Suraj Cotton Mills Limited (SURC) has decided to reduce its production by 40% due to a worldwide economic recession and a very challenging time for the textile industry in Pakistan. The company made the announcement to the Pakistan Stock Exchange (PSX) on Friday, the last trading day on the exchange for the year 2022.
“We would like to inform you that due to worldwide economic recession and low demand, it is not feasible to continue with full production in our plants. Our operational feasibility is further affected by the high cost of doing business. Part of the curtailment of spinning operations is also due to BMR activities in line with our policy of adopting latest technologies. Keeping in view these factors, the Company has decided to curtail production in all its facilities by upto 40%. This is a temporary measure and we will keep reviewing the situation and inform you accordingly of any change. We hope that the situation will improve in the first quarter of 2023 at which will enable us to restart.”
The partial closure announcement comes after the textile industry is facing a myriad of challenges in recent months. Textile companies and a number of other businesses have also announced shutdowns in recent weeks.
Two weeks ago, Kohinoor Spinning Mills temporarily shut down citing the worst crisis faced by the textile industry. Another leading textile company, Nishat (Chunian) Limited, also closed almost a quarter of its production this week.
In other sectors, Fauji Fertilizer Bin Qasim Limited (FFBL) also closed its Diammonium Phosphate (DAP) Plant temporarily last week. Suzuki announced its first plant shutdown for 2023 after a string of nonoperational days last year. Similarly, Toyota also shut down production in December for the remainder of the year. Similarly, Balochistan Wheels and Millat Tractors have also had non-operational days.
At the start of this week on Monday, the patron-in-chief of the All Pakistan Textile Mills Association (APTMA), Dr. Gohar Ejaz, wrote a letter to the Prime Minister of Pakistan detailing the challenges faced by the textile industry and the exports sector.
According to the letter, the textile industry was already operating at less than 50% capacity utilisation across the country. The letter further said, “A substantial number of jobs have already been lost and many more are to follow if remedial measures are not urgently undertaken.”
And just last week, the APTMA, in another letter to the Prime Minister, also said that textile exports are expected to drop below $1 billion per month from January 2023. The expected decline was due to supply-chain disruptions, liquidity constraints, energy shortages, and the non-functioning of new projects.
Financials
SURC had a great year as it achieved a sales revenue of Rs. 23.5 billion in the fiscal year ending June 2022. This was an increase of 35% on a yearly basis. The company posted an after tax profit of Rs. 2,790 Million as compared to Rs. 2,558 Million reported last year. This led to an Earnings Per Share (EPS) of Rs. 62.89 as compared to 57.66 last year.
For the last quarter ended 30 September 2022, the company reported a net profit of Rs. 114.979 million with earnings per share of Rs. 2.59. The quarterly net profit declined significantly by 85% on a quarterly basis.
According to the Board of Directors report for the last quarter, “The performance of first quarter is indicative of the challenges that the textile industry is facing since the start of the current financial year, but in fact began to manifest themselves in the last quarter of FY2022. After the high earnings in the 2- year period following COVID-19, the company is faced with rising input costs due to depreciation of the Pak rupee and stagnant demand due to recession in the world. Due to these trends, the Company’s gross profit margins declined significantly as compared to the corresponding period.”
In its future outlook, the report mentioned challenges faced by the company with world-wide demand destruction and the devastating floods in Pakistan. This badly affected the domestic cotton crop leading to a shortage of cotton. It also said that the country will need to import almost 5 million bales of raw cotton to meet the shortage which will be expensive due to currency devaluation.
Suraj Cotton Mills Limited is a Public Limited Company incorporated on December 18, 1984. The Company is engaged in the manufacturing and trading of high quality Yarn and Woven Fabrics. The Company has four operating units located at Nooriabad (Sindh), Shahkot and Raiwind (Punjab).
