Artistic Denim Mills Limited

Artistic Denim Mills Limited (PSX: ADMM) was incorporated in Pakistan in 1992. The principal activity of the company is the manufacturing and sale of rope dyed denim fabrics, yarn, and value-added textile products.

Pattern of Shareholding

As of June 30, 2024, ADMM has 84 million shares outstanding which are held by 1033 shareholders. Directors, CEO, their spouse, and minor children are the major shareholders of ADMM with a stake of 81.11 percent in the company followed by local general public holding 16.33 percent shares of ADMM.

Artistic Properties (Private) Limited accounts for 1.68 percent shares of the company. The remaining shares are held by other categories of shareholders.

Performance Trail (2019-24)

ADMM’s topline dipped only in 2019 over the period under consideration.Conversely, its bottomline registered year-on-year decline in 2020 and 2024. ADMM’s margins which showed considerable growth in 2019, dipped in 2020 followed by a rebound in 2021. In 2022, gross margin fell while operating and net margins continued to tick up. ADMM’s margins staggeringly improved in 2023 followed by a drastic plunge in 2024. The detailed performance review of the period under consideration is given below.

In 2019, ADMM’s revenue shrank by 5.74 percent year-on-year to clock in at Rs. 7767.18 million. This was on the back of tamed demand and cut-throat competition in the export market. However, ADMM was able to drive up its gross profit by 12.16 percent year-on-year due to effective cost control measures and Pak Rupee depreciation which rendered export sales more valuable. GP margin also inched up from 9.61 percent in 2018 to 11.43 percent in 2019. Distribution cost inched up moderately by 7.78 percent year-on-year in 2019 due to rise in payroll expense, advertising expense, traveling expense as well as quality control charges. However, freight charge, which is the biggest component of ADMM’s distribution expense, nosedived in 2019 due to lackluster export sales. Administrative expense almost remained intact during the year despite the fact that the number of employees grew from 499 in 2018 to 504 in 2019, resulting in higher payroll expense. However, higher payroll expense was offset by a decline in legal & professional charges in 2019. Other expense magnified by 49.37 percent year-on-year in 2019 on the back of higher provisioning for WWF and WPPF. Other income posted a stunning 117.50 percent year-on-year growth in 2019 due to considerable exchange gain. Other income stood at 7 percent of sales in 2019 as against its share of 3 percent in 2018. Operating profit grew by 54.11 percent year-on-year in 2019 with OP margin of 13.74 percent as against OP margin of 8.40 percent posted in 2018. Finance cost rose by 20.93 percent year-on-year in 2019 due to high discount rate coupled with higher working capital requirements. ADMM’s debt-to-equity ratio flew from 65.5 percent in 2018 to 92.44 percent in 2019. Net profit posted 67.82 percent year-on-year growth in 2019 to clock in at Rs.866.82 million in 2019 with NP margin of 11.16 percent versus NP margin of 6.27 percent posted in 2018. EPS stood at Rs.10.32 in 2019 as against EPS of Rs.6.15 posted in 2018.

In 2020, the company’s sales were drastically affected due to COVID-19. The topline could only muster 2.23 percent year-on-year growth to clock in at Rs.7940.57 million. While revenue tamed down, cost of sales kept rising due to fixed cost and payment of full salaries and wages to the employees during the lockdown period. This shoved the gross profit by 29.45 percent year-on-year. GP margin also shrank to 7.89 percent in 2020. Distribution cost increased by 15.06 percent year-on-year despite low sales as freight and transportation charges increased due to supply chain impediments on account of COVID-19. Export development surcharge and clearing charges as well as travelling, boarding, and lodging charges also rose during the year. Administrative expense posted a marginal 6.68 percent year-on-year growth in 2020. Other expense and other income inched down during the year due to lesser provisioning for WWF and WPPF and lesser exchange gain, respectively. Operating profit plunged by 63.54 percent year-on-year in 2020 while OP margin slid to 4.90 percent. Finance cost grew due to higher working capital requirements and rising discount rate before the outbreak of COVID-19. ADDM’s debt-to-equity ratio soared to 122 percent in 2020. The bottomline slipped by 86.88 percent year-on-year in 2020 to clock in at Rs.113.69 million with NP margin of 1.43 percent. EPS fell to Rs.1.35 in 2020.

With topline growth of 23.58 percent year-on-year, ADMM made a strong comeback in 2021. Net sales clocked in at Rs.9813.18 million in 2021. This came on the heels of better product mix and aggressive marketing drives undertaken by the company during the year. Despite revision in gas tariff, increase in the price of raw cotton and severe supply chain issues in the winter season, gross profit magnified by 77.44 percent year-on-year while GP margin also greatly increased to 11.33 percent in 2021. A massive drop in travelling,boarding, and lodging charges kept distribution expense in check, which only grew by 3.97 percent year-on-year in 2021 despite high freight and transportation charges due to stronger export sales. Administrative expense grew by 17.14 percent year-on-year in 2021 due to higher fee and subscription charges. The value of Pak Rupee against the greenback rose from Rs.168 at the beginning of the year to Rs.152 in March 2021 resulted in exchange loss which escalated other expense by 127 percent. Other income didn’t turn out to be favorable either as it fell by 47.77 percent year-on-year in 2021 due to no exchange gain recorded during the year and a significant drop in profit on treasury call account. Despite growing expense, operating profit climbed up by 74.26 percent year-on-year in 2021 and OP margin improved to 6.91 percent. Finance cost grew by 74.26 percent in 2021 despite discount rate cuts as the company availed SBP’s TERF scheme for technological advancements and other value additions coupled with higher working capital requirements. Net profit boasted a tremendous year-on-year growth of 211.29 percent in 2021 to clock in at Rs.353.90 million in 2021 with NP margin of 3.61 percent. EPS stood at Rs.4.21 in 2021.

2022 was the year full of macroeconomic challenges; however, ADMM rose even stronger. Political uncertainty, record high inflation, rising discount rate, elevated energy and gas prices and deteriorating value of Pak Rupee, couldn’t suppress ADMM’s sales from growth which boasted staggering year-on-year growth of 72.63percent to clock in at Rs.16,940.23 million in 2022. Not only did the volume grow substantially, product mix and favorable Rupee/Dollar parity played its role in keeping the topline strong. However, depreciation of Pak Rupee coupled with increase in cotton prices, dyes and chemicals and other imported raw materials, sharp increase in ocean freight and gas tariff as well as shortage of gas which compelled the company to use diesel drove up the cost of sales by 73.52 percent year-on-year in 2022. ADMM’s gross profit mounted by 65.62 percent year-on-year in 2022 but its GP margin moved down to 10.87 percent. Higher ocean freight prices had an adverse effect on the distribution expense which grew by 38.45 percent in 2022. Administrative expense grew by 15.50 percentin 2022 which was in line with inflation and also because of higher payroll expense on account of workforce expansion. ADMM’s workforce stood at 667 employees in 2022 versus 619 employees in 2021. Other income tumbled by 36.61 percent in 2022 due to lower dividend income and no exchange gain recorded during the year. Other expense also slumped by 36.61 percent in 2022 due to absence of exchange loss. Operating profit grew by 91.12 percent year-on-year in 2022 while OP margin also moved up to 7.65 percent. Finance cost enlarged by 86.11 percent in 2022 due to multiple upward revisions in discount rate. ADMM also availed TERF scheme during the year and its working capital requirements also increased. The bottomline posted a healthy year-on-year growth of 84.87 percent in 2022 to clock in at Rs.654.25 million with NP margin of 3.86 percent. EPS ticked up to Rs.7.79 in 2022.

In 2023, ADMM’s topline grew by a paltry 0.78 percent year-on-year to clock in at Rs.17,072.74 million. This was mainly on account of Pak Rupee depreciation which coupled with effective cost control measuresdrove up GP margin to its highest level of 17.10 percent in 2023. Gross profit also grew by 58.58 percent year-on-year in 2023. Operating expenses grew on account of record-breaking inflation. 17 percent higher distribution expense incurred in 2022 was the consequence of elevated freight & transportation charges. Administrative expense also surged by 23.36 percent in 2023 due to higher payroll expense. This was despite the fact that ADMM squeezed its workforce from 667 employees in 2022 to 583 employees in 2023.Other expense moved up by 24.25 percent in 2023because of higher provisioning done for WWF and WPPF. Other income improved by 54 percent in 2023 due to higher scrap sales, gain on sales of fixed assets and also higher income from financial assets. This resulted in 76.75 percent higher operating profit recorded by ADMM in 2023 with OP margin of 13.42 percent. Finance cost escalated by 137.96 percent in 2023 due to elevated discount rate and higher long-term loan obtained during the year for the import of plant & machinery under SBP’s LTFF scheme. ADMM’s net profit climbed up by 62.11 percent in 2023 to clock in at Rs.1060.63 million with EPS of Rs.12.63 and NP margin of 6.21 percent.

In 2024, ADMM’s net sales grew by 21.89 percent to clock in at Rs.20,810.39 million. This was on account of favorable sales mix, higher sales volume, and upward revision in sales price. Despite robust topline, ADMM couldn’t sustain its GP margin on account of unabated hike in raw material prices, energy cost, spike in ocean freight charges due to Red Sea crisis and also higher conversion cost. Appreciation of Pak Rupee against the US Dollar also exerted pressure on the margins in 2024. Gross profit tumbled by 16.42 percent in 2024 with GP margin falling down to 11.73 percent. Distribution expense surged by 12.91 percent in 2024 due to improved sales volume and higher freight & transportation charges. Administrative expense also escalated by 9.47 percent in 2024, which was in line with soaring inflation. Payroll expense mounted during the year despite the fact that the company streamlined its workforce from 583 employees in 2023 to 564 employees in 2024. 37.90 percent lower other expense incurred during the year was the consequence of lower profit related provisioning. Other income strengthened by 59 percent in 2024 on account of unrealized gain recorded on the re-measurement of investments, higher profit recognized on treasury accounts and gain recorded on the sale of fixed assets. ADMM recorded 19.80 percent lower operating profit in 2024 with a thinner OP margin of 8.83 percent. Finance cost grew by 24.15 percent in 2024 due to higher discount rate and elevated working capital requirements. All these factors translated into 68.72 percent decline in ADMM’s net profit which stood at Rs.331.72 million in 2024 with EPS of Rs.3.95 and NP margin of 1.59 percent.

Recent Performance (9MFY25)

During the nine-month period of the ongoing fiscal year, ADMM recorded net sales of Rs.13,922.116 million, down 13.88 percent year-on-year. This was due to global inflationary pressure and economic slowdown which put pressure on demand. Escalating energy cost didn’t allow the cost of sales to drop by a comparable margin. This resulted in 53.74 percent thinner gross profit in 9MFY25 with GP margin falling down to 6.68 percent versus GP margin of 12.44 percent recorded in 9MFY24. Distribution expense inched up by 8.23 percent in 9MFY25 due to higher ocean freight rates. Inflationary pressure also drove up administrative expense by 18.51 percent in 9MFY25 by raising the minimum wage rate. ADMM recorded 93.66 percent lower other expense in 9MFY25, seemingly due to no profit related provisioning booked during the year. Other income ticked up by 1.42 percent in 9MFY25 allegedly due to gain on the sale of fixed assets. Operating profit dwindled by 69.76 percent in 9MFY25 with OP margin falling to 3.40 percent versus OP margin of 9.69 percent recorded in 9MFY24. Finance cost slid by 49.34 percent in 9MFY25 on the back of efficient working capital management and lower discount rate. ADMM recorded net loss of Rs.222.40 million with loss per share of Rs.2.65 in 9MFY25. This was against the net profit of Rs.316.20 million and EPS of Rs.3.76 in 9MFY24.

Future Outlook

Over the years, the company has been able to increase stronger volumes by tweaking its sales mix and pricing.However, higher cost of sales, elevated freight & shipping charges and taller finance cost are diluting its margins and profitability. Ruthless tariff imposed by the US government has also put downside pressure on Pakistani textile exports. The company not only needs to sustain its volumes by tapping new geographical markets but also undertake cost optimization and effective capital management to enable its sales to produce a trickledown effect on its profitability and margins. The commissioning of 2.32 MW solar power plant is a leap in the right direction and will cut down the company’s energy cost. Discount rate cuts will also prove to be beneficial for the company’s margins and profitability.

Copyright Business Recorder, 2025