Mahmood Textile Mills: Financial Analysis of Year 2022
MESSAGE OF THE CHAIRMAN
It gives me immense pleasure to describe the background of Mahmood Group of Industries. In 1935, a tannery in the name of Khawaja Tannery was set up in Multan by my father (late Khawaja Muzaffar Mahmood). He had vast experience in this field and was virtually a pioneer of this industry in Pakistan . The Company was incorporated in 1961, as a private limited company. Cotton ginning factories located in different parts of the country were also set up by him.Independence there was no large scale industry worth the name and it was the utmost need of the time to establish more and more industries so as to make the country economically strong and to earn much needed foreign exchange for the development of the country.
Our main object is to set up industry based on “Farm to Fabric”. Consequently an agricultural farm, various ginning factories, spinning and weaving units were set up. In the units about approximately 11000 persons are employed and earning their livelihood. The sincerity, integrity and good name are the factors for the success of an industry. The group is making patriotic efforts to fully participate in the rapid industrialization of Pakistan and is making its humble contribution in its progress and economic development.
As per detail given on the next pages the Group is in the wake of progress and I hope that with the Grace of God and devotion of staff and workers will make further achievements.
Yours truly,
Khawaja M. Masood
Chairman
.
VISION STATEMENT
To be recognized internationally and locally as dynamic, quality conscious and ever progressive Textile Product manufacturer in the Textile Industry of PakistanMISSION STATEMENT
Mahmood Group is committed to:Be ethical in its practices.
Excel through continuous improvement by adopting most modernized technology in production.
Operate through professional Team work.
Retain our position as leading and innovative in the Textile Industry.
Achieve Excellence in the quality of our product.
Be a part of country's economic development and social Prosperity.
COMPANY INFORMATION
BOARD OF DIRECTORS:
Chairman KHAWAJA MUHAMMAD MASOODChief Executive KHAWAJA MUHAMMAD IQBAL
Directors KHAWAJA MUHAMMAD ILYAS
KHAWAJA MUHAMMAD YOUNUS
JALAL-UD-DIN ROOMI
MRS. MEHR FATIMA
MUHAMMAD MUZAFAR IQBAL
Company Secretary: GHULAM MOHAYUDDIN
Chief Financial Officer: MUHAMMAD AMIN PAL
F.C.A.
Auditors: M. YOUSUF ADIL SALEEM & CO.
Chartered Accountants
61-B,AIi Imran Centre Abdali Road, Multan.
Bankers: MCB BANK LTD.
UNITED BANK LIMITED
HABIB BANK LIMITED
Registered Office: MEHR MANZIL, LOHARI GATE, MULTAN.
Tel.: 061-111-181-181 Fax: 061-4511262
E-mail: [email protected]
URL : www.mahmoodgroup.com
Mills: MAHMOODABAD, MULTAN ROAD,
MUZAFFARGARH.
MASOODABAD, D.G. KHAN ROAD,
MUZAFFARGARH
Introduction of the Company:
Mahmood Group is vertically based on integrated industries and started business in 1935, by setting up a tanning unit. Since then, the group has grown immensely in the fields of cotton ginning, spinning and weaving.Objectives:
'Farm to Fabric' is the objective of the company. Being vertically integrated, the group possesses its own vast cotton farms in the area of Multan, a region of Punjab. The cotton ginning, seed oil extraction, spinning and weaving units are located at strategic places for efficient and harmonious working of the various production units.
Current Performance:
The only group which starts from cotton farming to ginning, spinning and weaving, which gives it a distinction over the entire textile industry of Pakistan.· Certified by ISO, Supima, Lycra and Oko-tex.
· Employees = 11,000.
· Turnover = US$ 215 million.
· Exports ratio = 90%.
· Employee Turnover = 10%.
· Responsible Corporate Citizenship
Core Values:
The group is always open for strategic alliances & long term relationships (Core Concept and basic idea). We believe in passing on the benefit of less cost to our buyers instead of increasing our own overheads, however there is no compromise on quality or machineryFuture Plans:
In an era of trade globalization, our vision is excellence in terms of quality with satisfied internal and external valued customers. The objective is to achieve continuous improvement in quality through professional management, state-of-the-art equipment, and highly motivated workforce.We at Mahmood Group are demonstrating sustained growth over the period of last 3 decades with reasonably good return on investment which have been utilized to give high quality products to our valued customers at least possible prices.
Importance of textile industry
According to the “ECONOMIST” intelligence report of Pakistan the following observations have been made: Despite Government efforts to diversify exports and widen the industrial base, the industrial sector remains dominated by the Textile sector by having 426 mills. Textile Sector still represents 46% of total manufacturing and provides 62% of Pakistan’s Export receipts. Employment level is 40% of the total labor workforce. The textile industry contributes 11% of the total GDP. Some of you may not know that APTMA was founded in 1952 and since then has been the foremost association concerning the textile business in Pakistan. The strong performance stemmed from two factors:a. Increase in import quotas especially by U.S.A, EU and TURKEY
b. Textile industry has invested over US$1.5 billions in new technologies and modernization in the last 3 years.
Efficiency and the innovation in textile is the only hope to get the country out of economic problems.
Present status of Pakistan Textile engineering sector
The Pakistan Textile Engineering Sector is underdeveloped and under utilized. Mostly it caters in the form of spares, components for modernization and machines used in cottage or small scale industries.A cursory look at the structure of Pakistan Textile Industry shows that most of them are cottage industry, small/medium industrial units and little large integrated state of art units. The number of units which fall under each category varies from sub-sector to sub-sector. Similarly the Textile Engineering Units also vary from small, medium and large in size. The Textile Engineering Industry comprises approximately 80% small work shops, 15% medium engineering Units and 5% large Engineering Units. It will not be out place to mention that the large engineering units are in Public Sector. The small and medium Engineering Units work on reverse Engineering principles, only few work according to Engineering Drawings and still fewer have Testing or Quality Control facilities.
On the basis of initial survey of Textile Engineering Units (Not complete yet), approximately 500 units are engaged all over Pakistan, employing approximately 50000 work force which is mostly skilled. Even under the present conditions and without any support, Pakistan Textile Engineering Industry is providing import substitution worth around one billion US dollars. This sector also exports to small and medium Textile Units in Bangladesh, Iran, Sri Lanka, etc.
The Textile Engineering Sector is throttled through taxes on raw material, import of components, electronic and electrical parts.
Assistance of present institutions
To encourage the local textile industry an access to the modern practices in the specialized areas of manufacturing processes, productivity enhancement and quality control, an institutional mechanism should be set up which provides the industry an adequate and industry-friendly assistance from such organizations as MIRDC, PITAC, CTL and PSI, etc.Need for training institutions Diploma Level Courses on the pattern of Pak-Swiss Training Centre in Karachi should also be opened in the Textile Institutions in Faisalabad and Karachi and more such courses should be introduced in the Polytechnics in areas like Multan, Hyderabad, Lahore and Gujranwala.
Pakistan s textile industry has been investing for the last five years in modernization and the improvement of the production base. During this period the sector has invested over US$ 5.0 billion in modernization and higher value addition. Break up of investment is given as under.
Sectral Shares in Total Investment in the Sector
| 1 Spinning | 46% |
| 2 Weaving | 24 % |
| 3 Textile Processing | 12% |
| 4 Knitwear & Garments | 5% |
| 5 Made-Ups | 8% |
| 6 Synthetic Textile | 5% |
| Unit | 2004-05 | 2009-10 | % Change | |
| Capacity (Spindles) | 000 | 8,477 | 11,300 | 33% |
| Consumption of Raw | 000 Kg | 1,970,356 | 3171,123 | 61% |
| Cotton | 000 Kg | 1,566,348 | 2,680,900 | 71% |
| MMF | 000 Kg | 404,008 | 490,223 | 21% |
| Production of Cotton | Bales | 9,745,447 | 14,339,852 | 47% |
| Production of Yarn | 000 Kg | 1,678,536 | 2,063,565 | 23% |
| Production of Cloth | Mill sq | 4,987 | 6,833 | 37% |
| Textile Exports | 000 US$ | 5,156,572 | 9,030,153 | 75% |
Future opportunities
Our main competitors in primary textile products with the advantage of large engineering sector in this region are China and India. The only country in this region without strong engineering base is Pakistan and our dependence upon outside Engineering Industry keeps our cost of production higher with low engineering skills.Looking into the future a strong competition from China and India for these market requirements can be used to involve them to start assembly plants under their guidance and cooperation.
Some progress in the direction has led to the development of a Task Force in the Ministry of Industries and Textile Engineering is growingly lucrative for investors, local and foreigners.
Pakistan s textile industry has been investing for the last five years in modernization and the improvement of the production base. During this period the sector has invested over US$ 5.0 billion in modernization and higher value addition. Break up of investment is given as under.
Future Perspective
In order to accelerate the growth of this sector, the Ministry of Textile Industry has been set up specifically to address issues of supply chain management and value addition. Since its creation, the Ministry has taken a number of proactive measures for the promotion of the textile industry. These include:i. Reactivation of the Federal Textile Board to take decisions involving strategy for the development of textile industry.
ii. Policy support in shifting towards value addition.
iii. Establishment of Textile City and Garments Cities in the main industrial hubs of the country i.e. Karachi, Lahore & Faisalabad. At present one Textile City at Karachi and three Garment Cities (at Karachi, Lahore and Faisalabad) are being established.
iv. Import duty on raw material, sub-components and components used in the local manufacturing of textile plants and machinery for export sector, has been reduced to zero%.
v. Import duty, on ginning presses has been reduced to 5%.
vi. The Program was started in 2005-06 and will be continued during 2006-07 season also. For this purpose total Rs.70 million shall be paid as premium to the growers for production of 100,000 clean cotton bales. Federal and Provincial Governments (Punjab & Sindh) each will pay 50% share of the premium. Federal Govt. s share is Rs.35 ml and Punjab Govt. will pay Rs.24.5 ml and Sindh Rs.10.5 ml (Total Rs.35 ml) for this year. The Prime Minister has approved the continuation of this program up to 2008-09 with production of 300,000 clean cotton bales in 2007-08 and 600,000 bales in 2008-09.
vii. High Volume Instrumentation is another component towards achieving better international quality.
viii. Turn over tax has been reduced to 1 % on retailers of specified textile fabrics and articles of apparel including readymade garments or fashion wear. The 15% Sales Tax levied earlier on retailers has been reduced to 2%. Both these taxes will be their final tax liability.
ix. To improve the human resource base and to improve labor productivity, provision of Rs. 96 million from EDF has been made for providing skills development to the work force in the garment sector. Accordingly, Stitching Machines Operators Training (SMOT) Scheme was initiated which is successfully running in a number of industrial establishments.
x. An initiative of launching of first ever business to business (B2B) web/based portal for providing market access to Pakistani textile products.
xi. A Cotton Ginning Research & Training Institute is being set up at Multan. Funds to the tune of Rs.28 million have been approved by the EDF Board of Administrators.
xii. Continuous supply of natural gas to the textile units during the winter months to ensure uninterrupted supply of power to the industrial units.
xiii. Research & development activity is being augmented by engaging expatriate consultants to benchmark our industrial practices vis-a-vis major international competitors. Two foreign consultants M/S Werner and Gherzi are conducting studies for the improvement of the textile sector. This is assumed that it would help in working out better policies to reduce the cost of doing business and in improving the textile exports.
| Agriculture & Fruit Farm The group owns 400 acres of land on which cotton and wheat are grown. It also contains fruit farms mainly citrus and mangoes and this area is unique for these types of fruits. |
| |||||||||||||||||||||||||
|
| Machinery Detail | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The machinery as evident from the column below is all imported from well known brands like Reiter (K-44 and combers), Toyoda(Rx-240 and back process), Trutzchler (DK-903) and Reiter cards, Jossi vision Shield, Holfman and Murata doublers. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Mahmood Group weaving constitutes of 500 Airjet Looms. Three sister concern companies by the name of
Machinery Detail Product Range Machinery Detail
Why Mahmood Group's Fabric? "The huge capacity and advantage of in-house spinning (and further cotton) makes sure that the cost and quality advantages are transferred to the customer with on-time deliveries. Also, the group is renowned for producing very special constructions as it always keeps investing in the new developments." |
| |||||||||||||||||
| |||||||||||||||||
| |||||||||||||||||
| |||||||||||||||||
|
RATIO ANALYSIS
Ratio analysis is a shortcut method of expressing relationships among various items on the finanicial statements. However, ratios are not substitutes for looking deeper into the financial position of company.In the analysis of Mahomood Textile Mills we found the following ratios:
1) Time interest earned
2) Book value per share
3) Earnings per share
4) Equity ratios
5) Profit margin
6) Inventory turnover ratio
7) Cash ratio
8) Debt to equity
9) Working capital
10) Current ratios
11) Return on total assets
12) Return on shareholders’ equity
13) Gross profit ratio
14) Debt ratio
15) Quick ratio
Time interest earned
TIE = Income before interest and taxes/annual interest expense2006 304924164 /127242498 = 2.40
2007 438012752 /190691630 = 2.30
2008 271248824/221160302 =1.23
2009 571453864/381249583 =1.50
2010 986506596/340466887 =2.90
COMMENTS
From 2006-2009 Time Interest Earned decreased due to high interest expense. As compare to 2009 Net Income Increased by 240% and Interest Expense decreased by almost 11% in 2010 which cause of increased in Time Interest Earned ratio. The company should arrange finance at minimum cost to increase the Time Interest Earned Ratio in other words to increase the ability to meet its interest expenses.Book Value Per Share
BVPS= Total Common Shareholder’s Equity/Number of common share outstanding2006 1551824359 /9984989 =155.42
2007 1693533968 /9984989 =169.61
2008 1623589865 /9984989 =162.60
2009 1711456511 /9984989 =171.40
2010 2249716345 /15000000 =149.98
COMMENTS:
In 2006-2007 Book Value per Share increased From Rs.155.42-169.61 but in 2008 due to allocation a large amount for “Provision for Tax” owners’ equity decreased which decreased the Book Value per Share by Rs.7. in 2009 Book Value per Share was the highest Rs.171.4 but the Book Value per Share again decline in 1st half of 2010. In 2010 number of share increased by 50% while owners’ equity could not increase with the same proportion as the result Book Value per Share decreased by almost Rs. 21.5.
EARNING PER SHARE
Eps= Net Income/No. of Shares2006 110127922/9984989 =11.03
2007 176842561/9984989 =17.71
2008 (4979641)/9984984 =(0.5)
2009 102843981/9984989 =10.30
2010 578199790/15000000 =38.55
COMMENTS :
In 2006-2007 Earnings per Share increased from Rs.11.03 to 17.71 but in 2008 due to allocation a large amount for “Provision for Tax” company faced lose and EPS Changed to LPS that was (0.5). In 2009 EPS was Rs. 10.3 Which became Rs. 38.55 in the 1st half of 2010. There is a very high fluctuation in EPS the company should concentrate the factors which affect EPS
Equity Ratio:
ER= Total equity/Total Assets x 1002006 1551824359/3191311845 x 100 = 48.63%
2007 1693533968/3742731114 x 100 = 45.25%
2008 1623589865/4296653569 x 100 = 37.79%
2009 1711456511/4418368036 x 100 = 38.74%
2010 2249716345/5014717477 x 100 = 44.86%
COMMENTS:
In 2006 Equity Ratio was 48.63% in Total Assets. In 2007 we can see increase in Equity as well as in Assets but despite that Equity ratio decreased which shows that increase in Assets is not due to increase in equity it is increase because of debt. In 2008 due to lose owners’ equity decreased and so that equity ratio became more less. From 2009 to 1st half of 2010 equity is increasing and Equity ratio is also increasing which is a good sign for the business that should be maintain.
Profit Margin:
PM= Net Income/Net Sales x 1002006 177681666/ 3839168820 x 100 =4.63%
2007 247321122/ 4583350069 x 100 =5.40%
2008 82715372/5073168667 x 100 =1.63%
2009 190204281/ 6811267831 x 100 =2.79%
2010 646039709/ 8135551381 x 100 =7.94%
Comments:
Shareholder's as well as the firm's management a particularly interested in wealth maximization which would be gained by profit maximization and to achieve this in a higher rate. We have to the analysis on increase in sales and to decrease in cost of goods sold which give the higher profit which increases the share value. As above ratio we can analyze; that 2010 is higher than remaining years. It is higher because of low cost of goods sold and the low operating expenses.
Inventory Turnover ratio
Inventory turnover =Cost of Goods Sold/Avg.inventory2007 4038046572/1035011516 =3.90
In Days 365/3.90 =93.5
2008 4478253669/1388553181 =3.22
In Days 365/3.22 =113.35
2009 5727024986/1516556902 =3.77
In Days 365/3.77 =96.81
2010 6628423205/1543182901 =4.295
In Days 365/4.295 =84.98
Comments:
As we know the inventory turnover including in current ratio which shows the liquidity of a firm. A firm can analyze the liquidity of paying debt immediately. As above ratio shows the inventory turnover ratio that how immediately converts in cash. 2010 is higher liquidity ration than remaining years
Cash Ratio
CR =Cash +Marketable Securities/ Current Liability2006 7584259/ 1055824886 =0.0072
2007 8848952/1384082252 =0.0064
2008 7611631/1924504789 =0.0040
2009 9226439/1972157401 =0.0047
2010 15358305/1955831122 =0.0079
Comments:
Cash ratio shows the firm ability to pay off its current liability. Above ratios show that the firm is not able to pay current liability if urgently required by creditors because available cash are too short than current liabilities, so, firm management need to increase its cash.
Debt to Equity Ratio
Debt to Equity Ratio =Total Liabilities/ Total Stockholder’s Equity2006 1639487486/1551824359 = 1.06
2007 2008870895 /1701916751 = 1.18
2008 2673063704/1623589865 = 1.65
2009 2706911525/1711456511 = 1.58
2010 2765001132/2249716345 = 1.23
COMMENTS
Debt to equity ratio measures the balance of funds being provided by creditors and stockholders. The higher the debt to equity ratio is, the more debt the company has, and all else being the riskier it is.
1) In 2006 the debt to equity was 1.06 which is increased in 2007 up to 1.18 due to increase the portion of total liabilities.
2) In 2008 the ratio is further increased due to increase portion of total liabilities versus stockholders equity which is not good for company it shows the weak financial position of company.
3) In 2009 debt to equity ratio decreased from 1.65 to 1.58 but still it is not satisfactory. Company needs to decrease more its liability.
4) In 2010 due to increase the portion of stockholders equity a decline is occurred in debt to equity ratio which shows the good performance of company. It is very satisfactory shareholders as well as creditors.
Working Capital
WC =Current Assets - Current Liabilities2006 1386908396 -1055824886 = 331083510
2007 1750363845 -1384082252 = 336281593
2008 2263757417 -1924504789 = 339252628
2009 2441209096 -1972157401 = 469051686
2010 2672950020 -1955831122 = 717118898
Comments:
Working Capital is an important measure of any management; it helps to prepare changes in financial statement. Working Capital shows the liquidity of the firm. If we see the five years then we analyses that in 2006 the working capital is about 3.3 million and in 2007 the working capital is increase to 3.6 million, in 2008 again decrease to 3.3 million, because liability is so increased in 2009, current liability is decreased so w.c increased to 4.6 million and in 2010 w.c is so high and it increases to 7.1 million, because current liability decreased. Here we have excess w.c interest for therefore We should invest the rest w.c in any firm where we could get the more wealth maxi
