The increase in price of electricity and appreciation of the rupee against the US dollar has dented the prospects of growth of one Ashfaq Textile Mills Limited (ATML) – a firm that was earning profits till last year despite the energy crisis.
The company’s net profit stood at Rs68.5 million in fiscal year 2012-13, coming down to Rs41.5 million in FY14 – a reduction of about 40% in a single year. Being listed at the Karachi Stock Exchange, ATML’s share prices came down from Rs20 to Rs14 in a year, while earnings per share (EPS) decreased from Rs2.26 to Rs1.19.
Exporting most of its products to the US and the European Union, ATML does business in grey, dyed and bleached fabrics. The company was performing well in previous years, with a steady rise in profit and production capacity every year. This year, ATML has started business in the domestic market.
“The major reason of the reduction in profits is overall slowdown in the market, rupee appreciation and sharp increase in utility prices by the government last year,” said ATML CEO Sheikh Ashfaq Ahmad.
He said appreciation of the rupee came at a time when the market was already slowing down, thus prompting an abnormal fall in sales as customers became shy to engage in future commitments. However, a strategic change to shift their sales to the domestic market helped the company stay afloat, he added.
Ahmad said despite a decline in profits, the company has increased the production capacity by installing 20 additional looms under a newly-constructed production shed. This increase would help reduce the cost per unit, he said.
Ashfaq said the domestic market was growing rapidly and the demand of woven fabrics was increasing. “We feel that a good mix of domestic and foreign market would help increase sales of the company and reduce risks of fluctuations,” he said.
Another reason of declining profits is revaluation of the rupee. The company gets payments with a gap of three months from its international buyers. They dispatched orders when the rupee-dollar parity was at Rs108 to $1 but when they received payments the parity had come down to Rs98-99 to $1.
The power crisis has increased their cost of doing business and hurt their ability to meet export orders as the alternate source of energy also became expensive with the 35% increase in power tariffs last year.