Indus Dyeing & Manufacturing Company Limited (PSX: IDYM) was incorporated in Pakistan as a public limited company in 1957. The company is engaged in the manufacturing and sale of yarn.

Pattern of Shareholding

As of June 30, 2024, IDYM has a total of 54.221 million shares outstanding which are held by 2099 shareholders. Directors, CEO, their spouse and minor children have the majority stake of 57.18 percent in IDYM followed by general public holding 34.34 percent shares.

Mutual funds account for 3.17 percent shares of IDYM while financial institutions and insurance companies hold 2.82 percent and 2.47 percent shares respectively. The remaining shares are held by joint stock companies.

Historical Performance (2019-24)

IDYM’s topline has postedshowing steady growth over the period under consideration except for a downtick recorded in 2023. The bottomline plunged in 2020, 2023 and 2024. The margins grew in 2019 followed by a decline in 2020. In the subsequent two years, the margins significantly recovered and boasted their optimum level in 2022. In 2023 and 2024, the margins drastically ebbed. The detailed performance review of the period under consideration is given below.

In 2019, IDYM’s topline grew by 12.8 percent year-on-yearto clock in at Rs. 24,926.29 million. This came mainly on the back of local sales which grew by 47 percent year-on-year in 2019. Conversely, export sales slid by 4 percent year-on-year. While export sales greatly dropped in terms of volume, Pak Rupee depreciation provided an ample support. As of 2019, 57 percent of IDYM’s sales revenue comprises of export sales.

The major export destination of IDYM was China followed by Turkey which collectively account for 73 percent of the total export sales worth Rs.14,242 million in 2019.

The company produced 52,690 tons of yarn in 2019, depicting 4.8 percent year-on-year growth. While Pak Rupee depreciation buttressed the export sales by providing exchange gain, it produced negative impact on the cost of sales which rose by 12.5 percent in 2019. Gross profit grew by 15.7 percent year-on-year in 2019 with GP margin showing a marginal uptick from 10.57 percent in 2018 to 10.84 percent in 2019.

Other income posted a tremendous 124.60 percent year-on-year rise in 2019 owing to duty drawback as well as unrealized gain on the revaluation of foreign currency debtors. Distribution expense almost remained intact during the year while administrative expenses grew up by 22.72 percent year-on-year in 2019 on account of higher salaries and wages followed by directors’ remuneration other than the meeting fees.

IDYM’s number of employees increased from 2553 in 2018 to 2668 in 2019. Other expense went up by 6.68 percent year-on-year in 2019 due to higher provisioning done for WPPF as well as unrealized loss incurred on revaluation of foreign currency loans. Operating profit ascended by 35.74percent year-on-year in 2019.

OP margin clocked in at 9.95 percent in 2019 versus OP margin of 8.27 percent recorded in 2018. Finance cost grew by a massive 62.83 percent year-on-year in 2019. This was because of increase in discount rate during the year coupled with higher short-term and long-term financing requirements.

The bottomline multiplied by 25.1 percent year-on-year in 2019 to clock in at Rs.1724.25 million with NP margin of 6.92 percent versus NP margin of 6.24 percent recorded in 2018. EPS jumped from Rs. 76.28 in 2018 to Rs.95.40 in 2019.

In 2020, the local and global economies were struck by COVID-19. IDYM’s topline posted 8.63 percent year-on-year growth to clock in at Rs.27,076.26 million. This is the lowest topline growth recorded by the company among all the years under consideration. Production dropped by 10 percent to clock in at 47,285 tons on account of lower demand. While revenue from export sales continued to rise in 2020 because of Pak Rupee depreciation, local sales revenue dropped by 14.5 percent year-on-year in 2020.

Export sales stood at 66 percent of IDYM’s total sales mix in 2020. Cost of sales inched up by 11.80 percent year-on-year in 2020 which trimmed down the gross profit by 17.44 percent year-on-year.

GP margin dropped to 8.24 percent in 2020. Other income slumped by 69.56 percent year-on-year in 2020 owing to lesser duty drawbacks and lesser unrealized gain on the revaluation of foreign currency debtors. Distribution expense climbed up by 8.91 percent year-on-year in 2020 due to hike in export charges while administrative expenses shrank by 2.60 percent in 2020 due to significant reduction in salaries and wages as well as directors’ remuneration during the year.

During the year, IDYM reduced its number of employees to 2473 which excludes the daily wage employees. Other expense slid by 37.28 percent year-on-year in 2020 due to lesser provisioning for WPPF and lesser exchange loss.

All these factors culminated into 34.37 percent year-on-year drop in operating profit. OP margin posted a steep fall to clock in at 6 percent in 2020. Finance cost tumbled by 11.52 percent year-on-year in 2020 due to significant drop in short-term borrowings due to lesser working capital requirements on account of low demand. Discount rate also started ticking down in the last quarter in 2020.

Despite contained operating expense and finance cost, bottomline contracted by 44.45 percent year-on-year in 2020 to clock in at Rs.957.87 million with NP margin of 3.54 percent. EPS dropped to Rs.53 in 2020.

In 2021, Pakistan’s textile industry profoundly recovered from the shocks of COVID-19. IDYM’s topline posted year-on-year rise of 22.12 percent in 2021 to clock in at Rs. 33,065.36 million. This came on the back of improvement in both local and export sales. Production increased to 48,452 tons in 2021.

Disturbances created by COVID-19 in India and Bangladesh rendered them unable to meet their orders which proved to be a plus point for IDYM as it was able to grab additional orders in the export market.

Stronger Pak Rupee controlled the cost of sales to a great extent and resulted in a striking 122.16 percent year-on-year growth in gross profit in 2021 while GP margin climbed up to 15 percent. Other income also posted a considerable rise of 140.46 percent year-on-year mainly on account of discounting of GIDC followed by exchange gain on forward contract booking.

Distribution expense grew by 27.60 percent year-on-year in 2021 due to higher freight charges. Administrative expenses also posted 6.40 percent year-on-year rise due to market induced rise in salaries and wages. Higher provisioning for WPPF pushed other expense up by 58.78 percent in 2021.

Operating profit boasted a robust 171.79 percent year-on-year growth in 2021 while OP margin clocked in at 13.38 percent which was more than double of the OP margin recorded by IDYM in the previous year.

Despite monetary easing in 2021, finance cost grew by 54.18 percent year-on-year due to increased borrowings. The bottomline grew by a massive 235.36 percent year-on-year in 2021 to clock in at Rs.3212.30 million with NP margin of 9.71 percent. EPS grew by 11.8 percent to Rs.59.24 as the paid up capital of IDYM increased in 2021 owing to the issuance of 200 percent bonus shares during the year.

With 49.6 percent year-on-year topline growth, 2022 stood out among all the years under consideration. IDYM’s net sales were recorded at Rs.49,461.12 million in 2022. The company produced 50,701 tons of yarn during 2022. Due to drastic depreciation of Pak Rupee, revenue from export sales almost doubled during the year while local sales drastically shrank during the year due to slower economic activity and tamed demand within the country.

Export sales constituted 85 percent of IDYM’s sales mix in 2022. Due to heavy floods in the southern region of the country, the local cotton produce badly suffered and the reliance on imported cotton pushed the cost of sales up by 39.10 percent year-on-year in 2022. Despite surging cost of raw materials, robust export proceeds culminated into 109.10 year-on-year growth in gross profit, however, GP margin ascended to 20.95 percent in 2022– the highest among all the years under consideration.

Other income slipped by 40.94 percent year-on-year in 2022 because of discounting of GIDC in the previous year. Distribution expense grew by 34.93percent year-on-year in 2022 due to higher ocean freight charges. Administrative expense also ticked up by 7.26 percent year-on-year in 2022 due to high inflation.

Other expense grew by 175.84 percent year-on-year in 2022 due to realized exchange loss and high provisioning for WPPF due to high profitability. Operating profit multiplied by 104.41 percent year-on-year in 2022 with OP margin ascending to 18.29 percent. Finance cost posted year-on-year growth of 49.21 percent in 2022 due to multiple rounds of monetary tightening in 2022. Despite high finance cost, bottomline grew by 139.31 percent year-on-year in 2022 to clock in at Rs.7687.32 million with NP margin of 15.54 percent. EPS also grew to Rs.141.78 in 2022.

The exciting growth pattern boasted by IDYM in 2021 and 2022 seems to have reversed in 2023. During the year, IDYM’s topline plunged by 0.3 percent year-on-year to clock in at Rs. 49,318.54 million. This was due to stagnant demand in the international market. Export sales were recorded at Rs.30,234.443 million in 2023, signifying a drastic drop of 27.8 percent year-on-year.

Local sales registered an increase of 152.92 percent year-on-year in 2023 and stood at 38 percent of IDYM’s total sales mix. Due to sluggish demand, the company’s production dropped to 47,878 tons in 2023, down 5.57 percent year-on-year. Due to considerable shrinkage in local cotton production, the company had to rely on imported cotton. Pak Rupee depreciation significantly increased the prices of imported raw materials.

Moreover, import restrictions and delays in the retirement of Letters of Credit created immense supply chain impediments for the company. Hike in electricity tariff from Rs.19.99 per kWh to more than Rs.40 per kWh also drove the cost of sales up. Gross profit shrank by 64.49 percent year-on-year in 2023 with GP margin falling to 7.46 percent.

Other income provided some support as it inched up by 22.56 percent year-on-year in 2023 on account of hefty dividend income and amortization of deferred government grant. Distribution expense dropped by 18.51 percent year-on-year on account of lesser ocean freight charges as export orders dwindled in 2023.

Conversely, administrative expense grew by 24.33 percent year-on-year on account of elevated payroll expense and directors’ remuneration. In 2023, IDYM also expanded its workforce to 2538 employees. Other expense plummeted by 46.40 percent year-on-year in 2023 on account of lower provisioning done for WPPF.

Operating profit declined by 69.53 percent year-on-year in 2023 with OP margin drastically falling down to 5.59 percent. Increased borrowings to meet working capital requirements coupled with high discount rate translated into 77.80 percent year-on-year rise in finance cost in 2023. Consequently, bottomline contracted by 90.80 percent to clock in at Rs.707.95 million in 2023 with EPS of Rs.13.06 and NP margin of 1.44 percent.

In 2024, IDYM’s topline multiplied by 37.29 percent year-on-year to clock in at Rs.67,707,78 million. This was on account of a tremendous rise of 35.95 percent in revenue from export sales. Local sales revenue also posted 24.72 percent growth during 2024. Export sales comprised of 66.31 percent of IDYM’s net sales revenue in 2024.

Cost of sales escalated by 39.42 percent in 2024 due to high cost of raw materials, Pak Rupee depreciation and hike in energy tariff. Gross profit picked up by 10.80 percent in 2024 while GP margin dropped to its lowest level of 6 percent. Distribution expense hiked by 40.27 percent year-on-year during 2024 due to escalation in freight charges and export charges as export sales continued to mount.

China continued to be the major export destination of IDYM with a share of 50.26 percent in the company’s export sales. Administrative expense also registered 17.13 percent spike in 2024 due to higher payroll expense on account of inflationary pressure and workforce expansion.

IDYM’s workforce grew from 2532 employees in 2023 to 2858 employees in 2024. Other income slid by 50.68 percent in 2024 due to considerably lower dividend income and no exchange gain recognized during the year.

IDYM booked lesser provisioning for WPPF in 2024 which together with lesser exchange loss culminated into 85 percent lower other expense recorded in 2024.

Operating profit picked up by 8.92 percent year-on-year in 2024 with OP margin slipping to 4.43 percent. Finance cost mounted by 63.50 percent in 2024 due to higher discount rate. This was despite the fact that the company discharged a reasonable portion its outstanding liabilities during the year. This resulted in gearing ratio falling down from 41 percent in 2023 to 37 percent in 2024.

Net profit slid by 89.69 percent to clock in at Rs.72.995 million in 2024. This translated into EPS of Rs.1.35 and NP margin of 0.11 percent.

Recent Performance (1HFY25)

During the first half of the ongoing fiscal year, IDYM’s net sales slumped by 8.92 percent to clock in at Rs. 33,342.19 million.

During the period under consideration, the company’s local sales strengthened by 108.19 percent to clock in at Rs.24,925.220 million. Conversely, its export sales dwindled by 66.33 percent to clock in at Rs.8,328.644 million. One of the reasons for tamed export sales during 1HFY25 was no indirect exports made during the period.

While improved indigenous macroeconomic indicators provided impetus to local sales, global recession, stronger Pak Rupee and higher cost of sales rendered the company’s products uncompetitive in the international market. Cost of sales dipped by 6.68 percent in 1HFY25, resulting in 39.41 percent diminution in gross profit with GP margin ticking down to 4.55 percent versus GP margin of 6.84 percent recorded during the same period last year.

Lesser export sales resulted in 18.90 percent decline in distribution expense in 1HFY25. Administrative expense also shrank by 5.64 percent in 1HFY25 probably because of lesser payroll expense due to curtailed operations. Other income improved by 55.80 percent in 1HFY25 apparently due to exchange gain.

Other expense dipped by 48.79 percent seemingly because IDYM did lesser provisioning for WPPF. the company recorded 36.37 percent thinner operating profit in 1HFY25 with OP margin slipping to 3.84 percent from OP margin of 5.50 percent recorded in 1HFY24. Finance cost contracted by 40.86 percent in 1HFY25 due to lower discount rate although short-term borrowings radically increased during the period.

IDYM’s bottomline eroded by 78 percent to clock in at Rs.105.91 million in 1HFY25. This translated into EPS of Rs.1.95 in 1HFY25 versus EPS of Rs.8.91 recorded in 1HFY24. NP margin also fell from 1.32 percent in 1HFY24 to 0.32 percent in 1HFY25.

Future Outlook

The future poses myriad challenges for the textile industry on the back of tameddemand in the global market due to recession, hike in energy prices, unavailability of natural gas and low local cotton output. Internationally, cotton prices have dropped by 16 percent, however, local cotton prices surged by 1 percent due to shortage. This might result in surge in import of yarn which will be damaging for the local manufacturers.