Shahzad Textile Mills Limited ('Shahzad Textile' and 'the Company') is a public listed company incorporated in 1979 under the Companies Ordinance 1984 (now called the Companies Act 2017).

Late Mian M. Aslam entered in the business arena by setting up spinning units and a jute mill. M. Aslam also held stakes in textile and other ventures operating under the umbrella of Sargodha Group. Later, as the ownership split, Shahzad Textile, Shaheen Cotton (that was later merged with and into the Company) and Sagodha Jute Mills was handed over to Mian Parvez Aslam and passed on to his son (third generation) Mian Imran Aslam.  

The Company operates three spinning units with a current capacity of 70,428 spindles. Unit #1 focuses on PV yarn, while Unit #2 produces polyester cotton yarn. Unit #3 has been replaced with a sock manufacturing unit housing 197 knitting machines. The Company requires ~4.7MW of energy, which is met through a mix of ~8.9MW of renewable (solar) and LESCO's connection (sanctioned limit: 7.2MW).

Mr. Imran Aslam along with other family members owns the majority (~78.55%) stakes in the Company. ~5.67% of the shareholding in the Company is held by corporates. The remaining ~15.78% is distributed among local and foreign investors and institutions.

The fourth generation of the Aslam family has joined the business. Although, there is no formal succession plan but the shareholding and operational roles are equally divided between the sponsors, Mr. Imran Aslam and Mr. Irfan Aslam.

The sponsors hold decades of related experience and have witnessed numerpous business cycles. This bodes well for the overall decision making process for the Company. 

Mr. Imran Aslam holds ~28% shareholding in Sargodha Jute Mills Limited. Other than that, on a personal level, he is an active investor in real estate and the stock market. This portrays adequate financial muscles of sponsors to support the Company, if the need arises.

The overall control of the Company vests in a seven-member Board. The Board comprises two Executive Directors, three Non-Executive Directors, and two Independent Directors, including a Female Director. The Board holds independence and gender diversity that benefits the decision making process.

Mian Parvez Aslam, the Chairman, carries with him over four decades of experience and has been associated with the Board since inception. He looks after the policies and other operational issues of the Company and guides his valuable experience in times of need.

The Board is assissted by two committees: Audit and HR & Remuneration Committee (HR&R). The Audit Committee meets quarterly to approve financial statements prior to Board meetings. HR&R meets at least once in a financial year and may meet more often if requested by the Board. Meanwhile, the Director's attendance has remained strong and meeting minutes have been formally recorded.

The External Auditors of the Company, M/S. Crowe Hussain Chaudhury & Co., Chartered Accountants, an 'A' category QCR-rated firm, has expressed an unqualified opinion on financial statements for the period ended FY24.

The Company's organizational structure is divided into two main divisions: Head Office and Mills. All departmental Heads report directly to the CEO, who then reports to the BoD. However, the Head of Internal Audit and HR reports administratively to the CEO and finctionally to the respective Board Committee. 

Mr. Imran Aslam heads the Company as the CEO. He is supported by a team of experienced professionals, including Mr. Imran Haider, who is the CFO of the Company. Mr. Imran Haider has been associated with the Company for almost a decade while having an overall two decades of experience. The senior management has over a decade of relevant experience with a long association with the Company.

Management's decision making process is managed through monthly meetings of all departmental Heads. Performance reviews of all units are conducted during these discussions. However. there is no formal management committe in place.

The Company has in place oracle Oracle-based local ERP system by the name of Wizmen. The Company maintains adequate IT infrastructure and related controls.

The Company places emphasis on the sustainable quality of yarn. For this, it is compliant with the latest version of ISO 9001-2008 Certification. The Company has placed an in-house internal audit funtion to monitor the policy formation and implementation process. This bodes well for the Company.

Pakistan's spinning industry is highly fragmented and consists of ~368 dedicated spinning units with an estimated size of ~PKR 895bln and ~13.4mln spindles installed as of FY24. The projected cotton production estimate is revised and forecasted to be ~10.9mln bales, and as of 3MFY25, the production has reached up to ~1.4mln bales, which is ~12.8% of the projected production. During FY24, better local raw cotton yield supplemented the industry for import substitution, with domestic production of ~8.4mln bales constituting ~75.5% of the total supply. In comparison, imports shrunk to ~10.8% of the total supply (~1.2mln bales). In FY25, the transition from the final tax regime to the normal tax regime is set to impact the profitability matrix of export-oriented units, with a 29% tax on profits and a super tax of up to 10%. The consistent decline in policy rates over the last two quarters, along with the anticipation of further reductions, is expected to provide a cushion in the financial metrics of the industry.

During FY24, the Company’s Yarn production capacity stood at ~41,733 MT with the production amounting to ~36,047 MT at a utilization of ~86.4%. Similarly, the Company’s production capacity of Socks stood at ~28.8mln pairs, with the production amounting to ~14.6mln pairs at a utilization of ~50.7%. Consequently, when considered independently, the Company holds a minimal presence in the local market, accounting for just ~1.5% of the market share based on yarn production.

During FY24, the Company experienced an increase in revenue, rising by ~31.15% to ~PKR 11,015mln, predominantly due to value-driven growth. (FY23: ~PKR 8,399mln). The increase in revenue resulted primarily from the local sale of Yarn and the export of Socks. Yarn sales constituted most of the Company's revenue, accounting for ~90% of the total, and export revenue contributed ~10% to the total revenue. During 6MFY25, the Company's revenue increased by ~10.54%, reaching ~PKR 5,464mln compared to ~PKR 4,943mln during 6MFY24. Similarly, during 6MFY25, the Company sold most of its inventory locally, with export sales contributing ~13.44%.

During FY24, the Company encountered an improvement in the gross margin to ~4.7% from ~2.8% during FY23. This incline was primarily attributed to the significant increase in sales which outperformed the increase in cost of goods sold. Consequently, the Company's operating margins increased to ~0.8% from ~ -2.0% during FY23. This trickle-down effect impacted the Company’s net profitability during FY24, resulting in a loss of ~PKR 99mln, a significant improvement from the loss of ~PKR 269mln recorded in FY23. This upward trend in profitability culminated in a negative net margin of ~ -0.9% compared to the net margin of ~3.2% during FY23. During 6MFY25, the Company experienced an incline in its gross margin, which increased to ~5.0% from ~4.3% during 6MFY24. This improvement in gross margin led to an operating margin of ~0.5%, compared to ~0.0% in 6MFY24. As a result, the Company recorded a net margin of ~-0.3% due to a net loss of ~PKR 19mln, in contrast to a loss of ~PKR 90mln during 6MFY24.

The Company is planning to enhance penetration in current export avenues. The management has deferred the expansion plan of socks segments from 197 to 300 knitting machines, costing around PKR 400mln, and envisions to operate the already installed capaicty of the socks segment at an optimal capacity, going forward. This, if managed well, is expected to support the Company's overall performance. Moreover, as policy rates have reduced along with controlled inflation, the Company's business risk profile, including margins, may gradually pick up.

The Company meets its working capital requirements primarily through internally generated cash flow and short-term borrowing. As of FY24, the net working capital cycle days decreased to ~28 days (FY23: ~42 days). This reduction was attributed to reduced inventory days (FY24: ~24 days, FY23: ~32 days) and trade receivable days (FY24: ~9 days, FY23: ~15 days), highlighting effective inventory management and quicker receivable collection. On the other hand, trade payable days remained stable ~5 days over the period. As of 6MFY25, the net working capital cycle days increased to ~35 days, compared to ~32 days at 6MFY24. This increase was primarily attributed to an increase in inventory days to ~33 days from ~29 days at 6MFY24. Trade receivable days remained stable at ~9 days over the period, with trade payable days increasing slightly to ~7 days (6MFY24: ~5 days). Additionally, the Company's trade assets are reporting an incline over the period with an increase of ~17% to ~PKR 1,474mln, up from ~PKR 1,263mln in FY23, with this trend continuing over the half year (6MFY25: ~PKR 1,976mln, 6MFY24: ~PKR 1,448mln). Moreover, the short-term trade leverage decreased to ~44.7% from ~56.4% in FY23. This indicates the Company's effective management of its working capital and trade assets to support its operational needs and financial stability.

In FY24, the Company's FCFO improved to ~PKR 62mln (FY23: ~-PKR 168mln) due to a profit before tax of ~PKR 82mln as compared to a loss before tax of ~PKR 188mln as of FY23. Similarly, the interest coverage improved to ~0.3x (FY23: ~-1.3x), mainly attributable to positive FCFO. The Company's debt coverage also improved to ~0.2x (FY23: ~-0.5x). As of 6MFY25, the FCFO of the Company declined to ~24mln (6MFY24: ~32mln) attributable to increased tax paid (6MFY25: ~PKR 100mln, 6MFY24: 47mln). Consequently, the interest coverage decreased slightly to ~0.3x (6MFY24: ~-0.4x) with the debt coverage declining to ~0.1x (6MFY24: ~-0.2x)

The Company maintains a low-leveraged capital structure. As of FY24, the Company reported a slightly lower debt-to-capital ratio of ~21.2% (FY23: ~22.4%) due to an increase of ~10.5% in the Company’s equity (FY24: ~PKR 3,327mln, FY23: ~PKR 3,011mln) primarily caused by revaluation gain (FY24: ~PKR 1,245mln, FY23: ~PKR 838mln). On the other hand, as of 6MFY25, the Company reported a leverage ratio of ~27.4% (6MFY24: ~25.9%), with the total borrowings increasing to ~PKR 1,247mln (6MFY24: ~PKR 1,022mln). The Company's borrowing portfolio primarily consists of short-term borrowings (~70.6%) with long-term borrowings and current maturity of long-term debt, each constituting ~14.7% of the borrowing portfolio. Lastly, the Company's equity increased to ~PKR 3,327mln (FY23: ~PKR 3,011mln) due to revaluation gain inflating the reserves to ~PKR 1,245mln (FY23: ~PKR 838mln). As of 6MFY25, the Company's equity was reported at ~PKR 3,308mln.