Gross profit margins dip sharply at Kuruwita Textile Mills

16 Mar '09

3 min read

The continued economic slowdown in the world has severely affected the global apparel industry, especially in the US and European markets. This has resulted in softening of demand and drop in sales prices for Kuruwita Textile Mills PLC.

The group recorded a Turnover of Rs. 2 billion for this quarter which is a considerable increase of 41% and 27% respectively in comparison to 2nd quarter of FY 2008/09 and 3rd quarter of FY 2007/08.

This improvement in turnover was possible due to the steps taken by the management to improve its sales and revisions done to the pricing. The new business won from customer Tema and increased penetration to Gap and Old Navy also contributed to the improvement in sales.

The GP margin for the quarter under consideration stood at 5.5% which is a drop of 42.4% in gross profits. The primary cause for the drop is gross profits was due to the increase in material and utility costs in comparison to the previous financial year.

The group recorded a Net Profit of Rs. 1.8 million for the quarter under review compared to the losses of Rs. 114 million made in the 2nd quarter. However there is a drop in net profits in comparison to the 3rd quarter FY 2007/08 which is due to the sales price drop and difficult market conditions experienced globally in the apparel industry.

Finance cost has reduced by 29% in comparison to the last financial year as a result of reduction in long term borrowings by 55.22%. This step has been taken to insulate the company from the negative effects of high interest rates prevalent in the country.

The current ratio of the company stands at 1.15 which is relatively liquid in comparison to the industry norm. The steps taken to close the joint venture company Vibrant Tex will eventually result in an improvement in profitability as the company can source cheaper greige through the new liaison office in Pakistan.

Material contributes to 75% of the cost of sales thus any improvement to the material prices should result in an improvement to the bottom line.

The Management assures that its commitment to enhance the value of the shareholders is of paramount importance. Despite the difficult time experienced by the company it paid a final dividend of 10% for the year 2007/2008 at the recently concluded AGM.

Currently the company follows a process improvement strategy targeting cost reductions and quality improvements, while aggressively negotiating with a few selected customers for price improvements and filling unutilized capacity. Thus the management is confident in achieving better results for the next quarter and reaching a positive bottom line for the year.

Fibre2fashion News Desk - India