Most spinning mills enjoy profitability improvement

Leaving behind the years of squeezing profit margin amid low prices against increasing costs, spinning mills nowadays are enjoying high profits since the global economic reopening a year ago.

The top-tier spinning mills listed on both Dhaka and Chattogram bourses are posting stellar growth in their profits as the price they are enjoying has outgrown their costs amid an increase in sales, especially for the spinners who produce comparatively higher value yarns.

Matin Spinning Mills, a concern of DBL Group, posted 212% year-on-year growth in its quarterly profits for the July-September quarter this year.

Its quarterly earnings per share stood at Tk2.68 for the first quarter of the current fiscal year, which was Tk0.86 in the corresponding period of the previous year.

The profitability cycle began a year ago when Bangladeshi apparel exporters began to receive abundant orders from global buyers amid a disrupted supply chain worldwide.

Except for some with special problems or negative legacies, most of the publicly listed textile and spinning companies posted business growth for the 2020-21 fiscal year.

Apparently, the trend is to continue in the first quarter of this fiscal year too.

Maksons Spinning Mills, which had been struggling to maintain a less than decent bottom line before the pandemic, is now flying high as its sales and profit margins have improved.

It secured Tk0.75 in EPS for the first quarter of this fiscal year, which was a meagre Tk0.11 in the same period a year ago.

Following years of struggle to contain costs amid a downward pressure in yarn price, its stock price plunged below the Tk5 level in mid-2020.

In late 2020, Maksons' share price began to recover as informed investors began to foresee the good days, immediately the scenario started to change.

Maksons' stocks soared to above Tk35 in October and are now trading at Tk27 following the recent leg of market corrections.

It announced a plan for a Tk1,000 crore spinning mill project to manufacture high-value yarns which are offering a higher sales growth and of course a better profit margin.

In the latest quarterly financial disclosure recently, another listed spinner Malek Spinning Mills said its turnover increased alongside an improvement in gross profit margin.

The cost of goods sold decreased in the percentage of the earned revenue, it explained.

Also, its collection from yarn buyers increased compared to that in the same period a year ago. And that helped the company enjoy a better cash flow.

"You cannot take too much time to pay the price of a product which has very high demand now," said a textile sector analyst at a top-tier brokerage firm.

Also, Metro Spinning Mills which produces cotton yarn near Dhaka was struggling until the good days began a year ago. Its quarterly EPS of Tk0.05 in July-September 2020 shot to Tk0.4 in the same quarter this year, registering a dramatic 700% year-on-year growth.

Safko Spinning, previously a struggling spinner that produces cotton yarn, posted Tk0.02 in quarterly profits per share this year, while it had incurred a Tk2.09 in net quarterly loss per share in July-September, 2020.

The profit is still too low for Safko shareholders, but at least they are happy to see a comeback. Its stock price soared sharply in recent days.

Spinners with the internal legacy of management problems that often caused production disruption or irregular disclosures, such as Delta Spinners, Dulamia Cotton are found posting deterioration in earnings and it is not a big shock to analysts.