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KTML - Analyst Briefing Takeaways, (AKD Off the Analyst's Desk Nov 17, 2023)

Kohinoor Textile Mills Limited (KTML) conducted its analyst briefing session, to discuss the FY23 results and the future outlook of the company. The key takeaways from the call are summarized below:

• To recall, company reported earnings of PkR8.1/sh in FY23 vs. PkR15.8/sh in the previous year. This decrease in earnings was primarily attributed to shrinking gross margins due to rising raw material and energy costs, coupled with an increase in financial costs.
• Going forward, management expects positive financial growth as exports are on the rise. This impact is already evident with a significant 64%QoQ increase in 1QFY24 earnings. All three segments (Spinning, Weaving, and Home Textile) have witnessed growth in the said quarter.
• Looking ahead, the management also anticipates that gross margins will normalize to around 17% once the currency stabilizes.
• The power mix in FY23 consisted of National Grid (53%), Furnace Oil (21%), Natural Gas (11%), Solar (10%), and Bowser Gas (5%). Due to recent hikes in gas and power tariffs, the company's average power cost has increased to PkR34.07/KWh (USc11.75) from avg. of PkR22.97/KWh (9.17 cents) in FY23. With the addition of a new solar project, this cost is expected to reduce to USc10/kWh.
• Current WAPDA price is USc14.6/kWh, and due to the recent price revision, gas prices have increased to approximately US$10.85/mmbtu from around US$9.5/mmbtu last year.
• According to management, they will be charged RLNG rate from Nov-end to Feb-end, after which they will be charged on a 50:50 RLNG: Indigenous gas rates basis.
• Management also highlighted that with the recent gas price revision, gas prices for North and South are rationalized, which will be beneficial for North players, as gas prices was much less for South players previously.
• Furthermore, more than 70% of the company's debt is concessional (including ERF), meanwhile the non-KIBOR linked debt portion is ~33% and their rate is around 3.5%.
• Typically during this time of the year, the company typically maintains inventory levels until June of the next year. However, this year, the company has shifted its strategy due to expectations of a bumper crop and has only procured cotton until March levels, and as of now, the company has started procuring for the coming quarter. This strategy has been beneficial for the company as cotton prices have decreased to ~PkR18k/ton compared to PKR21-22k/ton at the time of the previous procurement.
• On the customer front, most yarn is supplied to various local small players. Meanwhile, in Home Textile, the company has a niche business (high value), spreading sales across approximately 15 players, where no single customer controls more than 20% of sales volume.
• Recent expansions include the addition of 936 open-end rotors, 384 MVS spindles, and a 20MW Grid Station. Additionally, a 12.5MW solar project is nearing completion (expected COD Dec’23), bringing KTML’s installed solar capacity to 30MW.
• According to management, the textile sector in Pakistan remains highly competitive, and the recent increase in wage rates in Bangladesh is also expected to benefit the local industry.