After making record profits, what is Towellers planning on doing? 

After making massive profits worth billions of rupees two years in a row, Towellers Limited has announced it will use its reserves of money as capital for new investments aimed at fuelling future growth. 

In 2022, Towellers Limited achieved a profit of a little more than Rs 1 billion. The year 2023 marked impressive growth for Towellers which hit a profit of close to Rs 2.4 billion. In a recent corporate presentation session, the company’s management said it was expecting similarly high returns next year. 

The company anticipates an increase in revenue, targeting Rs. 13.4 billion, up from Rs. 11 billion in June 2023. However, the Profit After Tax (PAT) is projected to be Rs. 1.4 billion, a decrease from the actual figure of Rs. 2.3 billion in June 2023. This projection suggests a cautious approach in managing profitability amidst market uncertainties.

The expected Net Profit (NP) Ratio is 10.50%, indicating a commitment to maintaining a healthy profit margin. Furthermore, the Earnings Per Share (EPS) is projected at Rs. 82.98, lower than the Rs. 140.49 achieved in June 2023.

The first quarter of 2023 saw a 26.7% growth in sales turnover, reaching Rs. 3.9 Billion, but net profitability did not match the previous year's level which the management said were ‘abnormal gains’. The net profit was a respectable 12.9%, amounting to Rs. 504 million.

Looking ahead to the 2nd and 3rd Quarters, global economic uncertainties, particularly due to conflicts in Ukraine and Gaza, could impact oil prices and reduce demand for textile products. Domestic challenges like political instability, high costs, and inflation also pose risks to maintaining profit margins. Despite these challenges, the company remains committed to growing its exports.

The company's Chief Executive Officer Mehreen Obaid Agha believed that the situation in Bangladesh presents an interesting scenario for the company's future prospects. Given the political unrest and concerns about minimum wage in Bangladesh, a key competitor, there is uncertainty about where the company will stand in the next quarter and beyond.

It is pertinent to mention here that garment workers in Bangladesh have been protesting for higher wages, claiming that the current pay is unsustainable and leaves them unable to make ends meet. Despite Bangladesh raising its minimum monthly wage for garment workers to 12,500 taka (€106, $113) from 8,300 taka, some protesters said the 56% increase was too small and demanded a 23,000 taka (€196, $209) minimum.

Using profits widely

Despite the big earnings Towellers has made in the past couple of years, they have largely been investing money in safe short-term investments and only been giving small dividends. Profit reported on the company’s success and strategy last month. 

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Now, the company plans to diversify its product portfolio in both home textiles and apparel trade, and expand its manufacturing with unique products to increase turnover. Signs of economic recovery in Pakistan, including declining inflation and interest rates, and political stability post-elections, are positive indicators. The IMF review and government actions against unofficial trade are also expected to improve the business climate.

Pakistan's expected abundant cotton crop this year could provide high-quality, cost-effective raw material. The international textile market's demand surge has increased Pakistan's capacity utilization from 50% to 75%.

However, the company acknowledged its reliance on a few key customers and the need to diversify. Obsolete machinery could impact efficiency and cost reduction, affecting competitiveness. Investments in new dyeing machines, a Heat Set Machine, Raising Machine, Piling tester, and a Stanter Machine, along with new knitting machines, are part of the company's efforts to enhance quality and capacity.

The company's investment in solar power at its head office and factories has led to significant power cost savings, with these investments expected to pay off within five years. The company has also increased its solar power capacities at its factories this year.