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Term Report
ID: 2006-01-11-6489
Letter of Acknowledgement
28th April 2010
I am really thankful to my Sir Mr. Maqbool-ur-rehman for his support and guidance
throughout the semester. Through his lectures and support we came across our
analysis of financial statement course.
Sincerely,
Mr. Maqbool-Ur-Rehman,
Professor,
Karachi.
Letter of Transmittal
Dear Mr. Maqbool-Ur-Rehman,
I am pleased to submit you the report about detailed analysis of Din Textile Mills
Ltd. as a term report of analysis of financial statements.
I hope that report is upto what you required. It contains all the related information
about the company and my detailed analysis.
Yours sincerely,
From the day of inception, Din Textile has been constantly striving to achieve
excellence and generate highest value for all its stakeholders. Today Din
Textile holds and unchallenged position at forefront industry, within the
country and overseas for its groundbreaking developments and innovative
products for exceeding customer expectations. This is a testimony to Din’s
unwavering commitment to total satisfaction of its customers.
Din Textile Mills Ltd. was founded in 1987 and in a very short time became an
icon for the spinning industry in Pakistan. With three state-of-the-art spinning
and 1 dyeing unit located in Chunian and Lahore having annual production
capacity of yarn 20.8 million Kgs and dyeing of Fiber and Yarn 2.8 million kgs.
With an annual turnover of Rs. 3.65 billion, today Din Textile mills Ltd.
employs over 2,200 employees. Din aims to create superior value for our
customer and stakeholders without compromising on commitments to safety,
environment, health, and other social responsibilities for the communities in
which we operate.
• Dyed Yarn
• Ply Yarn
• Slub Yarn
• Melange Yarn
• Gassed Yarn
Our export products include, 100% cotton yarn, 100% cotton Melange yarn,
Cone dyed yarn, Slub yarn and Core Spun Lycra yarn (Din Komfort) of the
highest quality, our export volume is $16 million and our main markets are
North America, South America, Western, Europe, Eastern Europe, Eastern
Asia, Southeast Asia, Middle East, Africa, Oceania.
TEXTILE SECTOR-
OVERVIEW
ABOUT THE SECTOR
World
Textile industry in the world is pretty much diversified. There are several
countries who have a share in this industry like China, Pakistan, Turkey,
South Korea, Indonesia, Bangladesh, Mexico, India, United States etc.
Although textile sector is in bad condition due to the recession but still its
growth rate is about 3% per annum.
In the Asia Pakistan, China, Bangladesh, South Korea and India are the main
countries which are famous for textile products. But at the moment China is
leading this sector and there is a tough competition in Asian countries for this
sector. China is excelling in this field due to its low rate natural and human
resources. Then South Korea, India, Bangladesh are some other strong
dealers. Mainly textile processing industries are in Asia. Pakistan is the eighth
largest country to produce textile goods.
Established Capacity
Contribution to Exports
Competitors
The share of textile industry in the economy along with its contribution to
exports, employment, foreign exchange earnings, investment and value
added makes it the single largest manufacturing sector for Pakistan. It
contributes around 8.5 percent to GDP, employs 38 percent of the total
manufacturing labor force, and contributes between 60-70 percent to total
merchandise exports. Indeed, with exports reaching about $8.6 billion in
2004-05, Pakistan is one of the largest textile exporters in the world.
In order to prepare the textile industry in the post quota regime the
government has set up a high level Federal Textile Board with Textile
Commissioner’s Organization serving as its Secretariat. The Board has been
entrusted the task of looking into the issues of clean cotton, labor, social and
environment laws, modernization of ginneries, rationalization of tariffs,
facilitation in sales tax issues and developing a package to promote garment
sector, especially by improving their competitiveness in international market.
TEXTILE POLICY
The government has announced its first ever national textile policy for
five years. It set the export target of $25 billion to be achieved within
next five years. The policy focuses on export promotion measures,
textile and other sectors instead of steps to increase production and
revive the ailing industry.
Existing challenges
Key initiatives
(e) The government would enact a law for the standardisation of value
chain to ensure production of quality products.
(i) It exempts the textile industry from load shedding and allows it
prioritised gas supply.
(j) The government has also subsidised the export refinance with a
reduced rate of 5 per cent and Rs2.5 billion allocation. The policy
allocates Rs5 billion relief on the existing long term loans of the textile
industry.
(k) It offers duty drawbacks of between 1 and 3 per cent for a two year
period for value-added textile exports to help the sector offset its
direct and indirect costs.
The policy stressed the need to have easy market access to the USA
and EU markets. The textile exports and its related items have already
badly hit from the ongoing global economic recession. It is estimated
that easy market access would increase our exports up to US$ 2
billion. It remained one of the key reasons for our low turn textile
exports.
Missing connection
(b) It kept silent about the massive flight of human and financial capital
from domestic textile industry towards more attractive and profitable
regional markets. Even the proposed LTTF facility has little to offer to
exporters/investors/borrowers.
Mixed reactions
Many termed the new national textile policy friendly and result-
oriented, while others labelled it without any clear-cut vision and
strategy to promote exports. Majority appreciated the allocation of
Rs.42 billion to support the different packages announced for the first
year of the policy. The textile manufacturers appreciating the policy
said it had laid down a basis for sound growth of textiles and clothing
sector of the country.
The textile machinery used in Pakistan is imported mainly from the countries
of Japan, Switzerland, Germany, China and Belgium. The technology that is in
use in the industry leaves a lot to be desired. It is necessary that the industry
undertake an up gradation in the technology used. Also, there is lack of
efficient R&D and training. The lack of R&D in the cotton sector of Pakistan
has resulted in low quality of cotton in comparison to rest of Asia. Because of
the subsequent low profitability in cotton crops, farmers are shifting to other
cash crops, such as sugar cane. In Punjab alone, the cotton area sown this
season was less by 1.14 percent as compared to the last year. Textile owners
argue that although the Cotton Vision 2015 targets 20 million bales till 2015,
it is an ambitious target as in reality cotton production is decreasing each
year. It is the lack of proper R&D that has led to such a state. They further
accuse cartels, especially the pesticide sector, for hindering proper R&D. The
pesticide sector stands to benefit from stunting local R&D as higher yield
cotton is more pesticide resistant. Another challenge is the high interest rate
as compared to India, China and Bangladesh. The Pakistan textile industry is
facing tough competition from the Indian, Bangladeshi and Chinese textile
industries. The cost of power in Pakistan is high as compared to that in other
countries. On account of these reasons, the Pakistan textile industry is going
through a critical condition.
Strengths:
Weaknesses:
11.Low Price Image
12.Lower marketing initiatives
13.Limited use of modern technology
14.Confusion in political / religious scenario
15.Low levels of managerial capabilities
16.More dependence on cotton
17.Poor infrastructure
18.Obsolete technology machinery and equipment used for manufacturing
19.Availability of raw material and inconsistent raw material prices
20.Unskilled labor (only 1% workers have certificate / diploma from
technical training institutions)
21.Absence of research and development culture
22.Lack of synergies between Govt. support institutions and practical
market.
23.Lack of standardization and quality control
24.Non-sophisticated marketing sense. (branding & grading)
25.Unorganized vendor base
26.Limited access to information (availability of finance, technological
know how & Govt. regulations)
27.Energy costs
28.20% Interest On Bank Loans
29.Tariff hikes of Gas
30.Tariff hikes of Electricity
31.Frequent Interruption in supply of electricity and Gas
32.High Freight Cost
Opportunities:
Threats:
42.Rising Cotton Prices
43.China and India being considered as countries for high value added
garments
44.Price Pressures
Financial Analysis
Liquidity ratios:
The current ratio for the company has been on the decline throughout the six
years in question. It was around 1.84 times in 2002, which fell to almost 0.95
times in 2009. This indicates that the company can pay off its current
liabilities from its current assets 0.95 times over in 2009, as compared to
1.84 times over in 2002.
The Payable Days refers to the number of days it takes the firm to pay its
bills. Payable days of ‘Din Textile Mills Ltd’ has decreased from 32 days in
year 2002 to 20 days in the year 2009. It means that the company is paying
off its liabilities in 12-13 days. Whereas industry averages show a payable of
52.6 days. Din Textile Mills Ltd is paying off their liabilities quickly and as
soon as possible. Too large a ratio can mean that you are becoming a bad
debt for your debtors, and too low a ratio could mean that you may run out of
cash when you need it for investment purposes at some point-opportunity
cost.
Efficiency ratios:
Receivable turnover basically depicts that whether the company is facing any
problems while receiving its collectible or not. Receivable turnover of the
company has decreased from year 2004 to year 2009. In year 2002 6.75
times whereas in year 2009 it dropped to 6.72 times. The higher the
receivable turnover the more efficient is the company whereas due to slight
decline in receivable turnover it depicts that company has lost its little
efficiency. Whereas when we compare the receivable turnover with the
industry which is 17.41 times, we come across that it is much higher and
industry is running at a very efficient pace and the crescent textile is not that
efficient.
Inventory turnover of the company has decreased in year 2009 to 6.45 times
whereas in year 2002 it was 7.79 times. This shows that efficiency of the
company has Decreased. Industrial average for inventory turnover is near
about to company’s average which is 7.7 times. Therefore in year 2009 Din
Textile Mills Limited has become a bit inefficient.
Efficiency of the company is showing good records in year 2009 as for the
reason of investment done by the company and additional input increment
made by the company as compared to average industrial ratios.
Solvency ratios:
The solvency ratio measures the size of a company's after-tax income,
excluding non-cash depreciation expenses, as compared to the firm's total
debt obligations. It provides a measurement of how likely a company will be
to continue meeting its debt obligations. Solvency ratios measure the
relationship between debts and owners equity and examine the proportion of
debt the company is using.
A debt ratio indicates what proportion of debt a company has relative to its
assets. The measure gives an idea to the leverage of the company along with
the potential risks the company faces in terms of its debt-load. In year 2002 it
shows that 37% of the debt were financed through the assets whereas
industrial ratio was comparatively lower in year 2002 and was about 54.76%.
In year 2009 debt ratio was 65% whereas industrial ratio showed the figure of
61.52%.
Long term debt to capital has increased in year 2009 as compared to 2002,
28% to 43% whereas industrial average ratios of these years are
comparatively higher.
Overall solvency has decreased which shows that company is being less
solvent and resulting in better position of the company.
Profitability ratios:
VERTICAL ANALYSIS:
A method of financial statement analysis in which each entry for each of the
three major categories of accounts (assets, liabilities and equities) in a
balance sheet is represented as a proportion of the total account. The main
advantage of analyzing a balance sheet in this manner is that the balance
sheets of businesses of all sizes can easily be compared. It also makes it easy
to see relative annual changes in one business.
HORIZONTAL ANALYSIS:
Considering balance sheet, total assets and liabilities have increased from
year 2005 which was 5.66% and in year 2009 its 57.9% which reflects that a
large number of assets have been acquired by the company in order to
generate revenues.
To achieve its VISION your management plans to speed-up its efforts towards
enhancing the performance of the company in future. In a tough business
environment and competitive times ahead the company is focusing on
lowering costs to achieve sustained profitability through growth in sales of
better product mix with improved margins. With all efforts on timely
execution of customers' orders and close monitoring of teams performance it
is hoped that financial position of the company will further strengthen to add
significant value for its shareholders.
To boost exports and improve foreign exchange reserves of the country the
Govt. had unveiled Textile Policy, 2009-14 on August 12, 2009 which aimed
at achieving US$25 billion textile exports in 05 years time against present
exports of US$10 billion. The policy envisages various measures and financial
package for the industry; which upon implementation will help in improving
performance of the Industry. Moreover, with improved cotton crop and stable
prices it is expected the industry will do better provided global recession
recedes earlier than expected.
The company has earned profit of Rs.9.81per share in the year 2009 as
against after tax proft of Rs.1.79 per share in previous year.
We give below the statement of Corporate and Financial Reporting framework
in compliance with Code of Corporate Governance:
a. Financial statements prepared by the management represent fairly and
accurately
company's state of affairs, results of its operation, cash flows and changes in
equity.
b. Proper books of accounts have been maintained.
c. Appropriate accounting policies have been consistently applied in
preparation of financial statements and accounting estimates are based on
reasonable and prudent judgment.
d. International Accounting Standards as applicable in Pakistan have been
followed in preparation of financial statements.
e. System of internal control is sound in design, has been effectively
implemented & being monitored continuously. On-going review will continue
in future for further improvement in controls.
f. The company has sound potentials to continue as going concern.
g. There has been no material departure from best practices of corporate
governance.