Gul Ahmed Textile Mills Limited (GATM) wrapped up their fiscal year 2022-23 with a massive fall in profits. This was stated in a consolidated report released on Tuesday to the Pakistan Stock Exchange (PSX) showing a 50% decrease in profits, mostly driven by a high cost of sales and finance costs.
The company posted a net profit of Rs4.88 billion for the year as compared to Rs9.85 billion which was recorded at the same time last year. As a result, GATM’s earnings per share for fiscal year 2023 dropped from Rs13.30 last year to Rs6.62 this year.
This decline in profitability can be attributed to a substantial increase in finance costs, which rose by 86.57% year-on-year to reach Rs7.31 billion in fiscal year 2023. The rise is attributed to a significant increase in interest rates throughout the year. The company also experienced a nearly 17% year-on-year drop in other income, which amounted to Rs82.1 crores in fiscal year 2023, compared to Rs986.92 million last year.
While the textile manufacturer witnessed a 14% growth in total revenue, reaching Rs138.93 billion compared to Rs121.81 billion in the previous year, its profit margin contracted from 22.2% in fiscal year 2022 to 20% in fiscal year 2023, due to higher cost of sales. The company’s operating expenses increased by nearly 19% year-on-year, totaling to Rs14.69 billion in fiscal year 2023.
Despite the worrying numbers, economic analyst A. A. H. Soomro told Profit that the results could in fact show a promising trend on margin improvement.
“In the global contractionary phase, fetching high sales is difficult. That is visible with low dollar sales on a year-to-year basis. Nevertheless, despite a 40% plus increase in financial costs, bottom line growth is solid on a quarterly basis and likely to continue,” he said.
The analyst said heightened competitiveness in export orders is anticipated, due to substantial domestic crop, significant currency adjustments – despite a rise in energy expenses.
“Gul Ahmed offers a strong mix of domestic and export sales, and these results should comfort investors on improving prospects of unlocking the valuations,” Soomro stated.
In a related development, GATM’s Board of Directors decided to reclassify Rs23 billion from revenue reserves to separate capital reserves (un-distributable by way of dividend), reflecting the nature of these reserves more accurately.
It is pertinent to mention that the board, over the years, has discussed the company’s expansion and diversification efforts, along with substantial investments, have increased enterprise value for shareholders. Consequently, the unappropriated profits are not entirely available for dividend distribution.
Gul Ahmed Group has been a textile trader since the 1900s and initiated its manufacturing operations as Gul Ahmed Textile Mills (GATM) in 1953. Subsequently becoming a publicly listed company in 1955. GATM, a subsidiary of Gul Ahmed Holdings (Private) Limited, is a comprehensive textile mill specializing in textile product manufacturing and sales. Beyond manufacturing, GATM has ventured into the retail sector, with over 40 stores nationwide.