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The single-client dependency may turn into misery for the Matin Spinning Mills in the long run if its only client, an exporter, suffers business, according to research.
The yarn manufacturer now sells all of its products to its parent company Dulal Brothers Group, fulfilling the latter’s 50 per cent daily demand.
Single-client dependency poses various risks to a company in the long run, though it ensures steady revenue flow, for the time being, said the research carried out by EBL Securities.
If the DBL Group faces any adversities, it will leave a negative impact on the yarn maker, said the research.
In response to a query, Matin Spinning Mills Secretary Md Shah Alam Miah claimed that the reality is in stark contrast to that of the research.
“Matin Spinning supplies only 30 to 35 tonnes of the total yarns required by the DBBL Group. Moreover, the company produces high-quality yarn, especially for the DBL Group. So I don’t see any risk in the business,” he said.
The EBL research said dependency on imported raw materials remains another challenge to the company as inflation in foreign exchanges may affect its profitability at any time.
It used to spend Tk 168.44 to import each unit of raw materials in fiscal 2017-2018. But the amount rose to Tk 200.64 in the next year.
As a consequence, the company’s net income declined 68.82 per cent in FY19 though it reported a 6.75 per cent growth in sales.
Later in FY20, the raw materials cost decreased to Tk 169.38 which led to 43.76 per cent gross profit growth despite 9.72 per cent top-line decrease.
Besides, the company’s business prospect is inherently connected with the macro and global economy which increases its business risk. Some other issues like increase in gas price and change in cash and other incentives can also hit its business hard, noted EBL Securities.
Matin Spinning has gained a 24 per cent growth in gross revenue and a 118 per cent growth in net profit in the first 9 months of FY21.
The company has been scaling up its production capacity for the last few years, which has contributed to its high sales volume to a great extent.
Matin Spinning has recently decided to expand its production capacity by 10 tons a day, in addition to its existing capacity of 51 tons a day.
Meantime, it has been successful to reduce its long-term loans from Tk 36.8 crore in 2018-19 to Tk 12.7 crore in 2019-20. The figure was the same as on March 31 this year.
However, the company secretary claimed that they currently have no long-term loans.
“We normally take loans to expand our businesses. Such loans are normally repaid within two or three years,” he said.
Matin Spinning is a sister concern of DBL Group, a diversified conglomerate with various business ventures in textile industries, including spinning, knitting, dyeing, and apparel manufacturing.
It produces four types of yarns: Cotton yarn, Melange yarn, Synthetic yarn, and Recycled yarn.
The company has a market capitalisation of Tk 625 crore while its paid-up capital is Tk 97.49 crore and authorised capital is Tk 150 crore.
It disbursed an 18 per cent cash dividend for FY20. Currently, it has a Tk 290 crore in reserve.
Its share price has been in an upward trend since April this year. The price, which was Tk 35 in April, increased 92 per cent to stand at Tk 67.2 on September 28.
The company was incorporated in 2002 and commenced its commercial operation in 2006.
It got listed with the stock exchanges in 2014. It has two manufacturing facilities in Gazipur’s Kashimpur.
