Nishat Mills Limited

November 28, 2013

RECORDER REPORT

The flagship company of the Nishat Group, NML is the largest vertically integrated
textile manufacturer in the country, with a major portion of the company's earnings
coming from exports.
Financial highlights
During 1Q FY14, Nishat's profit after tax increased significantly by 47.89 percent as
compared to corresponding quarter of the last year-mainly on account of increase in sales
by 4.81 percent. Performance of the firm's weaving division was especially remarkable
during the current quarter, with sales of Grey cloth seeing a major boosted in European
market.
However, profitability for both the processed textiles and garments division of the
company remained depressed during the first quarter of the year, primarily because of
low sales in the US and EU regions.
Improved productions efficiencies and better cost management, however, saved the day,
keeping the increase in cost of goods sold to a minimal 1.5 percent. As a result, NML's
gross profit margin increased from 15.7 percent in the corresponding quarter to 18.4
percent in the current quarter.
Other major profitability measures that contributed to the firm's improved bottom line
were increased dividend income of Rs488.8 million and a one-time gain of Rs95 million
mainly on sale of partial investment in Lalpir Power Limited.
Decrease in finance cost by 10 percent in the current quarter as compared to
corresponding quarter in the last year through better working capital management and
reduction in borrowing rates was also key contributor to the profitability during a quarter
that saw largely depressed sales.
Operational highlights
The cotton prices remained mostly steady during the first month of the current quarter of
financial year. However, some panic was created in the market early on this season
regarding the health of the incoming crop, allowing prices to swing up sharply at the start

of August.
Preempting an even worse situation in the coming months and to fulfil its immediate
spinning production requirements, Nishat started buying raw cotton as soon as new crop
arrived in the market. While the company's hasty purchase decisions had small bearings
on the first quarter results, phutti prices have subsequently seen a substantial decrease.
Going forward, NML might find their expensive cotton procurement to have a tad
gloomy effect on their margins. However, the company is poised to reap some great
rewards of a well-timed and concentrated expansion effort, which will not only bring
about a great increase in production capacity of their spinning, processing and garments
division, but will also bring down their cost of operations in the long run.
All the machinery that the company had purchased for the aforementioned expansion
moreover has already arrived in Pakistan and sources report that most of the newly
installed capacity should come online by the end of the next quarter.
Once the entire planned expansion is completed, the production capacity of the home
textile division will increase by approximately 25 percent. Additionally, five hundred
thousand meters of added production capacity will also be available to the Processing
unit at the start of next calendar year.
Outlook
In a major positive development for the country's economy in general and textile industry
in particular, the European parliament approved Pakistan's request this month for more
favourable trade regime under euro-zone's GSP plus system.
The new regime would be applicable from 1st Jan 2014 and will largely benefit
Pakistan's value-added exports to EU as it will effectively remove the 11 percent tariff
our textiles are slapped with upon entry into the market. According to industry reports,
this would translate into $550-700mn incremental exports to EU during the upcoming
year.
One player that is all set to make good use of this development is Nishat Mills Limitedbeing well poised as a result of their higher concentration in the value-added segment.
Furthermore, while a majority of the mills are currently not in the position to fully benefit
from this upside due to their power related shortcomings, NML's plans for installing a
9MW coal fired plant, a 2MW gas fired generator and a plan to replace their existing gas
turbines will ensure the firm supply of cheaper power-thereby helping them reap the
greatest benefit out of the GSP status.

=======
Operating Results @ 1QFY14
==================================================
Rs (bn)
1QFY14
1QFY13
Chg
==================================================
Net sales
13,579
12,955
4.8%
Gross Profit
2,499
2,039
22.6%
GP(%)
18.41
15.74 2.67 ppt
NPAT
1,572
1,063
47.9%
EPS
4.47
3.02
48.0%
==================================================

Source: Company Records

===============================================================
=====
Nishat Mills Ltd.
===============================================================
======
Rs (mn)
2010 2011
2012
2013
===============================================================
======
Net sales
31,535 48,565 44,924 52,426
--------------------------------------------------------------------Gross profit
5,980 7,846 6,789 9,044
Other operating income
982 2,445 2,684 2,739
NPAT
2,915 4,844 3,528 5,847
--------------------------------------------------------------------Profitability Ratios
--------------------------------------------------------------------GP ratio
18.96 16.16 15.11 17.25
Profit before tax %
10.42 11.14
9.09 12.13
EBITDA margin to sales %
17.5 16.86 15.81 17.81
ROE
11.5 14.51
9.65
12.1
--------------------------------------------------------------------Liquidity Ratios
--------------------------------------------------------------------Current ratio
1.11
1.2
1.31
1.51
Quick Ratio
0.47
0.5
0.6
0.83
--------------------------------------------------------------------Activity Ratios

--------------------------------------------------------------------Inventory turnover
5.03 5.12
3.9
4.2
Debtor Turnover
18.87 21.48 15.05 10.77
Total asset turnover
0.68
0.9
0.79
0.65
Fixed Asset Turnover
2.66 3.65
3.14
3.38
--------------------------------------------------------------------Investment Ratios
--------------------------------------------------------------------EPS
10.5 13.78 10.04 16.63
Dividend yield
5.8 6.56
7.36
4.25
Market Value per share @ year end 43.12 50.34 47.58 94.21
===============================================================
======