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Gadoon Textile Mills Limited registered a moderate revenue growth of 5% during the financial year ended June 30, 2023 compared to the previous year. However, the net sales of Rs57.99 billion in FY23 were the highest-ever. The company earned a gross profit of Rs6.16 billion in FY23, achieving a gross profit margin of 10.63%. The company attributed this rise in sales to the escalation in sales prices of yarn accompanied by the rupee devaluation.

In FY22, the company recorded net sales of Rs54.82 billion and a gross profit of Rs8.34 billion, constituting a gross profit margin of 15.21%. This showed that the gross profit margin declined in FY23 because of the rise in raw material prices, an increase in energy prices, mainly gas and electricity, and other conversion costs.

During FY23, high inflation influenced costs of raw material, conversion and finance costs, which increased the administrative expenses by 32.28% to Rs478.19 million from Rs361.49 million in FY22. In comparison to FY22, the profit-before-tax dropped 30.87% to Rs4.78 billion in FY23. Similarly, the profit-after-tax declined 42.4% to Rs3.29 billion in FY23 from Rs5.7 billion in FY22. As a result, the net profit margin dropped to 5.68% in FY23 from 10.42% in FY22. Therefore, the company’s earnings per share fell to Rs117.44 in FY23 from Rs203.84 in FY22.

Quarterly analysis

During the first two quarters of FY23, the company’s sales stood at Rs12.8 billion and Rs13.24 billion, respectively. Meanwhile, the company witnessed a substantial hike of Rs16.6 billion in the third quarter thanks to the increase in consumer demand and a hike in yarn prices. However, in the fourth quarter, the sales dropped to Rs15.24 billion.

Gadoon Textile Mills saw a continuous reduction in its gross profit from Rs2.1 billion in the first quarter to Rs850.7 million in the third quarter. However, this profit increased to Rs1.9 billion in the fourth quarter. As a result, the gross profit margin followed a similar pattern, reducing from 16% in the first quarter to 5% in the third quarter and increasing to 13% in the fourth quarter.  

The company’s administrative expenses grew from Rs105.15 million in the first quarter to Rs129.96 million in the fourth quarter. The company’s operating profit declined from Rs1.7 billion in the first quarter to Rs554.5 million in the third quarter. However, it increased to Rs1.6 billion in the fourth quarter. The company achieved the highest profit-before-tax of Rs1.57 billion in the first quarter, followed by Rs1.45 billion in the third quarter, Rs1 billion in the fourth quarter, and the lowest of Rs748.8 million in the second quarter.

However, the net profit showed variation over the quarters, with the highest of Rs1.24 billion in the first quarter to the lowest of Rs457.04 million in the fourth quarter. Similarly, the net profit margin dropped to 3% in the fourth quarter from 10% in the first quarter. The earnings per share stood at Rs44.42, Rs20.50, Rs36.22 and Rs16.31, respectively.

Liquidity ratios analysis

The current ratio measures a company’s ability to use its current assets to cover its short-term obligations. The current ratio below 1.2 shows the company’s inability to cover its short-term obligation. Gadoon Textile Mills' current ratios stood at 0.96, 1.02, 1.03 and 1.19 in 2018, 2019, 2020, and 2023, respectively, indicating risk to cover its obligations. However, in 2021 and 2022 the company remained safe as its current ratio stood at 1.31 and 1.47, respectively. Similarly, the quick ratio measures the company’s ability to cover its short-term obligations using its current assets.

The company’s quick ratio remained below 1 over these years, reflecting the risk to cover its obligations. The company’s cash to current liabilities ratio remained the same at 0.01 from 2018 to 2023, showing the company held lower cash than the current liabilities. Gadoon Textile Mills' cash flow from operations to sales ratio reduced from -0.03 in 2018 to -0.05 in 2023. The highest cash flow from operation to sales of 0.19 was recorded in 2021.

Credit: INP-WealthPk