GADOON TEXTILE'S 50% CASH DIVIDEND

Prospects seems bright after the announcement of the textile packages and once additional spindles become operative

By SHABBIR H. KAZMI
Dec 07 - 13, 1996

Gadoon Textile Mills is among the few spinning companies listed at Karachi Stock Exchange which have remained favourite buy for the investors in spite of general recession in the world markets and particularly in textile industry in Pakistan. The sales of the company have grown over the years which were Rs. 991 million in 1994, Rs. 1.289 billion in 1995 and were over Rs. 1.486 billion for the year ending September 30, 1996. The sales are expected to be higher in 1997 as an additional 15,360 spindles become operational. With the addition of these spindles and award of 25% concession in the custom duties and sales tax on the import of raw materials the prospects of acieving better results are bright.

PROFITS

Similarly, the pre-tax profit which was Rs. 119 million in 1994 increased to Rs. 183 million in 1995 and crossed Rs. 202 million in 1996. The reasons attributed for the growth were effective marketing, better administrative control and prudent use of financial resources.

The efforts of the management were reflected in a marginal decrease in cost of sales, administrative and selling expenses which came down from Rs. 17 million in 1995 to Rs. 12 million in 1996. However, the other income of the company was reduced to slightly more than Rs. 1.2 million as against nearly 7 million rupees in 1995.

The other factors affecting the pre tax profit were, the financial charges which swelled from Rs. 7.9 million to over Rs. 13 million but the increase in miscellaneous charges was out of proportion registering nearly 13.5 times increase over 1995.

Gadoon Textile Mills has declared 50% cash dividend for the year ended September 30, 1996 as against 15% cash dividend for 1995. The dividend yield works out to be10.6%. The company has also declared 20% interim dividend for the year ending September 30, 1997.

The company produces blended yarn and should benefit from the recently announced two textile packages which will help in reducing the cost of inputs.

One of the biggest problems attributed to the poor performance of the spinning sector is concentration in few but coarse counts. However, all those companies which produce higher counts or blended yarn are able to earn better margins.

The dividend payouts by Gadoon Textile have been not only regular in the past but have surpassed almost all the results announced in the sector so far. The spinning sector does not normally payout cash dividend despite making good profits. However, most companies, even if they earn profit acnnot declare dividends as they have huge accumulated losses or do not earn profits at all.

Gadoon has been able to take advantage of its local area-specific incentives i.e. exemption from payment of import duties, sales tax and corporate tax. Supply of utilities at discounted rate has also helped the company to built up reserves.

The paid-up capital of the company is Rs. 234.375 million and upto September 30, 1995 it has managed to accumulate reserves to the tune of over Rs. 463 million.