SERT reported loss per share of PKR 5.29 in FY25 vs loss per share of PKR 7.30 in FY24. Furthermore, in 1QFY26, LPS remained PKR 0.71 (LPS 1QFY25: 0.12). SERT currently operates 20,000 spindles.
The company primarily produces cotton yarn. SERT sells all its products in the local market only. SERT is considered one of the oldest business groups, and the management commented that it is assured that the company will not shut down unless the entire Pakistan textile sector ceases operations.
The company faces high energy prices, which are approximately double the regional cost. SERT utilizes three main energy sources: the Grid, a gas generator, and solar power. The gas generator previously used, but no longer viable/running because it has shifted to LNG (which is expensive). Installed solar capacity is approximately 800 KW. Goal is to increase 35% to 40% of energy cost coverage.
Total energy requirement is estimated to be around 3 MW. The Government’s recent efforts to provide cheaper electricity for industries are expected to have an impact, but the extent and percentages of the benefit are currently uncertain due to ongoing clarifications regarding differential units and average calculations.
The quality of local cotton is poor due to the use of pirated seeds in Pakistan, which temporarily increases quantity but leads to subsequent problems with pests and other factors. Farmers are not receiving adequate compensation, leading to issues like the sugar industry moving into the cotton belt, which affects production. The company must ultimately use imported cotton this year due to local unavailability and quality concerns. Historically, SERT sourced quality cotton from Central Asia via Afghanistan, but those routes have been closed, which is a major blow to the textile industry.
Direct imports via opening LCs require a 100% margin or relying on bank support. SERT is self-financing its working capital, often managing through creditors, extending the working cycle from 15 days to 30 days. The company has no bank financing. Sourcing companies are now being utilized to help manage imports.
Margins have been squeezed because many exporters, facing decreased export margins, shifted into the local market, making it difficult for local players like SERT. Going forward, the immediate future is expected to be difficult, particularly until after March when the new local crop begins to arrive.
Current margins are shrinking. Management believes the company will remain stuck in the current cycle, only exiting and re-entering it every few years because national policies remain undefined. The current strategy centers on decreasing the cost of production (primarily through optimizing solar power usage).
Management expressed that they do not see an immediate positive future for the Pakistani economy or the specific segment of Punjab-based textile mills.
Important Disclosures
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