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Analysis of Financial Statements

Term Report

Submitted by: Muhammad Ayaz Moti

ID: 2006-01-11-6489

Submitted to: Sir Maqbool-ur-Rehman

Company: Din Textile Mills Limited

Letter of Acknowledgement

28 th April 2010

I am really thankful to my Sir Mr. Maqbool-ur-rehman for his support and guidance throughout the semester. Through his lectures and support we came across our analysis of financial statement course.

Sincerely,

Muhammad Ayaz Moti,

Institute of Business Management.

28 th December 2010

Mr. Maqbool-Ur-Rehman,

Professor,

Analysis of Financial Statements,

Institute of Business Management,

Karachi.

Letter of Transmittal

Dear Mr. Maqbool-Ur-Rehman,

  • I am pleased to submit you the report about detailed analysis of Din Textile Mills Ltd. as a term report of analysis of financial statements.

  • I hope that report is upto what you required. It contains all the related information about the company and my detailed analysis.

Any questions related to the report are always welcome.

Yours sincerely,

Muhammad Ayaz Moti.

Company Profile

From the day of inception, Din Textile has been constantly striving to achieve excellence and generate highest value for all its stakeholders. Today Din Textile holds and unchallenged position at forefront industry, within the country and overseas for its groundbreaking developments and innovative products for exceeding customer expectations. This is a testimony to Din’s unwavering commitment to total satisfaction of its customers.

Din Textile Mills Ltd. was founded in 1987 and in a very short time became an icon for the spinning industry in Pakistan. With three state-of-the-art spinning and 1 dyeing unit located in Chunian and Lahore having annual production capacity of yarn 20.8 million Kgs and dyeing of Fiber and Yarn 2.8 million kgs. With an annual turnover of Rs. 3.65 billion, today Din Textile mills Ltd. employs over 2,200 employees. Din aims to create superior value for our customer and stakeholders without compromising on commitments to safety, environment, health, and other social responsibilities for the communities in which we operate.

Our products range from:

Combed Compact Yarn

Slub Lycra Yarn

Dyed Yarn

Ply Yarn

Core Spun Yarn

Slub Yarn

Melange Yarn

Gassed Yarn

Our export products include, 100% cotton yarn, 100% cotton Melange yarn, Cone dyed yarn, Slub yarn and Core Spun Lycra yarn (Din Komfort) of the highest quality, our export volume is $16 million and our main markets are

North America, South America, Western, Europe, Eastern Europe, Eastern Asia, Southeast Asia, Middle East, Africa, Oceania.

Current Share Price: Rs. 29.68

North America, South America, Western, Europe, Eastern Europe, Eastern Asia, Southeast Asia, Middle East, Africa, Oceania.

TEXTILE SECTOR- OVERVIEW

ABOUT THE SECTOR

World

Textile industry in the world is pretty much diversified. There are several countries who have a share in this industry like China, Pakistan, Turkey, South Korea, Indonesia, Bangladesh, Mexico, India, United States etc. Although textile sector is in bad condition due to the recession but still its growth rate is about 3% per annum.

Asian Textile Industry

In the Asia Pakistan, China, Bangladesh, South Korea and India are the main countries which are famous for textile products. But at the moment China is leading this sector and there is a tough competition in Asian countries for this sector. China is excelling in this field due to its low rate natural and human resources. Then South Korea, India, Bangladesh are some other strong dealers. Mainly textile processing industries are in Asia. Pakistan is the eighth largest country to produce textile goods.

Textile Industry In Pakistan

The textile

industry is one

of

the

most

important sectors of Pakistan. It

contributes significantly to the country’s GDP, exports as well as employment. It is, in fact, the backbone of the Pakistani economy.

Established Capacity

The textile industry of Pakistan has a total established spinning capacity of 1550 million kgs of yarn, weaving capacity of 4368 million square metres of fabric and finishing capacity of 4000 million square metres. The industry has a production capacity of 670 million units of garments, 400 million units of knitwear and 53 million kgs of towels.

The industry has a total of 1221 units engaged in ginning and 442 units engaged in spinning. There are around 124 large units that undertake weaving and 425 small units. There are around 20600 power looms in operation in the industry. The industry also houses around 10 large finishing units and 625 small units. Pakistani textile industry has about 50 large and 2500 small garment manufacturing units. Moreover, it also houses around 600 knitwear-producing units and 400 towel-producing units.

Contribution to Exports

According to recent figures, the Pakistan textile industry contributes more than 60% to the country’s total exports, which amounts to around 5.2 billion US dollars. The industry contributes around 46% to the total output produced in the country. In Asia, Pakistan is the 8th largest exporter of textile products.

Contribution to GDP and Employment

The contribution of this industry

to

the

total

GDP

is

8.5%.

It

provides

employment to 38% of the work force in the country, which amounts to a

figure of 15 million. However, the proportion of skilled labor is very less as compared to that of unskilled labor.

Competitors

Pakistan must compete with other producers similar in conditions and comparative advantage. The Pakistani Textile industry's biggest competitors are China, India, Indonesia and Turkey. The cost of power in Pakistan is comparatively high to these countries plus the current situation of the country is worst as compared to these countries so buyer feel more secure to buy from these countries.

OTHER DRIVING FORCES INFLUENCING THE INDUSTRY

Technology

Integrated government science and technology departments, enterprises, research institutions and other forces at home and abroad, and actively building a regional innovation system of open, integration of resources at home and abroad, fundamentally enhance the enterprises and clusters. Textile technology services to encourage small and medium-sized enterprises, innovation and entrepreneurship in science and technology elements of the formation of clusters within the market. Increase the input of independent research and development to enhance the competitiveness and technological capability. Through the acquisition of overseas R & D center to build or strengthen the independent innovation capacity of enterprises to compete for the market of new products the right to speak.

During the 1960s and 1970s, light industry expanded rapidly— especially textiles, sugar refining, fertilizers, and other manufactures derived from local raw materials. Despite steady overall industrial growth during the 1980s, the sector remains concentrated in cotton processing, textiles, food processing and petroleum refining.

The share of textile industry in the economy along with its contribution to exports, employment, foreign exchange earnings, investment and value added makes it the single largest manufacturing sector for Pakistan. It contributes around 8.5 percent to GDP, employs 38 percent of the total manufacturing labor force, and contributes between 60-70 percent to total merchandise exports. Indeed, with exports reaching about $8.6 billion in 2004-05, Pakistan is one of the largest textile exporters in the world.

Cotton textile production is the most important of Pakistan's industries, accounting for about 19% of large-scale industrial employment, and 60% of total exports in 2000/01. Pakistan has become self-sufficient in cotton fabrics and exports substantial quantities. Some long and extra- long staple cotton is imported to meet demand for finer cottons. About 80% of the textile industry is based on cotton, but factories also produce synthetic fabrics, worsted yarn and jute textiles. Jute textile output amounted to 70,100 tons in 1999/00. The textile industry as a whole employs about 38% of the industrial work force, accounts for 8.5% of GDP, 31% of total investment, and 27% of industrial value- added.

Reforms in the Textile Sector

The government is providing support for the local production of textile machinery. A wide ranging campaign to produce contamination free cotton in the country with a view to promoting value addition has already been started. As a result, the cotton prices are now being quoted on a PSCI grade standard basis. To ensure an abundant supply within the country, cotton is allowed to be imported and exported freely. To stabilize prices in the domestic market, the Trading Corporation of Pakistan (TCP) has been intervening as and when required.

In order to prepare the textile industry in the post quota regime the government has set up a high level Federal Textile Board with Textile Commissioner’s Organization serving as its Secretariat. The Board has been entrusted the task of looking into the issues of clean cotton, labor, social and environment laws, modernization of ginneries, rationalization of tariffs, facilitation in sales tax issues and developing a package to promote garment sector, especially by improving their competitiveness in international market.

TEXTILE POLICY

Pakistan textile sector is passing through a difficult time and facing many serious difficulties including a severe energy crunch, lack of modern technology, shortage of gas and high costs of production. The policy will go a long way in resolving some of the serious issues

The government has announced its first ever national textile policy for five years. It set the export target of $25 billion to be achieved within next five years. The policy focuses on export promotion measures, textile and other sectors instead of steps to increase production and revive the ailing industry.

It consists of many incentives. Gas and electricity load management, export refinance at low rates and relief on existing long-term loans are the few main incentives of national textile policy. The government claimed it as result-oriented and further that the policy was prepared in consultations with all major stakeholders including exporters, industrialists, investors, agriculture experts, State Bank of Pakistan and other related public and private sectors. It speaks highly about the restructuring and reorganisation of the textile sector. It includes

drawback of local taxes refund of past R&D claims and magnetisation of PTA.

Existing challenges

Pakistan textile sector is passing through a difficult time and facing many serious difficulties including severe energy crunch, lack of modern technology, shortage of gas, high cost of production, shortage of water, global economic recession, skilled manpower and the last, deteriorating law and order situation. Lack of export diversification, value-addition, limited market access creating problems for the exporters. According to FBS last year, Pakistan's total exports were down by 6.7 per cent and textile exports 9.5 per cent mainly because of severe global economic recession.

Key initiatives

  • (a) Creation of textile investment support fund (TISF).

  • (b) Technology up-gradation fund (TUF). It will contribute up to 20 per

cent of capital cost as a grant. The government allocated Rs1.6 billion,

which will increase to Rs17 billion by 2014.

  • (c) Infrastructure development. The government would provide Rs1

billion for infrastructural development.

  • (d) Skill development. 0.5 million skilled manpower would be trained

during next five years with the help of industry to overcome the

shortage of development.

skilled manpower

-

Rs1

billion

allocated for the skill

  • (e) The government would enact a law for the standardisation of value

chain to ensure production of quality products.

  • (f) All textile machinery imports will be zero-rated to encourage new

investments.

  • (g) Rationalisation of tariff structure.

  • (h) Textile sector would enjoy Rs42 billion in subsidies and incentives

during the fiscal year 2009-10.

  • (i) It exempts

the textile industry from load shedding and allows

prioritised gas supply.

it

  • (j) The government has also subsidised the export refinance with a

reduced rate of 5 per cent and Rs2.5 billion allocation. The policy allocates Rs5 billion relief on the existing long term loans of the textile industry.

  • (k) It offers duty drawbacks of between 1 and 3 per cent for a two year

period for value-added textile exports to help the sector offset its

direct and indirect costs.

  • (l) Technically viable units to be offered loan restructuring, interest

rate relief

  • (m) Pollution

problems in cotton

standardisation and cotton control.

would be resolved under cotton

Salient Features of the Policy

  • (a) Market access and support

The policy stressed the need to have easy market access to the USA and EU markets. The textile exports and its related items have already badly hit from the ongoing global economic recession. It is estimated that easy market access would increase our exports up to US$ 2 billion. It remained one of the key reasons for our low turn textile exports.

International marketing strategies plays very important role in achieving the desired targets of exports, capturing of market share, market access and the last not the least increase overall profitability. The government will provide every possible market support to exports so that the target of US$ 25 billion could be achieved within next five years.

  • (b) Export house scheme

The announced policy also promised to provide export house facility to exporters which further included marketing insurance scheme and improving Information and communication technology. The government believed these diversified but integrated efforts would pay the dividends in the days to come. The government would establish industrial estates in line with garments and textile cities and would provide all necessary facilities.

  • (c) Support and facilities

Economics works in integration that is why the policy initiated many meaningful measures to activate the sub-sectors which include fibres, ginning, filament yarn, shipping, weaving and knitting, non-woven, processing, home textiles, garments, fashion and design, technical textiles, handlooms and handicrafts, carpets.

The main focus of the policy is human resource management and optimal utilisation of available resources. The policy promised to support local industries and domestic talent for the promotion of textile exports. It also encouraged women employment support programme, support for disabled and handicapped employees. The government would every possible facility for setting up effluent treatment plant and government would also encourage establishment of storage, warehousing and marketing. Furthermore, free trade agreement (FTAs) would be signed with different countries to seek market access and the government would also help labelling and branding of products to enhance local trade.

Missing connection

It seemed that policy lacked to tackle some important issues:

  • (a) It failed to provide any concrete measure to boost the exports of

textile. There is no fund or measure for resolving the burning issue of

energy deficit, lack of value addition and sector consolidation.

  • (b) It kept silent about the massive flight of human and financial capital

from domestic textile industry towards more attractive and profitable regional markets. Even the proposed LTTF facility has little to offer to exporters/investors/borrowers.

Mixed reactions

Many termed the new national textile policy friendly and result- oriented, while others labelled it without any clear-cut vision and strategy to promote exports. Majority appreciated the allocation of Rs.42 billion to support the different packages announced for the first year of the policy. The textile manufacturers appreciating the policy said it had laid down a basis for sound growth of textiles and clothing sector of the country.

Chairman Pakistan Readymade garments manufacturers and exporters association (Prgmea) said that it was for the first time that a comprehensive policy been given to textile sector. Chairman Pakistan towel manufacturers association (TMA) stressed the need for implementing the policy in letter and spirit if the required targets set in the policy are to be achieved. Pakistan apparel forum chairman said it was the first serious attempt to sort out issues confronting different segments of textile industry.

CURRENT SITUATION OF TEXTILE INDUSTRY IN PAKISTAN AND ITS REASONS

The growth in the textile exports of Pakistan is gradually declining. Textile exports in Pakistan grew from 8.92 billion USD in 2004-05 to 10.11 billion USD in 2005-06, reflecting a growth rate of 18%. As against this, in the current year, export growth has been only 5%. This is growing to be an issue of concern for the Pakistani government. The exports of readymade garments grew from 1.190 billion USD to 1.254 billion USD in the period July 2006 to

May 2007 as compared to the same period in the 2005-2006. This amounted to a growth of 5.35%. The exports of knitwear also grew from 1.570 billion USD to 1.773 billion USD during the same period, recording a growth rate of 12.94%. However, there was a decline in the growth rate of export in raw cotton, bed clothes as well as cotton cloth during the same period. The export growth rate of raw cotton fell by 21.73%, while that of bed clothes and cotton cloth dropped by 3.10% and 4.10% respectively. In order to bring the Pakistan textile industry out of its current crisis, it is necessary that certain strict measures be taken to meet the challenges that the industry is facing. The Pakistan textile industry is currently facing several challenges. According to experts, there is a need for the industry to improve the quality of its products. There is also the need for greater value addition in its products.

The textile machinery used in Pakistan is imported mainly from the countries of Japan, Switzerland, Germany, China and Belgium. The technology that is in use in the industry leaves a lot to be desired. It is necessary that the industry undertake an up gradation in the technology used. Also, there is lack of efficient R&D and training. The lack of R&D in the cotton sector of Pakistan has resulted in low quality of cotton in comparison to rest of Asia. Because of the subsequent low profitability in cotton crops, farmers are shifting to other cash crops, such as sugar cane. In Punjab alone, the cotton area sown this season was less by 1.14 percent as compared to the last year. Textile owners argue that although the Cotton Vision 2015 targets 20 million bales till 2015, it is an ambitious target as in reality cotton production is decreasing each year. It is the lack of proper R&D that has led to such a state. They further accuse cartels, especially the pesticide sector, for hindering proper R&D. The pesticide sector stands to benefit from stunting local R&D as higher yield cotton is more pesticide resistant. Another challenge is the high interest rate as compared to India, China and Bangladesh. The Pakistan textile industry is facing tough competition from the Indian, Bangladeshi and Chinese textile industries. The cost of power in Pakistan is high as compared to that in other countries. On account of these reasons, the Pakistan textile industry is going through a critical condition.

Consequently, the country has become a semi-finished raw material source for those nations involved in value addition and apparel production. It could also be said that Pakistan is serving other nations to earn more foreign exchange on export of value-added products. According to the National Assembly Standing Committee on Textile Industry in Islamabad, "Pakistan needs to improve bilateral relations with the US for greater market access.

PROBLEMS FACED BY TEXTILE INDUSTRY HIGHLIGHTED

Lost competitiveness in the global market Lack of awareness of global trends and changing rules and regulation.

The reinvestment and introduction of the latest technology Sector did not focus on the emerging trend of the value additions More dependence on cotton Poor infrastructure Unstable political situation Obsolete technology machinery and equipment used for manufacturing Availability of raw material and inconsistent raw material prices Unskilled labor (only 1% workers have certificate / diploma from technical training institutions) Absence of research and development culture Lack of synergies between Govt. support institutions and practical market. Lack of standardization and quality control Non-sophisticated marketing sense. (branding & grading) Unorganized vendor base Limited access to information (availability of finance, technological know how & Govt. regulations) Energy costs 20% Interest On Bank Loans

Tariff hikes of Gas

  Tariff hikes of Electricity

Frequent Interruption in supply of electricity and Gas

High Freight Cost

Demand Of drastic cut on textile products from their buyers from US and EU

FUTURE OF TEXTILE INDUSTRY

Demand of textile products is increasing every year to almost 3%. So Pakistan can also capture some share from this but the industrialists and the government need to focus on this sector. Textile industry just needs a good leader in the government which can drive the industry in a right direction.

Textile Industry of Pakistan can kick its competitors far off and can contribute up to 90% in the total GDP of Pakistan. In short Textile Industry of Pakistan has a great potential, it is lacking in some natural resources like power and some political unstability of the country is also playing a vital role in the reverse gear of Textile sector. But I am sure Textile industry of Pakistan will grow and will keep its big share in the world textile.

MAJOR PLAYERS IN THE TEXTILE INDUSTRY OF PAKSITAN

Company Name

Rs. in

Rs. in

Rs. in

Million Net

Million Net

Million Net

Worth

Income

Profit

A.A. Textiles Ltd.

223.2

 

822.3

53.9

Ahmad Hassan Textile Mills Ltd.

209.8

 

659.4

101.8

Al-Abid Silk Mills Ltd.

352.3

2033.1

80.8

Al-Hamad Textile Mills

96.3

 

380.2

28.2

Allawasaya Textile 7 Finishing Mills Ltd.

77.6

 

589.4

28.9

 

213.3

 

968.8

18.8

Apollo Textile Mills Ltd. Artistic Denim Mills Ltd

321.2

 

917.2

55.4

Ayesha Textile Mills Ltd.

152.8

1211.6

118.2

 

91.8

 

389.5

19.3

Bengal Fibre Industries Ltd. Bhanero Textile Mills Ltd.

325

1308.3

165.2

Blessed Textile Ltd.

 
  • 215.8 116.4

693

 

Burewala Textile Mills Ltd.

 
  • 337.9 431.1

60.5

Chanab Fiber Ltd.

 
  • 108.6 478.6

47.8

 

96.4

 

683.3

147.7

Colony Textile Mills Ltd Crescent Textile Mills Ltd

1425.9

4632.5

246

Dares Salaam Textile Mills Ltd

92.3

 

452.1

82.5

Dewan Khalid Textile Mills Ltd

254.7

 

560.6

31.9

Dewan Mushtaq Textile Mills Ltd

124.8

 

761.7

38.5

Dewan Salman Fibre Ltd

458.4

6723.7

514.2

Dewan Textile Mills Ltd

685.4

2282

121.6

Dilon Ltd

100.7

186.6

18.5

 

387.9

714.3

127.9

Faisal Spinning Mills Ltd Fateh Textile Mills Limited

585.2

3636.2

21.9

Fazal Cloth Mills Ltd

257.5

1553

107.2

Gadoon Textile Mills Ltd

 
  • 1332.5 3438.6

485.4

Gatron Industries Ltd

 
  • 1709.6 4924.9

349.9

Gul Ahmed Textile Mills Ltd

1322

4516

558

 

214.5

592.8

76.8

Gulistan Spinning Mills Ltd Gulistan Textile Mills Ltd

875.8

2323.6

120.2

 

512.2

4373.4

99.8

Gulistan Spinning Mills Ltd Hussein Industries Ltd

276.1

1188.6

35.7

Ibrahim Fires Ltd

5138.1

6944.2

474.8

Ibrahim Textile Mills Ltd

239.9

1161.6

52.8

ICC Textiles Ltd

147

629

31.8

 

137.2

536.5

22.8

Ideal Spinning Mills Ltd Indus Dyeing & Manufacturing Co Ltd

281.2

2184.7

134.6

Ishaq Textile Mills Ltd

218.7

 
  • 742.8 10.8

 

144.6

 
  • 367.4 46.5

Khalid Siraj Textile Mills Ltd Kohat Textile Mills Ltd

96.2

 
  • 532.3 27.7

Kohinoor Raiwind Mills Ltd

525.4

1372.9

132.0

Kohinoor Textile Mills Ltd

502.8

2251.8

97.7

 

741.8

2140

308.7

Kohinoor Weaving Mills Ltd Landmark Spinning Industries Ltd

121.2

   

Lawrencepur Textile Mills Ltd

245.6

298.7

29.8

 

193.3

1455.7

35.1

Liberty Mills Ltd Mahmood Textile Mills Ltd

816.1

2936

421.3

 

146.7

640.7

34

Maqbool Textile Mills Ltd Main Textile Industries Ltd

114.3

807.6

51.4

 

155.8

922.3

61

N.P. Spinning Mills Ltd Nadeem Textile Mills Ltd

188.5

406.7

54.4

Nakshbandi Industries Ltd

262.6

1067.2

27.6

Nayab Spinning & Weaving Mills Ltd

251.6

413.5

12.3

Nina Industries Ltd

352.3

892.4

16.3

Nishat Chunian Ltd

595.5

2367.0

357.5

Nishat Mills Ltd

4569.6

10134

700.9

Paramount Spinning Mills Ltd

286.6

830.7

3

 

244

1141.1

78.5

Prosperity Weaving Mills Ltd Quetta Textile Mills Ltd

245.9

1792.9

110.4

Reliance Cotton Spinning Mills Ltd

236.1

701.3

40.3

Reliance Weaving Mills Ltd

313.4

1306.9

143.1

 

1374.1

2175.2

140.4

Rupali Polyster Limited S.G. Fibre Ltd

417

808

66

Saif Textile Mills Ltd

506.1

1066

28

Samin Textile Mills Ltd

256.5

1012.9

32.1

Sapphire Fibres Ltd

1305.7

2499.6

500.9

Sapphire Textile Mills Ltd

1108.3

4128.1

650.2

Shahpur Textile Mills Ltd

161.2

416.6

24.6

Shahtaj Textile Mills Ltd

146.8

474

39.6

 

91.9

861.6

87

Sunrays Textiles Mills Ltd Tata Textile Mills Ltd

 
  • 223.5 793.3

120.7

   
  • 331.2 1406.4

68.6

Thal Jute Mills Ltd Towellers Ltd

 
  • 384.2 1766.4

43.3

   
  • 225.9 1271.9

47.9

Yousaf Weaving Mills Ltd Yusuf Textiles Mills Ltd

122

603

89.1

Zainab Textiles Mills Ltd

261.1

991.5

61.1

Zaman Textile Mills Ltd

89.4

407.2

21.6

At Present, the industry consists of large-scale organized sector and a highly fragmented

cottage / small-scale sector. The organized sector comprises integrated textile mills i.e. spinning units with Shuttle-less looms. The down stream industry (Weaving, Finishing, Garments, Towels & Hosiery), with great export potential, is mostly in the unorganized sector.

SWOT ANALYSIS OF TEXTILE INDUSTRY PAKISTAN:

SWOT ANALYSIS OF TEXTILE INDUSTRY PAKISTAN: Strengths: 1. 4th largest Cotton producer 2. 64% of country’s

Strengths:

  • 1. 4th largest Cotton producer

  • 2. 64% of country’s export volume

  • 3. 1.4m people employed with 50% in apparel

  • 4. Availability of cheaper labor at US$ 0.39 per hour

  • 5. Raw Material Base

  • 6. Rich Heritage

  • 7. Demand Driven Industry (more than 4000 units for textiles alone)

  • 8. Strong presence in local market

  • 9. Geographically situated at ideal location (near end users)

10.Most

setups

are

self

employed

and

have

simpler

management

structure

 

Weaknesses:

11.Low Price Image 12.Lower marketing initiatives 13.Limited use of modern technology 14.Confusion in political / religious scenario 15.Low levels of managerial capabilities 16.More dependence on cotton 17.Poor infrastructure 18.Obsolete technology machinery and equipment used for manufacturing 19.Availability of raw material and inconsistent raw material prices 20.Unskilled labor (only 1% workers have certificate / diploma from technical training institutions) 21.Absence of research and development culture 22.Lack of synergies between Govt. support institutions and practical market. 23.Lack of standardization and quality control 24.Non-sophisticated marketing sense. (branding & grading) 25.Unorganized vendor base 26.Limited access to information (availability of finance, technological know how & Govt. regulations) 27.Energy costs 28.20% Interest On Bank Loans 29.Tariff hikes of Gas 30.Tariff hikes of Electricity 31.Frequent Interruption in supply of electricity and Gas 32.High Freight Cost

Opportunities:

33.Better laid down factories on ‘best practices’ 34.Potential of improving confidence in buyer by working directly & closely 35.Home Furnishing from Pakistan have made a big name worldwide 36.Women’s wear has a huge potential 37.Pakistan Textile City

38.Marketing

39.Collaboration with foreign countries 40.Re-engineering of Product system 41.Producing high value products

Threats:

42.Rising Cotton Prices 43.China and India being considered as countries for high value added garments 44.Price Pressures

Financial Analysis

Liquidity ratios:

Liquidity is basically a firm’s ability to meet its obligations. It depicts the company’s overall resources to pay off its resources where ever needed. We look at the picture of liquidity ratios and come across that almost every year the liquidity position of the company is declining and is getting worse off every year. In year 2002 which is the base year from where we started our

analysis it depicts that year 2004 was comparatively doing great business as compared to year 2009. We came across that in year 2009 the liquidity position of crescent textile company is not showing good results. 2007 and 2008 were considered as better records in terms of liquidity of the company.

The current ratio for the company has been on the decline throughout the six

years in question. It was around 1.84 times in 2002, which fell to almost 0.95 times in 2009. This indicates that the company can pay off its current liabilities from its current assets 0.95 times over in 2009, as compared to

  • 1.84 times over in 2002.

The Payable Days refers to the number of days it takes the firm to pay its

bills. Payable days of ‘Din Textile Mills Ltd’ has decreased from 32 days in year 2002 to 20 days in the year 2009. It means that the company is paying off its liabilities in 12-13 days. Whereas industry averages show a payable of

  • 52.6 days. Din Textile Mills Ltd is paying off their liabilities quickly and as

soon as possible. Too large a ratio can mean that you are becoming a bad debt for your debtors, and too low a ratio could mean that you may run out of cash when you need it for investment purposes at some point-opportunity cost.

Efficiency ratios:

Efficiency ratio is to evaluate the overhead structure of a financial institution. The surviving companies are those that keep costs down. The efficiency ratio gives us a measure of how effectively a company is operating. It is considered that the higher the efficiency ratios are for a company, in relation to the industry average, the better and more effectively it is used to control its assets and to generate earnings.

Receivable turnover basically depicts that whether the company is facing any problems while receiving its collectible or not. Receivable turnover of the company has decreased from year 2004 to year 2009. In year 2002 6.75 times whereas in year 2009 it dropped to 6.72 times. The higher the receivable turnover the more efficient is the company whereas due to slight

decline in receivable turnover it depicts that company has lost its little efficiency. Whereas when we compare the receivable turnover with the industry which is 17.41 times, we come across that it is much higher and industry is running at a very efficient pace and the crescent textile is not that efficient.

Inventory turnover of the company has decreased in year 2009 to 6.45 times whereas in year 2002 it was 7.79 times. This shows that efficiency of the company has Decreased. Industrial average for inventory turnover is near about to company’s average which is 7.7 times. Therefore in year 2009 Din Textile Mills Limited has become a bit inefficient.

The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues. Considering the ratios of 2009 ratios have slightly changed from year 2002. In year 2009 fixed asset turn over ratios were 2.13 times whereas in year 2004 it was 2.39 times, whereas industrial ratios in year 2009 were 1.33 times and in year 2002 they were 2.55 times. This shows that fixed asset turnover ratio of crescent textile was higher than the industrial ratio of the sector which reflects that company is more effectively using the investment in fixed assets to generate revenues.

Efficiency of the company is showing good records in year 2009 as for the reason of investment done by the company and additional input increment made by the company as compared to average industrial ratios.

Solvency ratios:

The solvency ratio measures the size of a company's after-tax income, excluding non-cash depreciation expenses, as compared to the firm's total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations. Solvency ratios measure the relationship between debts and owners equity and examine the proportion of debt the company is using.

A debt ratio indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. In year 2002 it shows that 37% of the debt were financed through the assets whereas industrial ratio was comparatively lower in year 2002 and was about 54.76%. In year 2009 debt ratio was 65% whereas industrial ratio showed the figure of

61.52%.

Long term debt to capital has increased in year 2009 as compared to 2002, 28% to 43% whereas industrial average ratios of these years are comparatively higher.

Overall solvency has decreased which shows that company is being less solvent and resulting in better position of the company.

Profitability ratios:

A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

Overall profitability of the company in year 2009 has increased in comparison to all the previous years and is in line with the averages of industrial ratios of the sector.

VERTICAL ANALYSIS:

A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account. The main advantage of analyzing a balance sheet in this manner is that the balance sheets of businesses of all sizes can easily be compared. It also makes it easy to see relative annual changes in one business.

Non- current assets have shown an improvement in year 2009 as compared to 2008 whereas total current assets have decreased as compared to year

2008.

Non-current liabilities have decreased in year 2009 where as current liabilities have increased.

Cost of product sold in 2009 is showing a better position by decreasing, which indicates that sales in year 2009 have increased sufficient enough in order to earn profit.

HORIZONTAL ANALYSIS:

A procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time. The analyst will use his or her discretion when choosing a particular timeline; however, the decision is often based on the investing time horizon under consideration.

Considering this we took 2002 as a base year.

Considering balance sheet, total assets and liabilities have increased from year 2005 which was 5.66% and in year 2009 its 57.9% which reflects that a large number of assets have been acquired by the company in order to generate revenues.

Considering the horizontal common-sizing, income statement, sales of the company has jumped from 76.2% in year 2005 to 198.96% in year 2009. Whereas net income in year 2005 was 193.74% which increased 3 times more than 2005 and turns to 435.59% in year 2009. This shows that company is generating more of the revenues.

FORECAST AND FUTURE OUTLOOK:

The improvement in demand for cotton on better international economic outlook is likely to keep its prices firm. This will lead to reduced margins for domestic industry which is already facing high interest rates, power/ gas shortage and rising input costs. However, an early reduction in mark up rates, implementation of positive steps in Textile Policy,2009 and last but not the least any relaxation from EU on market access will greatly help improving performance of the industry.

This company, however, has focused to improve performance of the company through sustained growth in sale of value added products having good margin and will strive to pursue this strategy through dedicated efforts by reducing costs with efficient and better resource utilization.

CONCLUSION:

To achieve its VISION your management plans to speed-up its efforts towards enhancing the performance of the company in future. In a tough business environment and competitive times ahead the company is focusing on lowering costs to achieve sustained profitability through growth in sales of better product mix with improved margins. With all efforts on timely execution of customers' orders and close monitoring of teams performance it is hoped that financial position of the company will further strengthen to add significant value for its shareholders. To boost exports and improve foreign exchange reserves of the country the Govt. had unveiled Textile Policy, 2009-14 on August 12, 2009 which aimed at achieving US$25 billion textile exports in 05 years time against present exports of US$10 billion. The policy envisages various measures and financial package for the industry; which upon implementation will help in improving performance of the Industry. Moreover, with improved cotton crop and stable prices it is expected the industry will do better provided global recession

recedes earlier than expected. The company has earned profit of Rs.9.81per share in the year 2009 as against after tax proft of Rs.1.79 per share in previous year. We give below the statement of Corporate and Financial Reporting framework in compliance with Code of Corporate Governance:

  • a. Financial statements prepared by the management represent fairly and

accurately company's state of affairs, results of its operation, cash flows and changes in

equity.

  • b. Proper books of accounts have been maintained.

  • c. Appropriate accounting policies have been consistently applied in

preparation of financial statements and accounting estimates are based on

reasonable and prudent judgment.

  • d. International Accounting Standards as applicable in Pakistan have been

followed in preparation of financial statements.

  • e. System of internal control is sound in design, has been effectively

implemented & being monitored continuously. On-going review will continue

in future for further improvement in controls.

  • f. The company has sound potentials to continue as going concern.

  • g. There has been no material departure from best practices of corporate

governance.