Alltex shares jump 19% on sudden profit, 1% dividend

Illustration: TBS

Alltex Industries shares jumped 19.1% on Tuesday at the Dhaka Stock Exchange (DSE) as soon as the loss-making company reported profits for the October-December quarter alongside a meagre 1% cash dividend only for the general shareholders.

The troubled home textile exporter, which had been consistently incurring huge losses since 2017, posted Tk1.36 in earnings per share (EPS) for the second quarter of the current fiscal year, according to an unaudited financial statement.

The company made a good profit in the quarter thanks to orders that caused its turnover to go up significantly, Alltex explained to shareholders.

The quarterly profit was a surprise to many investors, as they were accustomed to seeing the listed company absorbing net annual losses equal to at least its paid-up capital in each of the last financial years.

The company's net asset value per share shrank to Tk5.87 in 2021 from Tk27.64 in 2016.

Also, the company on Tuesday announced that out of the quarterly profit it would pay a 1% interim cash dividend to its external shareholders. Sponsors and directors other than the Investment Corporation of Bangladesh would not avail of it.

Due to the dividend announcement, Alltex shares went free from the bourses' regular circuit breaker that was imposed to limit the stock's price movements within a maximum range of 10% in a day.

Opening with a big gap, the stock hit Tk22.9 per share in the morning and later closed at Tk20.6.

What went wrong?

Alltex Industries, founded by former lawmaker Engineer Afsar Uddin Ahmad in 1985, began exporting wider width home textiles in 1992 and went public in 1996.

It was being criticised for its struggle in business and reluctance in paying dividends. The latest interim cash dividend is only the fourth time the company has announced anything for its shareholders.

In the mid-2010s, its name began to appear in the parliament with the then finance minister unveiling the list of top 100 loan defaulters.

Alltex's Company Secretary Md Ziaul Huque told The Business Standard, despite a decline in competitive edge against the regional home textile exporters (especially Pakistani ones) in the developed markets, the company was continuing with its buyers at the expense of its bottom line.

Export competitiveness was hurt as Bangladesh fell behind amid almost no local cotton production, and also due to its reluctance in currency devaluation in line with the competitor countries, said the company secretary.

Also, Alltex suffered a gas supply shortage in the last decade, on top of the fact that its machinery went outdated.

Then came the added pains of the defaulted loans.

"However, each of the problems has been solved in the last two years," said Ziaul Huque.

Alltex's gas connection and machinery have been overhauled after the loans got rescheduled in early 2020, he added.

Factory overhauling was going on until the end of October 2021 and in September-October, the company even had to outsource its orders.

"It was good that the old and new foreign buyers were in a position to pay us a good price for the high-quality products we are manufacturing after the factory overhauling," Huque added.

Out of its Tk45.66 crore revenue for the first half (July-December) of the current financial year, Tk32.78 crore came in the October-December quarter, which was only Tk5.26 crore in the same three months of 2020.

The biggest surprise to investors was that its gross profit margin — the ratio of price and production cost — was roughly 50% in the October-December quarter.

The margin may be a curious case for the analysts who are worried about the company's financial capacity to clear a huge amount of bank liabilities payable in the short term.

Short term and long term loans still account for over Tk300 crore for the company.

Ziaul Huque believes, if the improved business can be retained, the loans should not be a problem in the long run.

Alltex has also built a separate shed in its factory premise in Rupganj, Narayanganj, for making non-leather footwear. It is going slow to import key machinery for the export-oriented facility in order to read the export markets better in the pandemic situation.