Hence the company turned from fabric supplier to acomposite spinning

Tag : Fabric Joint
Azgard Nine Limited (ANL), formerly knownas Legler Nafees Denim Mills Limited, was a joint venture between aleading European brand and a Pakistani manufacturer, Nafees CottonMills Ltd. Hence the company turned from fabric supplier to acomposite spinning, weaving, dyeing and stitching unit engaged inthe manufacturing of yarn, denim and denim products.

It is one of fully vertically integrated players in Pakistan'stextiles sector largest producer and exporter of denim and denimproducts. It is a public limited company and listed on KarachiStock Exchange in 1996. It currently operates under two businessdivisions: Textile Apparel Business and the Agrichemical Business.

THE TEXTILE APPAREL CHAIN Despite the prevailing energy crisis, higher mark-up rates,increase in minimum wages and the political change taking place inthe country, ANL's textile apparel chain, spanning cotton yarnspinning, denim fabrics and garments, is the largest denim productsbusiness in the country.

The company's plans to balance modernise and rehabilitate (BMR) itstextile chain with commitments to further emphasise on quality andservice along with training of workforce to achieve the requiredskill levels and better machine efficiencies. The company isimporting a generator having dual fuel facility which will improvethe operational efficiencies and curtail its costs.

State Bank of Pakistan has permitted Azgard Nine to remit euro23.758 million for an offshore acquisition of branded denim andgarment business for acquisition of foreign company, of Farital ABwhich has 100 percent ownership of Montebello, a specialist in theglobal denim space. With significant investments in research anddevelopment and a global distribution network, it markets and sellsmany different types of special denim under its own registeredtrade mark brands with approximately 85 percent sales in the PanEuropean market.

This acquisition will provide ANL a strategic opportunity to boostits earnings through both volumetric growth and attainment ofhigher price levels. The key challenge in this regard is theexpeditious migration of the cost base, thus capitalizing theopportunity and maximizing the margin improvement envisaged by theacquisition.

THE FERTILIZER/CHEMICALS BUSINESS In FY06, ANL acquired Pak American Fertilizers Ltd. (PAFL), thenewest, lowest cost and most efficient urea manufacturing plant inthe country. The company's agrichemicals business, through its 100%owned subsidiary PAFL, retains its position as the fifth largesturea manufacturer in the country with a urea and DAP market shareof 7%.

PAFL has also started the fertilizer trading business by importingand selling phosphate fertilizers in the country. Its Tara brand,launched in January 2007, is focused urea product in the country.The company intends to further promote the brand by educatingfarmers about its benefits through local workshops followed by farmimprovement programmes.

PAFL began its balancing modernizing and rehabilitation (BMR) ofits ammonia and urea plants to enhance urea and ammonia capacity to135% of nameplate capacity. The revamp is to be completed by mid2009 with an estimated cost of US $55 million.

FINANCIAL PERFORMANCE (FY01-FY07) FY07 was another hallmark for Azgard Nine considering the growthin top line. The company posted net sales at Rs 6.63 billionshowing a healthy increase of 36% over FY06. The 5-year CAGR of 32%in net sales is attributed to an extensive BMR and marketexploration programme carried by ANL in the past few years.

Moreover, as a result of well-prepared sales network with foreignmarketing offices and vertical integration of the textileproduction chain, the company experienced high acceptability of itspremium products in the international markets. Both local andexport sales registered an impressive 32% and 54% increasesrespectively, as evident from the gross sales break-up.

The local cotton price during FY07 averaged at Rs 3,000/maund fromRs 2,351 per maund in FY06, increasing about 28.0%. Adding to thepredicament, the imported cotton consumption rate was charged at Rs3,547/maund during H2'07 compared to Rs 3,435/maund in thecorresponding period, while the textile exports also dwindled by 3percent. However, due to its well strategy and efficient productionfocused on international quality, ANL was able to compete well inthe challenging environment.