76 9.74

R.O.C.E. (%): 13.00 13.04

Plant Capacity & Production.........

A) Yarn Converted 20/s Million Kgs.........

Capacity: 6.988 6.988

Production: 0.389 1.674

Capacity Utilisation (%): 5.57 23.9

B) Cloth: No production against capacity of 7.649 sq. meters per year.

C) 'The reduction in production is attributed to unfavourable operating conditions.'

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Company information: Chairman: Ahmed Dawood. Chief Executive: M. Hussain Dawood. Directors: Nasim Beg/Shahzada Dawood/A. Aziz Moon/Haroon Mehanti/Yousuf A. Deshi. Company Secretary & GM: Yousuf A. Deshi. Registered Office: Dawood Centre, M.T. Khan Road, Karachi-75530. Factory: Landhi Industrial Area, Karachi.