DM Industries is considering a pivot in production, and a name change. In a notice issued to the Pakistan Stock Exchange on September 2, the company said that its board of directors had decided to buy plant and machinery for the purpose of weaving, spinning, and manufacturing of textiles, including cotton, jute, silk, synthetic fibre, and wool. It also said it would change its name from ‘DM Industries’ to the new proposed name of ‘DM Textile Mill’.
Except, it is not really a ‘new’ proposed name, as much as it is an old one. There used to be a company called DM Textile Mills, which existed from 1958 to 2019, in the Westridge industrial area in Rawalpindi. This mill used to manufacture and sell cotton, polyester, viscose and blended yarn. Then on November 7, 2019, the company decided to change its name to DM Industries.
In fact, the most recent incarnation of DM is only nine months old. And the board has decided that just after a few months, that it was a mistake, and it is time to go back to the original drawing board.
This decision is actually a little puzzling. Let us look at the company’s financial statements. Despite its history, the last decade was not kind to DM Textiles Mills. The actual ‘mill’ part of the name ceased to operate in 2014, after due to a shortage of working capital. In fact, the auditor’s report from the annual report ending June 30, 2019, noted critically that the “The Company has been unable to arrange fresh financing for working capital and other purposes. As at the reporting date, the Company had few employees. The mill could not resume operations till the date of this report.”
In the period ending June 30, 2019, the company had made a loss of Rs7.5 million, and had accumulated a loss of Rs80.9 million to date. Its liabilities exceeded its current assets by Rs68 million. The figures from the year 2018 are equally dismal: the company had made a loss of Rs15.8 million that year, and accumulated Rs75.6 million as of June 30, 2018. Its liabilities exceeded its assets by Rs 59.8 million. The company had also made a loss of Rs2.7 million in 2017, and a loss of Rs58.8 million in 2016.
That is why the auditor’s report from 2019 notes: “These events indicate a material uncertainty which may cast significant doubt on the Company’s ability to continue as a going concern and therefore it may be unable to realize its assets and discharge its liabilities in the normal course of business.” it also said that management had not provided an assessment of the going concern assumption.
But even if management had not provided that assessment, obviously, management had noticed its own financial statements. Simply put, DM Textile Mills was not a very good mill, and this situation was untenable. So the board of directors and shareholders of the company, in two separate meetings held on 27 April 2019 and 31 May 2019, decided the mill would no longer exist. Instead, the company would construct and to establish warehouses for providing facilities for storage for rent. Plus, it would change its name to DM Industries. This was approved by the Securities and Exchange Commission (SECP) last year.
It was probably the best decision that the company made. For a while, it seemed like the tactic was working. For the half year ending December 31, 2019, the company made Rs13.866 million in revenue from renting, and made a profit of Rs33.7 million. For the nine months ending March 31, the company made Rs20.8 million in revenue, and Rs31.2 million in profit. Though, it was not all rosy: in the third quarter itself ending March 31, which is the latest financial statement available, the company made a loss of Rs2.4 million, despite earning revenue of Rs6.9 million.
(How can profits be larger than revenues in some years? On account of tax write-offs for previous years’ losses.)
Still, at the time, the newly dubbed DM Industries was hopeful: “The company continued to earn revenue under its new principal line of business. The management is hopeful that accumulated losses will reduce in near future and current ratio will also improve.”
If so, then what prompted the reversal?
According to acting company secretary Khalid Parvez, the decision to revert is still subject to shareholder approval. However, he said, the board had taken this decision in light of the improving situation of textile exports in the country. As exports have increased, it seems, DM Industries is wondering why they ever quit being a textile mill in the first place.
To recap: in the earlier half of this year, the Covid-19 pandemic severely affected Pakistan’s textile sector.
The sector is heavily reliant on exports, which were badly bruised after global lockdowns. Exports in April declined 65% year-on-year to $404 million, a historic, multi-decade low. Exports in May declined 37% year-on-year to $751 million.
But then, there was a slight glimmer of hope: exports in June did not decline as badly as was predicted, falling only 5.43% year-on-year to $959 million. And then in July, something truly remarkable happened: as per data released by the Pakistan Bureau of Statistics the country’s textile and clothing exports increased by 14.4% year-on-year to $1.3 billion.
According to the government, the ease in lockdowns in the North American and European countries, which are the top export destinations for Pakistani textile goods, helped pave the way.
That is what is prompting DM’s decision to become a mill again. But surely – is that enough? There are still fears of a second wave of Covid-19 pandemic, threatening to derail the small gains made by global economies world over. There is concern that even large textile companies might have shaky export volumes. And why should DM Textile Mills do well, considering that it was struggling between 2016 and 2019, in a pre-pandemic world? Has it resolved the core problem: how to manufacture and sell yarn and actually make money? But clearly, DM Industries has decided it still sees an opportunity, and is willing to put up with frequent name changes if necessary.