Nishat Chunian Ltd Core operations continue to face harsh days as figures remain depressing, cotton price cut may be a ray of revival During the 1QFY15, Nishat Chunian Limited (NCL) reported a net loss of PKR0.24bn, translating into a LPS of PKR1.19, against an EPS of PKR1.12 during 1QFY14. Due to NCL having a yarn dominated product line, the companys top-line inched up by a meager 3% YoY only, because of the downturn in the international demand. On the other hand, COGS went up by a higher 10% YoY, with every individual head moving northwards. With higher cotton yarn supply from the neighboring countries in an already oversupplied market, margins shrank with NCLs gross margin clocking in at 7.6% during 1QFY15, against 13.7% in the CPLY. Moreover, the high debt levels of the company alongside one-off reversal in other income & absence of dividend income also contributed towards a loss in 1QFY15. In the 4QFY14, NCL had posted a net loss of PKR0.58bn (LPS: PKR2.92), thus, despite the company incurring a loss during the 1QFY15, a recovery was sighted on gross level as NCL posted a gross margin of +7.6% in 1QFY15 versus -4.9% in 4QFY14. We believe that with the recent breaking down of the cotton prices, the company might top up its results from 2QFY15 onwards due to higher yarn margins. Although export numbers still dont look good for the spinners, some improvement is projected in the short term (considering an expected hike in the international demand on the back of Christmas). Furthermore, NCL is expected to recognize dividend income from its subsidiary of ~PKR657mn (final dividend of PKR2/share and interim of PKR1.5/share). With core operations set to remain under trial, we have a HOLD stance on the scrip with portfolio value contributing PKR31.2/share (after discount) to our target price. Research Taurus Securities Limited
Posted on: Wed, 03 Dec 2014 04:43:00 +0000
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