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Our Observations
CORE ISSUE
Din textile core issue is the inconsistent procurement planning
of raw material. From 2008 to
2012 company cost of goods sold was increasing more than the
percentage increase in sales.Even though cotton yarn bale prices
were stabled during 2008-2011 but an abrupt change in
international demand and during 2012 for cotton yarn resulted in
decrease in sales of Din while
the cost of sales kept on increasing. We investigated that Din
textile Ltd does not have long
term planning for procurement of raw material. Further research
showed that cotton bales
were purchased at Rs.12000 and the price fell to Rs.6000 within
few months. This was all due
lack proper strategic planning for procurement of raw
material.
Another observation showed that even though cotton yarn prices
fluctuated in 2012 but
majority of industry players had proper planning and were able
to purchase yarn at lower price
which permitted them to have acceptable profit but Din was
unsuccessful in procuring yarn at
lower price which increased company cost of goods thus had a
negative impact on companys
overall profitability. Our research is supported by the fact
that Din textiles do not have a
specialized department for procurement of cotton yarn while
other industry players like Nishat,
Chenab and Cresent have experts for procurement of yarn.
Other Issues
Din textile machines are obsolete which is reducing annual
production capacity of the yarn.
Even though din textile is 4rth largest producer of cotton in
Pakistan with an annual production
of 20.8 million yarn in 2012 with a total capacity of 26.72
million yarn. The under utilization of
resources is mainly due to outdated machines which has reduced
the efficiency of machines.
Distribution cost had an upward trend since 5 years. In 2012
company distribution cost highest
in the last five operational years. The reason was the excessive
amount spends on air freight
which did not contribute positively in sales.
Another reason is the lack of specialized people in din Textile.
Experienced and skill
management is not employed by din which result in inconsistent
policy making. Moreover
employees turnover ratio in Din textile Ltd is very high it is
because proper job description is
not given and under staff at managerial position burdens
existing employees which also
contributes to high employee turnover.
Lack of research and development is another issue at Din Textile
Ltd. Negligible amount is
invested in development and improvement of technology as
compared to industry where every
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textile firm tries to capture market by continuous innovation
and improvement in their
portfolio.
Current strategy
For the first time in 5 years Din textile Ltd experienced a loss
of 669 million is an alarming
indication for the management of Din Textile which has enjoyed
good profitability in the
previous 5 years. The prime initiative taken by the new
management is to setup a specialized
department for the purchasing of yarn. This is possible when the
company hire qualified
employees at managerial level. Competencies can be in the form
of qualification and technical
expertise so that the most fitting individuals are placed.
Out of date machines are another factor and company is replacing
its wear and tear machines
with imported machines from Germany, Din Textile Ltd is also
focusing on continuous
investment in BMR in order to bring update technology from all
over the world.
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STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS (SWOT)
ANALYSIS
Strengths Weaknesses
ISO 9002 and Oekeo-Tex standard 100
Certified.Provided yarn to leading brand like
H&M,C&A,levis and other
4th largest Cotton producer
64% of countrys export volume
1.4m people employed with 50% in
apparel
Availability of cheaper labor at US$ 0.39
per hour
Raw Material Base
Rich Heritage
Poor planning
High cost of production.High employees turnover.
Low price image
Lack of use of modern technology
Lack of managerial skills
Availability of raw material and
inconsistent raw material prices
Absence of research and development
culture
Lack of standardization and quality
control
Opportunities Threats
WTO regime implementation.
Cost reduction by using modern and
technology.
Better laid down factories on best
practices
Potential of improving confidence in buyer
by working directly & closely
Home Furnishing from Pakistan have made
a big name worldwide
Marketing
Collaboration with foreign countries
Export of raw cotton and yarn.
WTO regime implantation.
Exchange rate fluctuations.
Instable political and economical
conditions.
Government policies.
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INTERPRETATIONS:
A- STRENGTHS1- ISO 9001 and IKO-TEX 100 Certified: As NML is
mainly focusing on international markets, and with
the implementation of WTO regime, these types of certifications
are very helpful to win thecustomers satisfaction.
2- 4th largest Cotton producer3- 64% of countrys export volume4-
1.4m people employed with 50% in apparel5- Availability of cheaper
labor at US$ 0.39 per hour6- Geographically situated at ideal
location (near end users): it is located near Lahore where raw
material is easily available and end consumer are also near and
there is big market nearby
7- Rich Heritage: it has a long history of being an efficient
and creditable company delivering a qualityproduct
8-
Strong presence in local market9- Self Owned Power Plant: Now a
days, having your own power plant is of crucial importance,because
it make sure un-interrupted supply of energy at very low cost,
which is helpful to be
compatible at international level.
B- WEAKNESSES1. Relying On International Market only: as
mentioned earlier that NML has been focusing on
international markets so there are chances that this strategy
may hurt its sales as there are rapid
fluctuations in international markets, competition and buyers
preferences.
2. High Cost of Production: All Pakistani firms including NML is
suffering from high cost of productionas compared to the other
countries like,; India, China and Bangladesh, they are cutting our
throatsby being cost completive day by day while at the same time
producing high quality stuff as
compared to Pakistani firms.
3. High employees Turnover: Trends has been seen in workforce
data to leave the NML on permanentbasis, this is especially true
for the lower level staff.
4. Low Price Image: due to lack of marketing the company cannot
make a premium brand of its self5. Lower marketing initiatives6.
Limited use of modern technology: Obsolete technology machinery and
equipment used for
manufacturing
7. Low levels of managerial capabilities8. Availability of raw
material and inconsistent raw material prices; as there is lack of
planning in the
company so there is issue of inconsistent raw material prices
which upset the revenues
9. Absence of research and development culture10.Lack of
standardization and quality control
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C- OPPORTUNITIES1. WTO regime implementation: with the
abolishment of quota system, now its an opportunity for the
Din to capture the international market share by providing low
priced and high quality goods to
international customers. In this regard is cost competiveness is
a special concern.
2. Cost reduction by using modern Technology: As WTO regime has
opened the doors for free tradefor the whole world, now the only
survival of the firms would on the minimization of production
cost and offering innovative, high quality goods with
competitive price.
3. Better laid down factories on best practices: the company
should use best practices to improveefficiency and cost
reduction.
4. Potential of improving confidence in buyer by working
directly & closely ; Improving the supplychannel can be
beneficial for the company
5. Home Furnishing from Pakistan have made a big name worldwide:
going into different sector canimprove companies financial
resources and help it to diversify
6. Womens wear has a huge potential7. Marketing: improving
marketing can help to increase brand name and brand recognition
most to its
competitor do it so Din should also more focus more on it
8. Collaboration with foreign countries
D- THREATS1. Export of Raw Cotton and Yarn: Recent trends in the
Pakistan to export raw cotton and yarn to
foreign countries is hitting like nails on the heads of textile
value addition units, although din has its
own spinning facilities but to somehow export of raw cotton is
dangerous for it. 2. WTO regime implantation: Abolishment of quota
system presents a opportunity as well as a biggest
threat to the Pakistani firms including din, as other countries
are free to capture the market, we the
Pakistani firms are suffering with high cost of production may
be driven out of the competition.
3. Exchange Rate Fluctuations: Din most of the sales are
comprising exports, it is to be receivedpayment in foreign currency
especially American dollars, ultimately these sales proceeds are to
be
converted to Pakistani rupees, here come s the magic of exchange
rate whose fluctuation can
change a profitable deal into a bad loss. Finally, if Pakistani
rupees got strength against other
currencies we will get lower value for our proceeds.
4. Instable Political and Economical Conditions: Changing
Governments, war on terror, decreasingbuying power and altering
buying trends and preferences of customers are posing big threats
to Din,in this regard we are confronting with local an well as
international political and economical
conditions.
5. Government policies: Government polices like high rates of
taxes, VAT, duties on internationaltrades, high energy cost,
re-organizing unions are causing a serious damage to the
performance of
overall industry including Din
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Short-Term Liquidity Analysis
Units Measure Year 2011 Year 2010 Year 2009
1 Ratio Current Ratio 1.31 1.03 1.03
2 Ratio Acid-Test Ratio 1.31 1.03 1.03
3 Times Accounts Receivables Turnover 9.95 8.46 7.59
4 Times Inventory Turnover 4.58 5.46 6.19
5 Days Days' Sales Receivables 36.17 42.54 47.42
6 Days Days' Sales in inventory 78.60 65.93 58.16
7 Days Approximate Conversion Period 114.77 108.48 105.588
Percent Cash to Current Assets 1.45% 1.42% 1.01%
9 Percent Cash to Current Liabilities 1.90% 1.46% 1.04%
10 Times Liquidity Index 167.73 140.30 98.31
11 $Thousand Working Capital 943,215,906 43,216,261
43,248,352
12 Days Days' Purchases in A/P 19.33 23.28 19.71
13 Days Average Net Trade cycle 95.44 85.20 85.87
14 Percent
Cash Provided by Operations to
Average. Current Liabilities -46.94% 20.05% 6.51%
(Analysis)
Liquidity ratiosare a set of ratios that measure a companys
ability to pay off its short-term debt
obligations. This is done by measuring a companys liquid assets
against its short-term liabilities. In
general, the greater the coverage of liquidity assets to
short-term liabilities, the more likely it is that a
business will be able to pay debts as they become due while
still funding ongoing operations.
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Current ratio is current assets/current liabilities so a figure
greater than one would indicate that current
assets are greater than current liabilities and the company has
the capacity to cover its short term
obligations with current assets.
Acid-test ratio is a more sophisticated alternative to the
current ratio, which measures the most liquid
current assets excluding inventory but including accounts
receivables and certain investments. While
comparing the firms liquidity position with that of the other
firms in the industry it can be clearly
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Year 2011 Year 2010 Year 2009
Current Ratio
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Year 2011 Year 2010 Year 2009
Acid-Test Ratio
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inferred from the high current and acid ratio test ratios of Din
Textiles ltd in comparison to the industry
averages that the liquidity position of the firm is stronger as
of the other firms. However, this company
has high days sales in inventory, days sales in accounts
receivable and liquidity index than that of an
average in comparison to other firms which indicates a poor
liquidity position of the company.
Due to various operational and economic challenges the financial
performance of our company this year
depressed the estimates, had Net sales Rs. 7.358 billion for the
year 2011-12 as compared to Rs. 7.575
billion for the last year, thus an decrease of 2.86% in sales
revenue over last year. The gross loss for year
was Rs. 205.057 Million as compared to last year gross profit
Rs. 1.475 billion. Decrease in Gross profit is
mainly due to high prices of imported cotton during 1st half of
the year and depreciation of Rupee
against dollar have double impact in the value of imported raw
material along with heavy load shedding
of gas and electricity majorly increased the input cost.
The current ratio of Din Textiles Limited has been close to one
over the five year period implying that
the company has just enough assets to cover its current
liabilities. The current ratio improved due todecline in current
liabilities. Whereas the acid test ratio also shows a good
liquidity position over the
three years which means that the company without inventory
liquidation would not be able to pay back
its short term obligations. The accounts receivable turnover
declined in 2009. This decline could be a
result due to companys inclination towards conservative credit
policy for its customers. The inventory
turnover increased over the years which mean that the slight
increase is indicative of Dins declining
operational efficiency with growth in net sales lagging behind
the growth in inventory kept by the
company. The days sales in receivables showed significant
fluctuations over the three years period. It
increased in 2009 and again decreased in 2010 and 2011. Days
sale in receivables was at its peak in
2009 which can be attributed to the longer credit time period
allowance to its customers in that year.
The days sales in inventory showed a declining trend over the
years with a peak in 2009 due to higher
idle stocks. The approximate conversion period didnt show major
changes over the five years. It was
almost constant signifying that the time taken by the company to
convert both receivables andinventory to cash has not changed much.
The cash to current assets ratio declined in 2009 revealing
severe liquidity issue for the company as the cash balances have
reduced. However, it increased in 2010
onwards. The cash to current liabilities showed the similar
pattern as of cash to current assets. The
liquidity index has fluctuated over the three years which
signifies that the liquidity of the company was
unstable. The cash available from operations shows a fluctuating
trend. It was lowest in 2011, where it
showed a negative figure.
