Nishat Mills Ltd.

Course Name:​ ​Introduction to Business Finance Course Number:​ 2574

Group Members: Maham Shabbir 17332
Syed Faraz Ahmed Tirmizi 19513 Zainab Arshad 19072
Munema Zulfiqar 19540 Ghousia Tariq 18855

Nishat Mills is a part of the textile industry of Pakistan. The textile Industry in Pakistan is one of
the best industries comprising a good chunk of Pakistan’s exports and giving jobs to numerous
people within Pakistan. This industry helps boost Pakistan’s agricultural industry by being a
major purchaser of raw cotton and other raw crops for textile making.

Nishat mills is one of the biggest textile businesses in Pakistan which is owned by Nishat Group.
It was established in 1951. Nishat Mills Limited has 238,032 spindles and 794 looms. The
Company also has the most modern textile dyeing and processing units, two stitching units for
home textile, two stitching units for garments and Power Generation facilities with a capacity of
130 MW. The Company’s total export for the year 2018 was Rs. 38.862 billion (US$ 353.03
million). The Company’s production facilities consist of spinning, weaving, processing, stitching
and power generation.Bedding fabrics such as Quilt Covers, Valances are in Nishat Mills
catalogue, alongside Table Linens for dining tables and clothing for it’s consumer brand, Nishat
Linen.With a total of 1,339 modern new generation sewing machines, the Home Textile Division
has two stitching facilities. The two facilities combined have an average production capacity of
approximately 24 million meters per annum. The product line is flexible to produce products of
various styles and sizes according to the buyers requirements, be it customers, wholesalers,
retailers or contract textile business.

Supply Chain

Nishat Group being one of the top revenue generating companies in Pakistan has set its eyes
into a complete self-dependent supply chain. Nishat Mills purchases mostly raw material such
as Cotton from its suppliers. Nishat Mill then processes the raw material into yarns and fabric
such as 100% cotton fabric and bamboo mixed cotton. These processed fabrics are then used
to make finished goods by the company, such as Bedding sheets and table linens, alongside
the home fabrics and covers, Nishat Mills also produce fabric for clothes, and clothes that are
then displayed and sold at their Brand store, Nishat Linen. Nishat Mill works with many retailers
and wholesalers worldwide. Many of the famous brands such as Bath & Beyond and Macy’s are
buyers of Nishat Mills products.
Competitors
There are four major competitors of Nishat Mills: (brief about comp. And why chose them)

Gul Ahmed:​ Gul Ahmed Mills was established in the early 1900s. Gul Ahmed is a
vertically-integrated operation, from manufacturing to retail, all under one umbrella. Gul Ahmed
Textile Mills is a top competitor to Nishat Mills due to various reasons. One of the major reasons
for these companies to be closely related is that they both are major textile mills in Pakistan with
great turnovers and also because they both have their own brands that directly sell end-product
to the consumers. Gul Ahmed and Nishat Linen are both major competitors to each other selling
eastern and western clothes in the pakistani market.

Feroze 1888:​ Feroze188 specialises in yarn and terry products. Being established in 1970, it is
one of the major textile mills in pakistan. Feroze1888 is a close competitor to Nishat Mills due to
the consideration that both the companies are exporters of Yarn and have a good brand name
in the international world. The product offered by both Mills are of the same category such as
bathroom towels and more.

Kohinoor:​ Kohinoor Mills is one of Pakistan’s largest vertically integrated textile operations with
over 1800 employees and $110 million in sales. Spread on a 90-acre state of the art facility in
Lahore, we deliver over 70 million meters of world-class grey, white and dyed fabrics to leading
fashion brands and retailers around the globe. The company is involved in three major
businesses; Weaving, Dyeing & Finishing and Energy.

Suraj Cotton Mills​: S​uraj Cotton Mills Limited is a company that comprises state-of-the-art
spinning and air jet weaving machinery. Established as a Public Limited Company on December
18,1984, the company has four operating units located at Nooriabad (Sindh), Shahkot and
Raiwind( Punjab). As a manufacturing organization, operating in integrated spinning and
weaving facilities in the textile industry, its end products are sold to international and national
customers.Suraj Cotton Mills Limited enjoys a sound market reputation as being a manufacturer
of high-quality yarn and fabric in both the domestic as well as international markets. The
company has developed a long-term relationship with its customers and attributes its success to
a valued relationship with suppliers, ginners, cotton spinners and is maintaining focus on
increasing and enhancing investor values.

Cost Factors:

Cotton:​ ​The main raw material of Nishat mills is cotton. Cotton yarn’ prices keep fluctuating
depending on its demand and prices which creates uncertainty and affects the financial results
of the Company. Basically, the supply and prices of cotton are both subject to the act of nature
and demand dynamics of local and international cotton markets. There is always a risk of
non-availability of cotton and an upward shift in the cotton prices in local and international
markets. The Company mitigates this risk by the procurement of the cotton in bulk at the start of
the harvesting season so that it does not have to encounter higher prices and experience a halt
in the production process.

Energy Availability and Cost: ​Availability of cheap energy is one of the biggest challenges for
all the companies in the textile industry. If the company incurs a higher cost of energy in
comparison to its competitors in China, India and Bangladesh, its competitiveness gets severely
affected in the international market. Therefore, conservation of energy is top priority and the
Company has embraced techniques such as replacement of existing conventional tube lights
with LED lights, installation of waste and heat recovery plants to generate steam from gas
engine exhaust and implementation of code of conducts for employees to promote energy
conservation. The rising cost and unavailability of energy i.e.electricity and gas is a major threat
to the companies in the textile industry. This risk, if ignored, can affect the company’s ability to
compete in the international markets. The Company has planned to overcome this risk of rising
energy cost by opting for diversified fuels like coal, furnace oil, biomass, diesel along with solar
energy. The manufacturing facilities of the Company have taken all measures to conserve
energy.Moreover, the risk of non-availability of the energy has been minimized by installing
power plants for generating electricity at all locations of the Company along with securing
electricity connections from WAPDA. Although,this step will increase the costs of the company
in the short run but will eventually ensure a smooth production process for Nishat Mills.

Environment Protection: ​The company focuses on protecting and safeguarding the

environment by regularly investing in this area.It has installed effluent water treatments plants at
all dyeing, printing and garments production facilities in order to reduce the harmful impact of
usage of textile chemicals on water. These plants have been functional for many years now.
They treat the water used in the production process for contamination and other impurities
before its final drainage.Unlike other companies. Nishat ltd also carries out frequent tree
plantation drives at its offices and factories.
In addition to acquiring new environment friendly technologies, the Company also invests in
recycling of waste generated from its operations which eliminates wastes and reduces cost. The
caustic soda recovery plant has been in operation for the last 18 years at the company’s dyeing
and finishing plant. The Company has also installed cotton recycling plants and oil recycling
machines at different sites to recycle the water, textile waste and oil for maximum saving of
natural resources. All these measures add to the company’s costs but reflects its ethical culture.

Research & Innovation:​ ​To counter the industry challenges and achieve productive efficiency,
the garment segment of Nishat has taken steps to become a lean manufacturing unit. The brand
new RFID technology installed for sewing lines is the latest method for calculating efficiencies
and wages.This technology facilitates shop floor management with real time. The research and
development department is working to use cost and energy efficient machines to produce best
products for its customers. Most processes are automated as modern machines are taking the
place of workers and ultimately reducing the long term organisational costs. The company
would also experience increased productivity and lower wastage.

Labour:H ​ ealth and safety of the workers and employees is prioritized above all. The company
regularly organizes medical camps for its workers and conducts regular fumigation at its
manufacturing premises by using fogging machines. Nishat has also established dispensaries
supervised by qualified doctors at its production facilities.
Diversity and ethics are the core values of the Company. Equal opportunity for employment and
career progression is provided to all irrespective of gender, class and religious beliefs. Women
employees dominate the workforce of Garments and Home Textile Divisions which shows the
company does not discriminate between genders.These measures add to the company’s cost
but it is necessary that it ensures the safety of its workforce.

Power Generation: ​Nishat Mills has established in-house power generation facilities which
provide continuous electricity and steam to its fabric manufacturing facilities. The management
regularly invests in cutting edge technologies to upgrade and enhance its power generation
capacity considering the importance of energy in running the operations of the Company. The
company plans to acquire two more Solar Power Plants for Power Divisions located at Bhikki
and Feroz Watwan. Such steps would add to the company’s short run costs but would benefit it
in the long run.

Demand Factors

The Pandemic:​ ​The onslaught of the coronavirus resulted in a negative trend in figures for textile
industries, including Nishat Mills Ltd. The company had reported to suspend all operations on March
30, which is around the time the pandemic first took its handhold over Pakistan. Since Nishat Mills is
largely export-oriented, it incurred loss as clothing exports declined dramatically when countries
closed their borders. Not only that, but a significant decline was also seen in domestic spending on
clothing. April was a hard blow to the company, when textile exports stood at a multi-decade low of
$0.95bn. Garment, knitwear and bed-wear exports were the most affected, falling 73.4%, 61.7%,
and 57.5% year-on-year, respectively.

Hence, it is no surprise that in Fiscal Year 2020, Nishat Mills earned a profit after tax of Rs. 8.77bn,
which is 9% less than the net profit of Rs. 9.65bn earned in Fiscal Year 2019. Lower revenue due to
the pandemic caused the company to close its production plant, which resulted in cancelling and
closing several orders.

Inventories piled up due to lack of trade and reduction of local and international demand.
Domestically, the lockdown forced people to stay indoors, thus resulting in a decline of demand.
In May 2020, Nishat was able to revive itself as the restrictions were relaxed in the country and
internationally and orders were received for textile products. In May, exports rose by 45% compared
to the previous month. Although, from a yearly point of view, exports still faced an overall decline of
33.6%.

Interest Rates:​ ​In 2020, the government of Pakistan brought down interest rates (to 7%) in order to
encourage borrowing, therefore lessening the pressure of cash flow problems of businesses.
Reduced interest rates will boost private investments. The cost of textile production will decrease.
Nishat Mills ltd could buy new production machineries or take loans for further development. As low
interest rates also mean more spending by the public, this could be fruitful for a company's products’
demand. It would make it easier for the company to pay off its debt too. Low debt means the
company could work well to provide quality products for local and international markets to increase
demand.The company faced interest hike from July 1 2018 to 30 June 2019 that led to a rise in their
finance cost. They had to continue borrowing to meet their working capital requirements. However,
the company charges a high interest rate to Nishat Hotel and Properties Limited and expects
financial gains and return on the investment of shareholders. In 2018, the average interest rate was
low as they maintained an optimal mix of borrowings. The average borrowing rate was 3.42%, this is
favourable for the company to meet its demand.

Government Regulations:​ ​In 2019, Nishat Mills Ltd saw an increase in gross profit as there was
depreciation of Pak Rupee against USD by 35% and also because the government of Pakistan
provided relief to export oriented sectors by the availability of gas and electricity at subsidized rates,
thus allowing them to meet demands. However, the cotton yard demand and prices kept fluctuating
throughout the year. The US-China trade war and weak Chinese currency negatively impacted the
demand for the company’s products. This was because strained relations of Chinese Market with the
international market led to a decrease in demand of finished products from China which in turn
reduced demand for our yarn (China is our major market). Furthermore, the weaving segment did
see profitability although there was uncertainty in the global economic conditions because of the rise
of Coronavirus. Demand was also affected as buyers were confused in purchasing raw materials in
this uncertain time. The company expects further slowdown in economic activities, reduction in
demand and rise in prices of raw material. As the UK is the major market for home textile products
but due to Brexit this market also presents great uncertainty. Although the company is trying to build
better relations and developing innovative products, there is overall reduction in demand of the
company’s products internationally. Furthermore, the demand is impacted as the company generally
faces electricity and gas shortages which the government fails to provide. But Nishat has tried to
meet its demands by installing their own energy plants. Moreover, government regulations that have
impacted textiles’ supply and demand is the removal of zero-rated status (zero rate tax on goods)
and sales tax of 17% in 2019 on exports has been a major burden on the textile industry to meet
demands, leading to protests of workers. However, 2020 came with the challenge of pandemic so
the government provided relief by exempting 5% customs duty on imports of raw material and sales
tax reduced to 12% thus this helped NML which has significant presence in retail. Thus, allowing
them to meet demands and supply products in economy.

Economic Factors:​ In 2019, Pakistan’s inflation rate amounted to 6.74% compared to 3.93% in
2018. Increased inflation led to rupee devaluation. The value of rupee against the US dollar rose to
143 in 2019 from 105 in December 2017. Since bulk revenue earned by Nishat Mills is through
exports and roughly over 80% of the company’s revenues are earned by these means, this
devaluation of currency caused significant rise in demand as exports became cheaper.

Demographics:​ ​These include the age structure of a population, gender, family size and
competition. These​​varying and evolving lifestyles and demographics can be an important cause of
the demand fluctuations for certain products, particularly in the case of apparel. Nishat’s range of
products caters to these differences and are in sync with the demands of the various countries it
trades with. The company has 227,640 spindles, modern textile dyeing and processing units and
different stitching units and production facilities accommodating a variety of activities involved in the
manufacturing of different products that cater to different market segments. Mrs. Naz Mansha,
chairperson of Nishat Mills, acknowledged in an interview that in order to remain ‘relevant’, the
company must remain aware of changing trends and local preferences, thus, ensuring that the
demands of various groups and cultures are met.
GDP:​ ​The textile industry in Pakistan contributes to a copious 8.5% of GDP. Nishat Mills Ltd., being
one of the most modern and largest vertically integrated companies in Pakistan, shares a decent
amount. One of the most significant reasons for its growth in recent years, is its competence in
anticipating advances in technology, consumer interests, and industry requirements. It has invested
in various facilities and modernised machinery to increase production levels and efficiency. The
ability to adapt to the growing technological advancements and competition has enabled Nishat to
maintain efficient production lines, which in turn has led to growing demand for its products. Due to
this commodious and well-maintained infrastructure and the capacity to produce at large volumes
and manage timely deliveries, more customers have inclined towards the company during the past
few years. Moreover, the company takes pride in its strong management policies, operations, and
effective marketing tactics, all of which combined is expected to contribute to its growth in years to
come.
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