Strategic Financial Management Faculty: Abdul Jabbar Kasim

Introduction

 Gatronova Group History

The creation of Gani & Tayub (Pvt.) Limited takes us back to the year 1947, when the families of
late Haji Gani Diwan and Tayub Usman Bilwani migrated to Pakistan.

Later in 1955, after an era of mutual collaboration they decided to incorporate Gani & Tayub as a
private limited company.

Gani & Tayub (Pvt.) Ltd became one of Pakistan's leading importers of synthetic yarn, fabrics,
chemicals, dyes, cement, textiles, PVC resin, plastic molding compounds and sugar.

With the passage of time, Gani & Tayub (G&T) Group diversified into various fields and a number
of companies were established in the manufacturing sector.

More than five decades of operational excellence, experience and expertise form a combined
strength to empower the group as the pioneer in synthetic textiles in Pakistan. More than 6,500
employees represent the work force in all its group companies. The annual turnover of the group is
in excess of US$350 million.

The group realizes the importance of customer relationship and strives to deliver products
employing sophisticated technological facilities. The group continuously works for evolving
innovative business strategies with an eye on expansion.

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Strategic Financial Management Faculty: Abdul Jabbar Kasim

 Group Companies

YEAR LOGO COMPANY NAME PRODUCTS / FACILITIES

GANI & TAYUB (PVT.) Importers and Traders of various items

1955
LTD. including plastics and chemicals

POLYESTER PRODUCTS

Polyester Chips Textile Grade

GATRON (INDUSTRIES) Polyester Filament Yarn
1984
LTD. PET Preforms with in-house PET
Resin

PET Resin Bottle Grade

1994 NOVATEX LIMITED
Polyester Chips Textile Grade

KRYSTALITE
1999 PET Packages/bottles
PRODUCTS (PVT.) LTD.

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Strategic Financial Management Faculty: Abdul Jabbar Kasim

TEXTILE PRODUCTS & GARMENTS

Manufacturers of WARP KNIT &

1967 MUSHTAQ & CO. (PVT.) LTD.
RASCHEL FABRICS.

Warp Knit & Raschel Fabrics and

1967 MUSKANIT INDUSTRIES Curtains and scarves with in-
house dyeing & Printing

BONANZA GARMENTS Leading local brand of Ready-

1976
INDUSTRIES (PVT.) LTD. Made Garments

1986 BONANZA APPAREL (PVT.) LTD. Ready-Made Garments for Export

Woven Fabrics on Shuttle-Less

1987 MUSHTEX WEAVERS
Looms

MUSTAQIM DYEING & PRINTING Knitted & Woven Fabrics, Home

1991
INDUSTRIES (PVT.) LTD. Textiles, Bed Linen

 Group Products

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Strategic Financial Management Faculty: Abdul Jabbar Kasim

 PET Resin Bottle Grade

 PET Preforms for Bottles

 PET Bottles

 Polyester Chips Textile Grade

 Polyester Filament Yarn

 Warp Knit & Raschel Fabrics

 Curtains

 Ready-Made Garments

 Scarves

 Bed Linen

 Home Textiles

 Circular & Flat Knit Fabrics

 Woven Fabrics on Shuttle-Less Looms

PET Resin Bottle Grade

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Strategic Financial Management Faculty: Abdul Jabbar Kasim

 Certified to meet FDA & EEC standards.

 Suitable for all applications of PET, including sheet.
 Widely approved by major CSD and Mineral water brands in the World.
 Used by customers in more than 45 countries with major quantities going to Western Europe.       
 Fast Reheat resin is also available.
 With the advantage of regular in house testing on both injection molding and blow molding machines;
Gatronova has the advantage of utilizing this complete loop to continuously optimize it’s quality

Polyester Filament Yarn

 Gatron - the market leader of Polyester Filament Yarn in Pakistan.

 Started in 1984, with production capacity of 2,100 tons per annum: current production
exceeds 32,000 tons per annum.
 International standards of strick quality at very stage ensuring that Gatron's yarn is the
benchmark by which the competition is compared and judged in Pakistan.
 Knitting, dyeing, TYT & other tests caried on more than 8000 spools / bobbins per day.
 Denier Range from 30 denier, Denier per filament from 6 dpf to 0 dpf (super micro)
 Innovation and development made Gatron, the first producer in Pakistan of

micro denier Cationic dye-able

atmospheric dye-able spin dyed
Peach skin texurised yarn super micro 0.1 dpf
bi-component yarns peach yarn for knitting
peach yarn for non sized weaving  

 Other specialty polyester filament yarns being produced like

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Strategic Financial Management Faculty: Abdul Jabbar Kasim

Dope dyed Linen type

spun type air texturised yarn
thick/thin yarn flat peach yarn for sizing and twisting
viscose/polyester commingled cotton/polyester filament commingled

 Texturised yarn, as well as, fully drawn yarn on cops/paper cheese, spun drawn yarn and hot tube
drawn yarn are also produced in lustres of

 Super Bright
 Bright
 Semi-Dull
 Full-Dull

Inventory Management Analysis

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 Strategic Financial Management Faculty: Abdul Jabbar Kasim

Highlights

Gatron Main Products  Increased Prices Trigger Better Inventory Turnover

PET Resin
Polyester Filament Yarn
Polyester Chips Textile Grade
Viscose/polyester commingled
Peach yarn for non sized weaving
Cotton/polyester filament
commingled
The rising trend in recent couple of years for the main products of
Gatron Ltd. has increased inventory turnover from 2.82x in 2006 to
6.19x in 2010
 Rising Input Cost NOT Detrimental
Prices of PTA and MEG saw a rise in
general price trend, especially in the last
Quarter of 2010, however that contributed
to the time value gain due to time gap in purchasing the raw materials to
the point of product sales.

 Lower Inventory Days Strengthens Operating Cycle

Gatron Main Raw Materials The rising trend in Filament yarn industry across Asia in recent
Purefied Terapathic Acid (PTA) years (source: yarn & fibres exchange) has reduced the outstanding
Monoethenly Gylcol (MEG)
inventory days, thereby making Gatron efficient in terms of
Paraxelene (Px)
warehousing cost and managing operating cycle

 High Demand in Local market Boost Sales

With an Average 71% production of yarn attributed to local markets
(source: aptma.org), the product demand for filament yarn and cotton
yarn remains high in the country, contributing to rising sales for Gatron
(Industries) Ltd. (Rs. 8.62 billion in 2010, highest so far)

Inventory TurnoverHeld
Days Inventory (Times)
7
180
167 6.19
6 160
140
5
120 122
4 100 3.91 103
3.77
80 3.46
3 2.82
60 63
2 40
1 20
0
0 2007 2008 2009 2010
2006 2007 2008 2009 2010

Source: Bloomberg Source: Bloomberg

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Strategic Financial Management Faculty: Abdul Jabbar Kasim

Inventory Management and Efficiency

  2006 2007 2008 2009 2010

Inventory Turnover (Times) 2.82 3.46 3.91 3.77 6.19
Days Inventory Held 138 167 122 103 63
Avg. Collection Period (days) 37 20 33 26 22
Debtors Turnover (Times) 11.49 13.96 12.05 12.62 16.46
Operating Cycle (days) 175 187 154 129 85

The company has significantly reduced its outstanding inventory from 138days in 2006 to 63days in
2010, suggesting that Gatron (Industries) Ltd. is efficiently converting its stocks into finished goods and
finally into sales. The main reasons for above mentioned scenario are:

- Lower of Weighted Average Method of Stock Valuation

- Rise in Key Product Prices in Asian Market
- Continued High Demand for yarn Products in Local Markets

The stocks/inventory is valued at lower of weighted average cost by the company under review which
helped absorb the affect of price increase in recent years of its main raw materials and did not affect the
income statement in a harmful manner. PTA and MEG, the two main raw materials used in the
production of Polyester Filament Yarn and PET resin, the company’s main products, saw a price rise in
2009 after a dreadful last quarter of 2008, with a slight decline in seen 2010 which rose back up to its
end in CY 2010 (see fig below) the Asian markets.

Source: yarnsandfibres.com Source: yarnsandfibres.com

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Strategic Financial Management Faculty: Abdul Jabbar Kasim

The Rise in prices of key finished products of the company was a major factor in increasing the
inventory turnover and also reducing the outstanding inventory. The prices help boost sales as the
company recorded the highest sales of Rs. 8.62billion in 2010 which was 15% higher than that of 2009.
Because the Cost of inputs was also rising the company recorded more or less stable gross profit
margins in the last five years. If we look at the inventory turnover figures, we also see a sharp rise from
2009 to 2010 (see fig. on previous page). This is mainly due to the pre-buying from customers in
anticipation of VAT imposition on polyester yarn from 1st July 2010 which was subsequently deferred
by government up to September 30, 2010.

Sales Vs COGS
10,000
9,000 8,620
8,053 The Prices of main
8,000 7,497
7,056 6,929 Products, Polyester
7,000 6,271
5,992 Filament yarn, Viscose
6,000 5,449
4,711 Filament yarn, PET, and
4,359
5,000
Polyester Chips- Fiber
4,000
Grade, all saw a rising
3,000 trend in both Asian markets
2,000
1,000
-
2006 2007 2008 2009 2010

Sales (Rs. Mill) COGS (Rs.Mill)

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Strategic Financial Management Faculty: Abdul Jabbar Kasim

and local market in the last few years (see. Fig. below). It is due to the fact that the entire Polyester industry grew
in last two years. According to Bloomberg sources the Consumption of polyester staple fiber increased 3% to 12.4
million tons in 2009. Asia, though account for 88% of global production consumed 79% of global supplies in
2009, thus becoming the major exporter of PSF. However, in recent years, domestic demand within Asian
countries has seen a steep rise. In the past 9 years, consumption of PSF recorded an increase of 7.7% per annum
slightly faster than the 7.4% growth in production

Source: yarnsandfibres.com Source: yarnsandfibres.com

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Strategic Financial Management Faculty: Abdul Jabbar Kasim

Third factor in enhancing the turnover ratios of inventory and improving sales for Gatron (Industries)
Ltd. is the continued high demand for yarn products in the local market. From the below figure, yarn
production levels in the local market, for last 6-8years, have been on an average of 71% and have also
increased by 5% and 3% in the last two years respectively. According to the current scenario with Oil
prices on the rise, prices and demand for PTA, MEG, PYF and PET is likely to stay on the high thus
adding to more profitability for the entire polyester sector in near future.

PRODUCTION, EXPORTS & DOMESTIC REQUIREMENT OF YARN - '000' Kgs

PERIOD PRODUCTION CONSUMED IN MILL SECTOR EXPORTS AVAILABLE FOR LOCAL MARKET
QUANTITY % OF PROD. QUANTITY % OF PROD. QUANTITY % OF PROD.

2001-02 1,818,345 77,328 4.25 539,500 29.67 1,201,517 66.08

2002-03 1,924,936 79,435 4.13 525,130 27.28 1,320,369 68.59
2003-04 1,938,908 93,141 4.8 514,279 26.52 1,331,487 68.67
2004-05 2,290,340 105,362 4.6 520,782 22.74 1,664,196 72.66
2005-06 2,216,605 95,710 4.32 691,492 31.2 1,429,403 64.49
2006-07 2,727,566 104,423 3.83 699,259 25.64 1,923,874 70.53
2007-08 2,809,383 105,443 3.75 594,936 21.18 2,109,004 75.07
2008-09 2,862,411 106,416 3.72 526,246 18.38 2,229,749 77.9
Source: aptma.org

Apart from all these

Operating Cycle Shrinks factors which highlights
200 the fact of how inventory
180 187 was managed and sales
160 154 were improved, if we look
140
129
at other factors that were
120 influential in achieving
100
80 85 better inventory and
60
operation cycles, Average
40 Collection period on pg.1
33 26
20 20 22 shows that the company
0 has reduced its collection
2007 2008 2009 2010
of receivables
Avg. Collection Period (days) Operating Cycle (days) significantly so that every
next batch of inventory is
quickly available and ready for processing. The Average Collection period has been reduced from
37days in 2006 to 22days in 2010 which thereby contributes to the better Debtors turnover ratio and
ultimately reducing the operating cycle from 175days in 2006 to 85days in 2010 - a remarkable
improvement of 53% reduction in number of days for stocks to convert into cash/sales.

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Strategic Financial Management Faculty: Abdul Jabbar Kasim

Average Collection Days Inventory Days Outstanding

140
40
120 Ibrahi
35 Ibrahi m
m 100 Fibers
30
Fibers PPTA
25 80
PPTA ICI
20 60
Gatro
15 ICI 40 n
(Indus
10 Gatro 20 tries)
n Ltd.
5 (Indus 0
0 tries) 2007 2008 2009 2010
2007 2008 2009 2010 Ltd.
Competitive positioning in Inventory
Management Terms
The Company may not be the best among its competitors however in recent years it has been the most
efficient in managing inventory as it has reduced its outstanding inventory days by 53% in last 4-5years,
indicating that the company is improving rapidly
in terms of managing:
Operating Cycle (days)
160 - Its lead time
140 - Warehouse Space efficiently
120 Ibrahim
- Idle work hours and reducing them to
100
Fibers manage extra inventory
PPTA - Added cost of warehouse and storage of
80
stock
60 ICI
- Stock obsolesce in keeping old inventory
40 Gatron
(Indust
20 ries) Among all companies Ibrahim fiber
Ltd.
0
2007 2008 2009 2010
lowered its inventory outstanding days by
38%, PPTA by 51%, ICI Limited by 5%
and Gatron (Industries) Ltd. by 53%.
The Average collection days for the company are similarly more than other however the rate at
which the company has reduced its receivable days is more than others in the last 3-4years. Same
is the case with its operating cycle, a remarkable achievement as it the company reduced its
operating cycle by 54% in last 4years whereby only PPTA getting the better of Gatron by
reducing their operating cycle by 79% from 75days in 2007 to 16days in 2010.

Source: Bloomberg.com

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