CHENAB TEXTILE LIMITED

Name of Member who work on it:

Mubashar Sharif 2008-ag-152

MBA® Section B

UNIVERSITY OF AGRICULTURE FAISALABAD

VISION:To be a competitive and customer focused organization with continuing commitment to

excellence and standards.

Mission: To be business house of first choice for customers. To be change leader. To produce innovative, relevant a cost effective products. Setting and maintaining high standards To earn profits by achieving optimum level of production by using state of the art

technologies. To provide ideal working conditions to employees and to take care in their career

planning and reward the according to their skill and responsibility. To meet social and cultural obligations towards the society being a patriotic and

conscientious corporate citizens.

Directors & Their Share Percentage

Chief Executive Mian Muhammad Latif 14.51

Director Marketing and Planning Mian Muhammad Naeem 17.57

Director Operations Mian Muhammad Javed Iqbal 12.94

Director Home Textile Division Muhammad Faisal Latif 2 .45

Director Garment Division Muhammad Farhan Latif 7 .32

Director ChenOne Muhammad Kashif Ashfaq 6 .49

Director Overseas Muhammad Rizwan Latif 3 .00

Director Made ups and PPC Muhammad Zeeshan Latif 2 .34

Director ChenOne Muhammad Umair Javaid 2 .10 Director Made Muhammad Umar Ashfaq 2 .44

Company Description:Mian Muhammad Latif group chairman laid the foundation in 1974, joined later by his younger brothers Mian Javaid Iqbal and Mian Muhammad Naeem in the venture and the business began to flourish and Chenab products were soon finding their way to the markets world wide. Stretching over vast area at Faisalabad Pakistan, the manufacturing lines and equipment are constantly upgraded to ensure highest performance standards and reliability and the widest range of fabric finishing operations. Mian Latif and his entrepreneurial spirit, commitment and integrity which have made Chenab what it is today. (Businessman of the year awards, etc). Integrity as far as commitment to quality and 100% satisfaction of the clients, the guiding spirit for the Group, from the top man right down to a worker.

Chenab is regarded as one of Pakistan's leading manufacturers and exporters of quality home textile products and garments. Operational since 1975, Chenab is vertically integrated unit covering complete range of operations from spinning to retailing. Chenab today is capable of processing and converting more than 70 million meters of fabric per annum into made ups and garments. Chenab offers a wide range of coordinated concepts.

Chenab is regarded as one of Pakistan’s leading manufacturers and exporters of quality home textile products and garments. Operational since 1975, Chenab is vertically integrated unit covering complete range of operations from spinning to retailing.

Chenab today is capable of processing and converting more than 70 million meters of fabric per annum into made ups and garments. Chenab offers a wide range of coordinated concepts in bed linen, bedspreads, curtains, table linen and kitchen accessories. In addition it also produces formal and casual garments for men, women and children that feature exclusive fabrics and design in line with global trends.

Chenab Limited is equipped with state of the art machinery. It houses one of the largest textile processing facilities, in the country and can meet the diverse requirements of its customers in any part of the world with its in-house facilities for ginning, spinning, weaving and exporting of top quality made ups and garments.Chenab has set up a 12.6 MW natural gas based power generation facility, with heat exchanger and waste heat steam boilers for its operations. Chenab Limited places primary importance on maintaining environment friendly operations. It is the first textile company in Pakistan to install a waste water treatment plant that separates various impurities from wastewater and received certifications for environment friendly products.Chenab Limited has implemented ERP (Enterprise Resource Planning) solution to integrate and best utilization of its resources. Customer Relationship Management is part of the solution

being implemented, and Chenab online order track system is also in place to facilitate customers round the clock.

Chenab Limited has around 30 years of management experience in the field of home textile, and gathered various talents, such as scientific research personnel, designer, marketing and IT personnel.

Chenab Limited is a Pakistan-based company engages in manufacturing, exporting, distributing, and retailing home textile products and garments. The company offers made ups, such as printed, plain dyed, embroider, and kids collection bed sheets; filled pillows; duvets; curtains; and kitchen accessories. It also provides garments for men, women, and children; and various fabrics, including white, dyed, and printed fabrics. In addition, the company offers various information technology solutions for small to medium size businesses in trading, manufacturing, and service industries.

The cloth processing unit is located at Nishatabad, District Faisalabad and stitching units are located at Nishatabad, District Faisalabad and Shorkot Road, District Toba Tek Singh. Weaving units are located at Sheikhupura Road, Khurrianwala, District Faisalabad, Jhumra Road, Gatti, District Faisalabad, Sheikhupura Road, Kharrianwala, District Sheikhupura and Shahkot, District Nankana Sahib. Spinning unit is located at Shorkot Road, District Toba Tek Singh, in the province of Punjab.

Paradise of Textile Products

Chenab Limited, the paradise of textile fabrics and products, is a leading composite textile mill of Pakistan doing business globally. Customer satisfaction is the main tool and pivot of success. Our ties are long lasting and age old due to wide range of products, in-time shipments, consistency, competitive prices and prompt services. Our production starts from raw fiber and ends on customer needed products. This mean we starts from spinning and finish on fabrics, garments and made ups. All facilities are in house and consist of all resources i.e. state of art machinery, highly qualified and experienced workforce and up to date infrastructure. Its integrated management system has worldwide recognition for quality, environment and social accountability depicted by awarded certificates of ISO 9001:2000 for QMS, ISO 14001:1996 for EMS and SA 8000:1997 for Social Accountability. Emphasis on environment friendly textile products is our specialty as a result we have Oekotex 100 Certificate which is for environmental friendly products.

DIVISIONS SPINNING WEAVING PROCESSING STITCHING

Modernization efforts have brought major changes to the Pakistan textile industry. At Chenab Ltd. (Spinning Division) equipment has been streamlined and many operations have been fully automated with computers. Machine speeds have greatly increased. At the mills the opening of cotton bales is fully automated.

Lint from several bales is mixed and blended together to provide a uniform blend of fiber properties. To ensure that the new high-speed automated feeding equipment perform speak efficiency and those fiber properties are consistent, the bales are grouped for production/feeding according to fiber properties.

SPINNING

Machinery Detail and Capacity:

Chenab Spins finest quality yarns in counts of 10, 16, 20, 22, 24, 30, 40, 60 & 80 in carded as well as combed versions. The spinning facility spread over 520,000 Square feet houses 19,000 spindles with an approximate production capacity of million Kg’s of yarn every year.

Weaving is the oldest method of making yarn into fabric. While modern methods are more complex and much faster, the basic principle of interlacing yarns remains unchanged. On the loom, lengthwise yarns called the warp form the selection of the fabric. They usually require a higher degree of twist than the filling yarns that are interlaced widthwise.

Traditionally, cloth was woven by a wooden shuttle that moved horizontally back and forth across the loom, interlacing the filling yarn with the horizontally, lengthwise warp yarn. Modern mills use high-speed shuttle less weaving machines that perform at incredible rates and produce an endless variety of fabrics.

WEAVING

Machinery Detail and Capacity:

Chenab weaving units are equipped with 120 air jet looms of 75, 110 and 134 inches with a production capacity of 36 million square meters per year, along with 376 auto looms capable of producing 15 million square meters per year. Latest 134” wide computerized sizing machine with 4 meter head stock and cone weft insertion reinforces the weaving process.

Chenab Ltd. offers a complete range of processing facilities with highly qualified and experienced staff. It provides our customers global services and competitive advantage to meet requirements with adoptability & flexibility for woven and knitted fabrics.

PROCESSINGThe Processing unit of Chenab is further sub divided into following categories:

Preparation Dyeing Printing Design Studio and Engraving Finishing

Preparation

Customized fabric operation is the first crucial step towards the guaranteed final quality of all finishing processes. Different fabrics are quality controlled before they go to singeing, bleaching and mercerizing lines. Hi-tech equipment controlled by sophisticated systems ensures total reliability and consistently optimal operations.

Dyeing

Machinery Details & Capacity dyeing

Equipped with environment friendly Singeing, continuous bleaching, chainless mercerizing and wider washing ranges compliments the back processes mandatory for quality dyeing and printing of up to 200,000 meters a day.

A state of the art testing lab equipped with the latest precision testing instruments assures that specific

customer standards are met.

Chenab’s highly qualified and experienced technicians are able to cope with ever-increasing quality standards and changing customer requirements. Their work starts from the receipt of raw materials up to the time the final finished products have passed through inspection/testing at all stages.

The Company has also proven its commitment to quality by achieving distinct certifications and awards.

Computerized control systems manage all the dyeing lines ensuring color consistency and quality. The massive continuous dying lines and more versatile jiggers and pad steam units allow Chenab to dye fabrics in the widest imaginable colors and the most impressive range of dye stuffs. Products dyed at Chenab ensure continuity, fastness and uniformity.

Printing

The rotary printing lines at Chenab process the colors and designs of a thousand patterns around the clock. Meters and meters of the fabric are printed with speed, accuracy and consistently high quality, experience, skills, capacity and professionalism of the Chenab team.

Machinery Details & CapacityRotary printing machines ranging from 12 to 24 colors and widths from 72" to 120". Ager, Steamer and Heat Systems are installed for perfect printing.

Design Studio

In a world of ever increasing design complexity, when customers are demanding ever high quality levels with shorter lead times, Chenab Ltd. has invested in a pre print department totally based on digital technology. In is the combination of many years of experience in designing and engraving skills coupled with computer aided design systems, wax-jet and laser engraving process, and a sampling and coloration system based on ink jet technology.

We are pleased that customers and their designers feel comfortable while communicating design and coloration details via these technologies. The digital loop has recently been completed by the use of spectrometer color recipe procedures can be generated and forwarded to automatic computerized print-paste dispensing system. The on-going developing and training in peoples skills when creative talent and computer literacy have been combined to enable Chenab Ltd. to treat previously impossible to print design styles as the norm. The use of a variety of computer software programs has enabled the in house development system to meet the individual customer needs whilst remain cost effective.

Machinery Details & Capacity

CAD, Plotter HP 2500 CP Scanner "Scan jet 6100c", Re-production Camera Danagraf , Step & Repeat, Contact Camera, Film Developer & Processor, Complete Engraving Set-Up, Strok Wax jet 4305 Engraving, Hydro extractor.

Finishing

Finishing must be adapted to the kind of fiber used in the fabric and most important of all, to its intended purpose. Apart from its appearance, one can tell the quality of a fabric by the pleasant way it feels to touch and the technical properties that ensure it suits the use to which it will ultimately be put. Stringent laboratory testing and a full complement of advanced technologies allow Chenab to offer a multitude of pre-treatment and finishing options to meet every specific requirement.

Machinery Details & Capacity

Calendars up to 3.2 meters width, 120”wide stentors, and sanforising, raising, peaching and embroidery machines complete the finishing arsenal at finishing department of Chenab Ltd.

STITCHINGGarments the garment unit is a totally fresh concept I improved working conditions with full air conditioning and ergonomically designed workplace layouts.

The concept of Unit Production System was adopted for product manufacture. This allows continuous online management, supervision and monitoring thus reducing response time to any shortcoming that may occur.

Latest quality control procedures are implemented throughout the manufacturing process, form automated pre cut fabric inspection to the final product.

Garber Fabric cutting technology and Computer Aided Design is applied to all pattern making, cloth utilization and marking cutting edges

SWOT ANALYSISStrengths:

Past Achievements Export Trophy winner (8 times) Businessman of the Year award (4 times)

Swedish Texcote Technology in the manufacturing (license) ISO certificates Latest technology Composite unit Not affected by dollar variation Power generation plant Competitive edge High quality Luxuries product

Weaknesses: Centralized decision making Highly Debt intensive

Opportunities: Installation of Yarn dyeing unit UAE market

Threats: High cotton prices crop shortfall energy cost increases due to Gas load shedding Consistent increase in utilities cost Increase in minimum wage rates Political instability Poor fiscal as well as monitory policies. WTO rules & regulations International labor and Environmental Laws. KIBOR and markup increase Peace and Political uncertainty No investors illiteracy rate in Pakistan and unskilled labor

FIRM FINANCIAL ANALYSIS

BALANCE SHEET ANALYSISLIQUIDITY ANALYSIS:

2009 2008 2007 2006CURRENT RATIO 0.92 0.86 0.90 1.02

QUICK RATIO 0.49 0.30 0.29 0.30

CASH RATIO 0.006 0.01 0.01 0.13

0

0.2

0.4

0.6

0.8

1

1.2

2009 2008 2007 2006

current ratio

quick ratio

cash ratio

Current ratio shows a little bit declines over times but improved in 09. Acid test ratio is showing a very little decline but improving now. But a huge increase in trade debts & other receivable has been observed in assets Due

to sales to associates they have to give heavy sales on credit. Increase in short term borrowing & interest has been observed.

0

50

100

150

200

250

300

350

400

2009 2008 2007 2006

A/R Turnover (days)

Inventory Turnover (days)

Operating cycle (days)

WORKING CAPITAL MANAGEMENT:

2009 2008 2007 2006

A/R Turnover (days) 116 91 76 64

Inventory Turnover (days) 229 286 274 287

Operating cycle (days) 345 377 350 351

Net working capital (bn) -0.846 -1.418 -0.838 0.156

Working capital required 9.648 8.797 7.814 6.678

The company needed 9.648 billion net working capital has 7.129 billion short term borrowing in

2009. Inventory turnover showing increase due to increase in inventory because of less sales & on

other hand they have to take heavy amount in Finished Goods because ending inventory of one SBU is raw material of other & their sales to outsiders has been decreases but in associate increase & heavy increase in CGS has been observed in store & spare due to fact they have increase their quality

Receivable turn over increase due to increase in receivables out of which a large proportion is of associates & unsecured

Both of these factors are pushing operating cycle up

Turnover in days ratios are higher?

• Cotton i.e. agricultural product is a Seasonal inventory produce once in a year• So high inventory is purchased in cotton season

• Its a Composite unit so the manufacturing process takes a large time

Solvency ((Debt management)2009 2008 2007

DEBT TO EQUITY (TIMES) 3.64 3.34 2.83LONG TERM DEBT TO EQUITY 0.7977 0.66 0.69FIXED CHARGE COVERAGE 0.809 0.62 0.807INTEREST COVERAGE 0.99 0.99 1.19

Debt to equity has shown constantly increase over times in 09 it has rose up to 3.64 times major increase in short term debt has been observed.

Where as total debt to assets has rose to78%. Long term debt to equity has shown a huge increase from 08 to 09 also they have taken new

electric power plant on lease. Increase in debt to equity & debt to total asset is causing high leverage. Fix charge coverage ration is below then one which Is a negative condition for company because

due to losses they have to inject debt & heavy amount is being paid in shape of interest which is main reason of loss to them.

CAPITAL RESERVES AND REVENUE RESERVES

Revenue reserves are diminishing from 2006 due to payments of dividends.Capital reserves are increased showing forecasting the large capital investments in2006 but these are still increasing and no capital investment seen instead of long term deposits in 2009.

0

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

7,000,000,000

8,000,000,000

9,000,000,000

10,000,000,000

NON CURRENT ASSETS CURRENT ASSETS

2009

2008

2007

Current Assets

As well as non current assets showing high growth but its major portion is because of inventory and inventory’s cost is higher due to high inflation in world economy and due to food shortage, removing subsidies, higher cost of production, (lack of water storage, quality seeds availability, expensive pesticides, unfavorable climatic situations low production) formers interests are shifted towards other agri products forming.

Sales volume is increasing rampantly almost achieving targets of 10 billions salesReasons: There may be increase in1 Gross profit 2 Cost of production3 Units of sales (a little bit)4 currency Inflation in targeted markets5 local currency depreciation6 Foreign currency gains

2009 2008 2007 2006

ROI % (0.57) (0.59) 0.50 1.06

ROE % (3.88) (3.70) 2.71 5.47

EPS (Rs) (0.83) (0.83) 0.01 0.67

Return on investment and return on equity are decreasing gradually. When we see return on investment it starts decreasing from 2006 and continuously decreasing. Same is the case with return on equity it also starts decreasing from 2006 and gradually decreasing. The reason of declining both is high borrowing cost.

So we can conclude that assets are not managed efficiently. On the other hand we can say that management of assets is very poor due to lack of efficient human resource.

Same is the case with the earning per share; it starts diminishing from 2006 and ultimately remains almost constant.

-4

-3

-2

-1

0

1

2

3

4

5

6

2009 2008 2007 2006

ROI %

ROE %

Income statement Analysis:2009 2007 2006

Gross profit % 21.83 19.74 18.96

C.G.S. % 78.17 80.25 81.04

(Loss)/Profit before tax % (0.15) (0.18) 1.97

(Loss)/Profit % (1.06) (1.13) 0.92

CGS Increases:

Labor cost increases Minimum wages rate increases from 4000 to 6000per person 50% increase

straight-line Depreciation method shows constant fixed cost throughout the asset useful life While in W D V method it shows large cost in early days and low cost in later days.

Company is using 1st one which is also adding in increasing its C G S.

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

2009 2008 2007

GROSS PROFIT %

CGS %

LOSS/PROFIT %

Indirect cost including utility cost also increases

Cost of Inventory (cotton) goes up:

Imports increases from export volume Foreign exchange reserves decreases

Large deficit in B O P

Political instability

Terrorism

Foreign direct investments reduces

Removal of quota by W T O

Loan from I M F under tight term & conditions

Tight monitory policy

Removal of subsidies in agriculture as well as industrial sector

High C O P (seed pesticides herbicides fertilizers) of cotton

Low cotton yield due to unfavorable weather conditions

Inventory Management and Manipulation: The company being a manufacturing concern owns three types of inventory.

• Raw material.

• Work in process.

• Finished goods.

Moving average method for inventory valuation.

Inflationary periods

C G S increases

Inventory decreases

Disinflation periods vice a versa

Wastes are valued at net realizable value

Inventory turnover in Days has been increased from last year that is not a good sign for company’s image; it shows that management is not efficient.

Company in its growth phase suffers losses due to poor management of their resources.

Dividend Policy: The company relies on irrelevance policy of paying dividend The company has not paid dividend since last four years.

Finance Cost:Interest cost and current portion of long term liabilities are increased but more in recent years.Its showing recovery period of most of long term loans is been started since 2006.

It’s worsening the liquidity ratios as well as net working capital.In August 2003, the Chenab Group signed an Rs 900 million loan facility with the National Bank of Pakistan.

2009 2007 2006

FINANCE COST 1,487,708,495 1,124,591,364 838,856,464

FINANCE COST

2009

2008

2007

Factors Affecting The Dividend Policy: Company is in growth phase. Highly debt intensive company, due to due to which interest expense is very high.

Company’s major share holding is in the hands of management, they snatch their shares in the form of remuneration to CEO Directors and executives

As the major share holding is in the hands of management they are more interested in growth of firm than dividends.

71% shares are held by management there is no danger of merger.

Effect of Dividend Policy: The company sold their shares for Rs.18 or19 for the first time at premium, because the

shares have a par value of Rs.10. Now a day the company’s stock is traded at Rs. 2 or 3 in open market.

In these circumstances the company can not issue more shares to get more capital in form of

equity. No more investors are willing to invest in company, so that they have to rely on debts due to

which their financial cost have increased which caused their profitability to decrease.

Working Capital Management: Whenever we are talking about working capital it means current assets of the company.

The management of these assets is very important because significance of their presence in the company.

Working capital includes;

– Cash and cash equivalents.– Stock in trade.– Trade receivables. – Marketable securities.

Cash Management:Cash has significant importance in working capital due to its high liquidity nature. The company has improved its collection tenure against its cash sales, due to the involvement of international financial institution.

All the credit sales are secured against L.C. The company can decrease its cash conversion cycle by decreasing:

– Mail float.

– Processing float.

– Deposit float.

Receivables Management: Most of the company’s trade debts are secured. Account receivables turnover is 91 days means company is recovering its trade debts in 91

days from the date of sales.

It seems that his ratio is high, the basic reason behind is that company is involved in the export business; it takes a long time to complete the transaction.

Growth Perspective:There are many factors by which the growth of a company is affected. Followings are some factors which I analyze;

Political instability High inflation

Energy crises

Increase in the cost of utilities and other inputs

Increase in labor cost, low cotton

Almost 40% increase in raw cotton cost

Financial cost increasing

Suicide bombing

Antidumping duty

Slow down in US economy.

Observations: The company business is family owned and from total outstanding shares the company

held 71% shares. Very first time company sold their shares at premium but now the value of shares in the

market have decreased.

Company cannot issue more shares to get the capital in form of equity.

These figures come out of by splitting the 23% equity ;

Out of which only Common stock is 30%,

Preference shares 21%

Reserves 49%

Dividend to preference shareholder per annum at 9.25%

These figures show that there is no chance of mergers and leverage buyout.

Main points Company over all sales is increasing but less than inflation rate which is an alarming

situation. Due to the reason to heavy shipment cost, load shedding, late delivery & over all

recession major customers have been defaulted in other countries & supply of cheap goods by China & Bangladesh & political instability in Pakistan & different other emergency situations are causing heavy damage to it.

Company key personnel have injected money into company but due to heavy losses that is not sufficient.

Due to losses co share is trading on about 4 rupees. Company is not paying dividend for 2 to 3 years. Major reason of losses is heavy use of leverage & in it major portion is of interest Co is has also done downsizing to cut the cost. Due to load shedding a huge amount of cloth become waste when machinery stop in

process & it also cause delay in delivery. Company has now purchased power plants. Due to increase in sales to associates receivables has been increased which are of huge

amount but in CGS usage of store & spare has been increased heavily which is due to reason that associate need high quality cloth.

Heavy sunk cost is creating problem due to less sales. Company is avoiding to give loan to employees now.

Projected Income Statement

Assumptions

7% decrease in no of unit sold & & 9% increase in price is considered due to inflation. Admin expenses are increased by 7 % which is weighted cost of amounts affected by

inflation & others which are decreasing. Selling expenses has been taken as 4.19 percent of sales which is average of last four

years. Provision for taxation has been taken at .96 percent which is the percentage average of

last four years. Other income & other expenses are taken on average.

FUTURE OUTLOOK : Tough competition with regional players Factors that would exert pressure on Chenab Textile Mills margins.

Confidence of company’s management

Exploration of new markets & customers

Better quality

Suggestions: Avoid more borrowing Use plants at maximum level to reduce per unit fixed cost

Company’s operating cost is almost same throughout the 4 years.

Concentrate & Invest more in marketing sector to increase sales in units

Lack in getting maximum international market share.

All ginning units should be updated and modernized to improve quality and to standardize ginning system.

Cotton Standardization should be introduced immediately at ginning stage to improve lint quality to international standards

To reduce unemployment

Initiate a formal program for regular interaction with Growers and Ginners, particularly to improve the spin ability and quality of cotton.

Productivity and development based culture should be provided

Vocational training should be in the organization.