NISHAT MILLS (Pvt.

) Ltd
Presents

Course: Advance Financial Management

Course Instructor: Sir khalid mukhtair
Date: April 09,10. 2017
Semester: Spring 2017
TOPIC:( CAPM project required rate of return)

ACKNOWLEDGEMENT

Respected Sir,

Iam thankful to ALLAH Almighty, for making my efforts worthy of condition. iam thankful to
my course instructor, Sir. Khalid mukhtair, whose assistance, guidance and support from initial
to final level enabled us to develop the understanding of the subject.

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 TABLE OF CONTENT

INTRODUCTION TO THE COMPANY ............................................................... Error! Bookmark not defined.

Business and Products ............................................................................... Error! Bookmark not defined.
Governance of Nishat Mills Limited ........................................................... Error! Bookmark not defined.
HR & R Committee ..................................................................................... Error! Bookmark not defined.
INTRODUCTION TO THE REPORT ................................................................... Error! Bookmark not defined.
CHAPTER 2 ..................................................................................................... Error! Bookmark not defined.
Return on Assets: ................................................................................... Error! Bookmark not defined.
Working Capital:..................................................................................... Error! Bookmark not defined.
Quick Ratio: ............................................................................................ Error! Bookmark not defined.
CHAPTER 5 ..................................................................................................... Error! Bookmark not defined.
1) Term Finance Certificates .............................................................. Error! Bookmark not defined.
2) Pakistan Investment Bonds ............................................................ Error! Bookmark not defined.
3) GoP Ijara Sukuk .............................................................................. Error! Bookmark not defined.
Distribution of Shares among Share Holders at Nishat Mills ................. Error! Bookmark not defined.
CHAPTER 6 ..................................................................................................... Error! Bookmark not defined.
AVERAGE RATE OF RETURN ................................................................... Error! Bookmark not defined.
STANDARD DEVIATION .......................................................................... Error! Bookmark not defined.
COEFFICIENT OF VARIATION .................................................................. Error! Bookmark not defined.
BETA ....................................................................................................... Error! Bookmark not defined.
CHAPTER 7 ..................................................................................................... Error! Bookmark not defined.
Estimating Expected Return ................................................................... Error! Bookmark not defined.
Risks to our Projections.......................................................................... Error! Bookmark not defined.
CHAPTER 10 ................................................................................................... Error! Bookmark not defined.
WACC ..................................................................................................... Error! Bookmark not defined.
RECOMMENDATIONS .................................................................................... Error! Bookmark not defined.
References ..................................................................................................... Error! Bookmark not defined.

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 Executive Summary

Nishat has grown from a cotton export house into the premier business group of Pakistan
concentrating on 4 core businesses; Textiles, Cement, Banking and Power Generation. Today,
Nishat is considered to be at par with multinationals operating locally in terms of its quality
products and management skills. The company is free from the energy crisis because it has set up
its own power generation units that are not even fulfilling the energy requirement of Nishat mills
but they are also selling this to Government. The company is holding the position with the
spinning, weaving and dying units with the extraordinary production capacity.
Different departments are working well to achieve the strategic aims of the company. They are
adopting the latest Management information system to access data that results in producing
timely results for different departments.

The PEST analysis shows that company has lived away from any kind of complications that may
have affect the companys goodwill by fulfilling the legal, environmental requirements and using
international financial rules in the production of financial statements

.The SWOT analysis depicts that strengths are greater in number as compared to weaknesses and
threats that shows the company does well know its position and keep the system up to date. Still
there are some lacks that company should overcome

INTRODUCTION TO THE COMPANY

Nishat Mills Limited is the flagship company of Nishat Group. It was established in 1951. It is
one of the most modern, largest vertically integrated textile companies in Pakistan. Nishat Mills
Limited has 227,640 spindles, 789 Toyota air jet looms. The Company also has the most modern
textile dyeing and processing units, 2 stitching units for home textile, two stitching units for
garments and Power Generation facilities with a capacity of 120 MW. The Companys total
export for the year 2015 was Rs. 39.868 billion (US$ 393.683 million). Due to the application of
prudent management policies, consolidation of operations, a strong balance sheet and an
effective marketing strategy, the growth trend is expected to continue in the years to come. The
Company's production facilities comprise of spinning, weaving, processing, stitching and power
generation.

Business and Products

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 Spinning
Weaving
Processing
Home Textile
Garments
Power Generation

Governance of Nishat Mills Limited

1) Audit Committee

As on April 10, 2014

1 Mr. Khalid Qadeer Qureshi Chairman/Member

2 Syed Zahid Hussain Member
Ms. Nabiha Shahnawaz
3 Cheema Member

HR & R Committee

As on April 10, 2014

1 Mian Hassan Mansha Chairman/Member

2 Mian Umer Mansha Member
3 Mr. Khalid Qadeer Qureshi Member
4 Ms. Nabeeha Shahnawaz Cheema Member

2) Board of Directors

Mian Umer Mansha Chief Executive Officer

Mian Hassan Mansha Chairman

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 Mr. Khalid Qadeer Qureshi Director
Mr. Saeed Ahmad Alvi Director
Syed Zahid Hussain Director (Nominee NIT)
Ms. Nabiha Shahnawaz
Cheema Director
Mr. Maqsood Ahmad Director
Market Description
Todays consumer has evolved with a certain set of needs and demands which are clearly defined
in their minds and are more than capable in making purchasing decisions where they evaluate
each product feature to their mental scale and purchase only if it rates higher in their perception.
Nishat is now just not a store anymore, rather the outlets are something to which the customer
can relate to and would feel comfortable in revisiting it if need be. Their brands reflect a certain
image and class to the consumers who buy the products to enhance their already groomed
personality. Striving hard on these lines Nishat Linen has made its mark in the market where it
especially targets those discerning customers who seek uniqueness, quality, design, fashion and
style in the products they buy without having to compromise on pricing.

Without any doubt the target market of Nishat Linen comprises of customers who have a distinct
set of demands where they focus on product uniqueness, quality and design which would setthem
apart from other females. From housewives seeking to impress others through impressive kitchen
and bed linen to socialites and professionals with a sophisticated and exclusive sense of dressing,
Nishat is very successful as it caters to a privileged market segment that can pay for high quality
and style.

Positioning
Nishat aims to position its product as an exclusive and classical brand for both upper and middle
class customers. Additionally they provide customer support services specifically to women to
help them design their clothing by Nishats experienced designers. That is their differentiating
point from their competitors.

Strategies
Product Strategy

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Nishat will launch exclusive designs of wear created by a variety of new designers. This
innovation would be affective as upcoming designers work with more energy and creativity that
would boost their sales.

Pricing Strategy
Before setting prices of products, various elements are kept into mind.Customer is of utmost
importance. If customer is old, his track record is good and enjoys a favorable repute so profit
margin may be reduced. Prices area determined on cost basis by adding certain percentage of
profit. This is highly sensitive area.

Current pricing for their products are:

Unstitched fabric is 2100-3100 it would be revised with more variety having range 1500-
3500
Stitched fabric is 1500-5000 it would be revised with economic and unique aspect having
range 1200-10000
Bed linen is 1200-3000 it would be revised from regular and exclusive range of bed linen
from 1000-5000
Bridal wear will be launched having introductory prices 20000-40000

Distribution Strategy
Nishat has their own outlets in Punjab and Sindh, and the product will be delivered only to
registered outlets. As the manager of one outlet has enlightened the point why dont sell their
product other than Nishat outlet as their competitor is doing that he replied we never want to
enter in a market because as soon as we entered in it then our fake product will take birth as it
happened with other competitors. Our exclusive designs and products would still be sold at our
authorized outlets .Furthermore to facilitate the customers, online shopping facility and door step
delivery of order will also be started by the introduction of BUY ONLINE option on our website
for that purpose we have acquired services of T.C.S for order delivery.

Product Review
Nishats product line is highly diversified where it sells bed linen to kitchen coordinates,
upholstery to apparel providing it significant positioning and penetration in the market to cater to
the customers who want a one-stop shop experience

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Nishats complete product line is as follows:

Nisha Clothing Line for women

Naqsh Clothing Line for men
Bed & Kitchen Linen and Accessories
Bed sheets
Bed spreads (regular/ bridal sets)
Kitchen (table linen, mats, table runners, bread boxes, aprons)
Cushions ((Zari, 6 piece sets, matched with bed sheets)
Fillings

Jai Namaz
Fashion Accessories
Laces
Bangles
Shawls & Stoles
Handbags
Clutches

Star:
Nishats Star unit, doubtless, is Nishat, their clothing line for women. It is a unit that sells
throughout the year and as quoted by the Manager of their Clifton outlet, Nisha sells at the same
rate even during times of recession. According to him, Nishat has experienced more profit
during recession because of continued high sales of their clothing line for women. Launched in

2004, Nisha grew by leaps and bounds and now stands alongside brands like Gul Ahmed,

It has been categorized as a Star product line of Nishat as the market for women fabric and
apparel is huge, ever growing and presents quite a lot of potential. It has a high market share due
to its exclusivity and quality that distinguishes it from its competition. As a consequence, it
requires heavy investment to support its image as a brand with an attitude.

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Cash Cows:
Nishats bed & kitchen linen and accessories can be categorized as the cash cows with which it
earns a healthy and steady cash flow throughout the year. Quilt Covers,Quilted Throw-over,

Flat Sheet, Fitted Sheet, Pillow Cases,Cushions,Valances,Curtains,Baby Sets,Table

Linen,EmbroideryThe market demand for bed and kitchen linen, though not dynamic, has always
been there with a sustained and limited potential for growth. Nishat, with its unique and
discerning image, has managed to capture a significant share of this slow-growing market,
relative to its competitors like Ideas by Gul Ahmed, Identity by Al-Karam and ofcourse,
ChenOne. Its bed linen is not only in high demand locally but is also one of its major imports.

Question Mark:
Naqsh, the clothing line of Nishat for men, can be categorized as its Problem Child or Question
Mark. Its a unit that hasnt shown much potential and as a result hasnt managed to gain as
much market share or generate as much cash as was expected and required of it. The market for
eastern wear for men has seen a rapid growth since the past few years and presents so much of
unexplored potential

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. With every designer coming up with an exclusive clothing line for men, Naqsh faces serious
competition from not only Gul Ahmed and Al-Karam but other market leaders such as Amir
Adnan, Junaid Jamshed and Rizwan Beyg etc. To survive in such a fiercely competitive and fast-
growing market, Naqsh requires heavy investments to hold its ground but hasnt managed to
succeed in gaining enough market shares as yet.

Dog:
Finally, fashion clothing of Nishat can be termed as Dog; unit with a low market share in a
moderately growing industry of accessories.

The demand for fashion accessories like hand bags, clutches etc, though has always been there,
but it does not have that much of a growth potential. With much of the investment being done in
the other three units, Nishat hasnt paid heed to this particular market offering. Known by the
masses as a brand for clothing and bed linen, only a niche segment of the market is aware of
Nishats accessories even when ingenuity and style is maintained here as well. Hence, this unit
generates just enough cash to maintain its market share.

Competitive Review
Fashion industry of Pakistan is develop on daily basis as it faces a series of continuous changes
in the market trends. Following the track of the fashion industry, females also have been
grooming alongside where the long ago held concept of a female happiness in kitchen has been
changed to a fashionable and modern individual who takes care of her grooming, her dressing
and her appearances. The customers are now focused on designs and how each would represent
and set off their image in the minds of their friends and relatives. These are the main areas of
concerns the customer face while choosing something to wear for themselves or even for their
families. With the endorsing of celebrities the competition in the market have increased

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manifolds as the customers are bombarded with commercials in which the major celebrities have
been endorsing their products.

Vision Statement
To transform the Company into a modern and dynamic yarn, cloth and processed cloth and
finished product manufacturingCompany with highly professionals and fully equipped to play a
meaningful role on sustainable basis in the economy of Pakistan.

Mission Statement
To provide quality products to customers and explore newmarkets to promote/expand sales of
the Company through good governance and foster a sound and dynamic team, so as
toachieveoptimum prices of products of the Company for sustainable and equitable growth and
prosperity of the Company.

SWOT Analysis for Nishat

STRENGTHS:
One of the first few brands to launch bed linen in Pakistan.
Strong product diversification.
Outlets in nearly every city of Punjab and three outlets in Karachi which is also the
business capital.
Catering all market segments except children.
Strong product development and most significantly according to all the seasons.
Affiliation with a professional designer Mahin Khan.
Organized records of customer database.
Valuable services to all its loyal and first time customers by offering discount cards and
membership cards.
Limited designs for both fabrics and linen are sold in the market for every season that
creates differentiation of their product.

WEAKNESSES
Nishat linen is not catering the middle and the lower income group that can be seen by
looking at the price range of their products:
Unstitched fabric: Rs. 2138 to 3150
Stitched fabric: Rs. 1400 to 5000
Bed Sheets: Rs. 1150 to 2950

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 Quilt Covers: Rs. 1800 to 5500
Nishat linen does not carry out exhibitions therefore customers have little knowledge
about their products with respect to their competitors.
Nishat linen has not been able to expand its market in Karachi due to high logistics cost
since their mill is in Faisalabad Punjab.
All the promotional strategies are focused on fabrics as it is their star product. Bed linen
gets little promotional campaign.

OPPORTUNITIES
Nishat linen can look to get affiliated with more diversified designers who are into
accessories as well.
Publish their own catalog for bed linen and fabric and put them at different book stores so
that customers have easy access to their designs.
Nishat can get into western clothing line which will give them an edge over their
competitors.
Their Lahore unit is manufacturing denim fabric for Levis which is of superior quality.
This gives an opportunity to Nishat to launch their own denim brand in the market.
They should look to open an outlet in an area like North Nazimabad where the market has
a lot of potential and people have the purchasing power as well.

THREATS
Strong promotional campaigns of competitors producing fabrics through exhibitions.
Fabric designs of their competitors are available at other retail stores as well where as
their fabrics are available at their outlets only.
Most of their bed linens is exported therefore the local market tend to suffer where as
their competitors like ideas and Chen One are more focused on the local market gaining
competitive advantage.
(TOPIC):Required Rate of Return (RRR)
The required rate of return is the minimum return an investor is willing to accept on an investment.
This rate is used in the calculation of the present value of future cash flows needed to evaluate the
investment options. So, we need to determine the required rate of return to be used in the decision.
We can always just pick a number. But, as financial professionals, we need to be a little more scientific
in our approach.

Three methods available for use in determining the required rate of return are the:

Dividend discount approach

Capital asset pricing model

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Weighted average cost of capital

Each of these methods use data to support the minimum rate of return and are considered rational.
The financial information on NESHAT MILLS and indexes available on Yahoo and Google are very
helpful. Indexes such as the Dow Jones Average or S&P 500 provide analysts with a broader market
view of performance. This broader view is helpful when comparing projects against the market
growth overall. A company could choose to invest in the market instead.

Net income Discount Approach

The profit discount formula uses the expected annual dividend of a stock, the stock price and a growth
factor to calculate the required rate of return. Sometimes referred to as the Gordon Growth model, it
estimates the return on an individual investment in the stock market. This rate can be used to
compare different investment opportunities. The growth factor is the anticipated increase in
dividends expected over the next year. We will estimate this growth using a five year trend.

To calculate this rate, we identify a stock and gather the dividend payout and the stock price. The
Southern Company is used in our analysis. It has a annual dividend payout of $2.24 on a stock price of
$48.47.

Below are the opening stock prices as of January 1 for the neshat Company. We will use this
information to estimate growth for the upcoming year by averaging the growth rate over the past five
years.

Year Beginning of Year End of Year Annual Growth

2012 $45.87 $42.34 -5.5%

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2013 $43.34 $41.34 -4.6%

2014 $41.13 $49.17 19.5%

2015 $49.19 $46.42 -5.6%

2016 $46.42 $49.15 5.9%

Avg Growth 1.94%

The stock price has a mixture of gains and losses. However, the company has consistently paid
dividends. Using this information above, the RRR is 6.7%. The example below shows the calculations.

Capital Asset Pricing Model

The capital asset pricing model (CAPM) also uses financial data from the neshat to help establish the
required rate of return. This model uses the return on a risk free investment, the expected rate of
return in the market and the Beta of a stock. The Beta is a measurement of the volatility of a security
compared to the mills. It's a measurement between -1 and 1. If the sneshat mills realizes a price
increase overall, a brand with Beta equal to minus one will decrease. However, if the Beta is plus one,
then the individual rate under analysis will increase in price along with the market. A Beta of zero
shows low volatility.

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We start by calculating the growth rate using an index to estimate the growth rate for a portfolio of
stocks. It provides a better estimate for the total market movement. I've chosen the S&P 500 over a 5
year period beginning in 2012. We will use the neshat Company's Beta of .02 in our calculation.

Year Beginning of Year End of Year Annual Growth

2012 $1,258 $1,426 13.4%

2013 $1,426 $1,845 29.4%

2014 $1,845 $2,058 11.5%

2015 $2,058 $2,082 1.2%

2016 $2,082 $2,251 7.5%

Avg Growth 12.6%

The return on a treasury bill is 1.98%, so let's set the risk free rate at 2%. Using this information, the
calculation for the RRR is 4.1%.

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 Return, and the Capital Asset Pricing Model

DATE CLOSING RETURN (Ka- KSE RETURN XY X

RATE (Ka) (Y) Kavg) INDEX (X)
2015 114.3 0 0.00% 34399 0 0 0
2014 111.92 0.83 0.01 29239.15 0.27 2.24E-05 7.35E-06
2013 94.21 1.09 0.02 36156.83 0.65 7.13E-05 4.28E-05
2012 47.58 0.24 0.00 36228.88 0.20 4.71E-06 3.97E-06
2011 50.34 1.58 0.03 36222.63 0.02 -2.72E- 3E-08
06
2010 43.12 -0.74 0.00 36084.67 0.38 2.8E-05 1.45E-05
3.00 0.07% 0.72% 0.000124 0.0000687

AVERAGE RATE OF RETURN

Kavg = Ka / n
= 3% / 19

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 = 0.005

STANDARD DEVIATION

= (Ka Kavg) / n
= 0.07% / 6
= 0.44

COEFFICIENT OF VARIATION

C.V = / Kavg
= 0.44 / 0.2563
= 1.71

BETA

Beta is a measure of the volatility, or systematic risk, of a security or

a portfolio in comparison to the market as a whole. Beta is used in

the capital asset pricing model (CAPM), which calculates the expected

return of an asset based on its beta and expected market returns. Beta is

also known as the beta coefficient.

RECOMMENDATIONS
Nishat Mills should focus towards understanding the changing needs of the
customer.

Nishat Mills in Pakistan should increase their branches

Nishat Mills should design and launch customized products

Nishat Mills should come up with online system only offers transfer payments from
one account to another easily for the cus

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References

http://www.nishatmillsltd.com/nishat/financial-highlightes.htm

http://www.nishatmillsltd.com/nishat/governance.htm

http://www.nishatmillsltd.com/nishat/pdf/annual14.pdf

http://www.nishatmillsltd.com/nishat/pdf/annual13.pdf

http://www.nishatmillsltd.com/nishat/pdf/annual12.pdf

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