Gatron (Industries) Limited

Gatron (Industries) Limited (PSX: GATI) was incorporated in Pakistan as a public limited company in 1980. The company is engaged in the manufacturing of Polyester Filament Yarn through its self produced Polyester Polymer/Chips. Besides, the company also produces PET Preforms, PET Resins, PET Bottle, BOPET film, PET sheet, fashion apparel, Home Textile etc. The company belongs to Gani & Tayub Group (G&T). Pattern of Shareholding As of June 30, 2025, GATI has a total of 108. 729 million shares outstanding which are held by 1636 shareholders. Associated companies, undertakings and related parties have the majority stake of 32. 32 percent in the company followed by local general public holding 29. 51 percent shares. Directors, CEO, their spouse and minor children account for 25. 27 percent shares of GATI while banks, DFIs and NBFIs hold 11. 54 percent shares. Around 1. 30 percent of the company’s shares are held by foreign general public. The remaining shares are held by other categories of shareholders. Historical Performance (2019-25) Except for a plunge in 2020 and 2025, GATI’s topline posted growth in all the years under consideration. Conversely, its bottomline registered growth only in 2019, 2021 and 2022. Gross margin of GATI which had been inching down until 2020 posted a rebound thereafter to boast its optimum level in 2022. However, it dived down in 2023 followed by an uptick in 2024. In 2025, GATI’s gross margin hit its lowest level. Conversely, operating margin and net margin grew in 2019 and nosedived in 2020. Operating margin took an upward flight since 2021 and reached its peak in 2022. On contrary, net margin shriveled in 2021 and inched up in 2022. In 2023, all the margins plunged. In 2024, operating margin almost doubled; however, net margin hit the negative zone. In 2025, both operating and net margins were reported in the negative zone (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below. In 2019, GATI’s topline grew by 36. 14 percent year-on-year to clock in at Rs. 17, 707. 33 million. This came on the back of 26 percent rise in the sales volume coupled with an upward revision in the prices of Polyester Filament Yarn (PFY). The price revision was in line with the increase in the prices of raw materials as well as Pak Rupee depreciation. Cost of sales grew by 36. 5 percent year-on-year, resulting in 32. 73 percent year-on-year growth in gross profit while GP margin ticked down from 9. 60 percent in 2018 to 9. 35 percent in 2019. Distribution expense sank by 3. 43 percent year-on-year in 2019 despite higher sales volume on account of low advertisement and promotion budget and low handling, freight and transportation charges incurred during the year. Administrative expense rose by 9. 99 percent year-on-year in 2019 due to higher payroll expense as the company enhanced the production capacity of PFY from 29, 074 MT in 2018 to 32, 502 MT in 2019. Other expense posted 20. 77 percent year-on-year spike in 2019 due to hefty exchange loss, higher provisioning for WPPF and greater loss incurred on scrapped items of property, plant and equipment. Other income also slumped by 30. 34 percent year-on-year in 2019 due to high-base effect created by the gain on the disposal of property, plant and equipment in 2018. Despite higher expenses, robust revenue stream saved the day for GATI as its operating profit grew by 53. 21 percent year-on-year in 2019 with OP margin also progressing from 5 percent in 2018 to 5. 65 percent in 2019. Finance cost grew by 20. 92 percent year-on-year in 2019 on the back of high discount rate as well as increased long-term and short-term borrowings obtained during the year for the purchase of fixed assets and for working capital requirements respectively. Gearing ratio grew from 11 percent in 2018 to 15 percent in 2019. What proved to be the game changer for GATI’s bottomline in 2019 was a staggering 146. 22 percent year-on-year rise in investment income which clocked in at Rs. 1120. 09 million. Investment income comprised of dividend income from a subsidiary company, Messrs Gatro Power (Private) Limited and from an associated company, Messrs Novatex Limited. Massive investment income not only drove the bottomline up by 82. 79 percent year-on-year in 2019 to clock in at Rs. 1794. 74 million but also resulted in a sizeable rise in NP margin from 7. 55 percent in 2018 to 10. 14 percent in 2019. It should also be noted that the investment income pushed NP margin to a level higher than GP margin and OP margin in 2019. EPS grew from Rs. 25. 59 in 2018 to Rs. 46. 78 in 2019. In 2020, the effect of COVID-19 came to play resulting in 26. 93 percent year-on-year drop in GATI’s topline which was recorded at Rs. 12938. 38 million. The revenue compression was the result of 30 percent decline in the sales volume of PFY, firstly because of an extreme dumping and imposition of 17 percent sales tax on textile vis-à-vis zero rating earlier and then because of the outbreak of COVID-19. Cost of sales also slid by 25. 28 percent year-on-year in 2020 due to 66 days of no production on account of lockdown imposed during the year. Gross profit inched down by 42. 92 percent year-on-year in 2020 with GP margin marching down to 7. 3 percent due to higher per unit fixed overhead cost on account of low capacity utilization. Just before COVID-19, the company also enhanced the production capacity of PFY to 36, 974 MT but it also stayed idle due to lockdown. 8 percent drop in distribution expense in 2020 is a no brainer given depressed sales volume. Administrative expense, however, grew by 13. 42 percent year-on-year in 2020 due to higher payroll expense in line with inflation while the number of employees plummeted from 778 in 2019 to 772 in 2020. Other expense slipped by 49. 32 percent year-on-year in 2020 due to lower provisioning done for WWF and WPPF and also because of lower magnitude of exchange loss. Other income posted a tremendous rise of 547. 62 percent year-on-year in 2020 due to a massive rise in the gain on disposal of property, plant and equipment. Operating profit tapered off by 54. 93 percent year-on-year in 2020 with OP margin sliding down to 3. 5 percent. During 2020, GATI’s finance cost rose by 1082. 75 percent year-on-year on account of massive spike in borrowings to undertake capital expenditure and also for working capital requirements. This pushed GATI’s gearing ratio up from 15 percent in 2019 to 34 percent in 2020. However, 8. 27 percent growth in investment income due to considerably high dividend income from Messrs Novatex Limited diluted the negative impact of high finance cost on the bottomline. GATI’s bottomline sank by 40. 90 percent year-on-year in 2020 to clock in at Rs. 1060. 63 million with NP margin of 8. 2 percent. EPS settled down to Rs. 27. 65 in 2020. GATI’s net sales once again took an upward flight in 2021 with 27. 97 percent year-on-year growth in topline. GATI’s topline stood at Rs. 16, 557. 56 million in 2021. This was due to increase in the sales volume of both PFY and PET pre-forms during the year. The capacity utilization of PFY unit stood at 82 percent in 2021 which was still lower than the capacity utilization of over 95 percent recorded before 2014. This was due to high quantity of imported yarn in the market. Cost of sales grew by a lower magnitude of 22. 49 percent year-on-year in 2021 on account of reduction in energy cost as GIDC was removed as per the directives of the Supreme Court of Pakistan. This resulted in 97. 53 percent rise in gross profit with GP margin climbing up to 11. 27 percent in 2021. Distribution expense grew by 21. 94 percent year-on-year in 2021 due to rise in freight and transportation charges on account of higher sales volume. Administrative expense tumbled by 2. 74 percent year-on-year in 2021 due to lower payroll expense as GATI reduced its workforce from 772 employees in 2020 to 769 employees in 2021. Other expense spiraled by 52. 2 percent year-on-year in 2021 due to higher provisioning against WWF and WPPF and also because of impairment and write offs of fixed assets during the year. Other income built up by 38. 87 percent year-on-year in 2021 due to reversal of provision for GIDC and re-measurement gain on the discounting of provision for GIDC. Operating profit mounted by 191. 66 percent year-on-year in 2021 with OP margin rising up to 7. 95 percent. Finance cost contracted by 38. 15 percent year-on-year in 2021 due to monetary easing. This was despite an increase in borrowings which drove the gearing ratio up to 52 percent in 2021. Investment income fell by 90. 69 percent year-on-year in 2021 as the company received no dividend income from Messrs Novatex Limited during the year. Lower investment income culminated into bottomline growth of 0. 48 percent in 2021 to clock in at Rs. 1065. 72 million with NP margin of 6. 44. EPS grew to Rs. 27. 78 in 2021. In 2022, GATI’s topline posted the highest year-on-year growth of 44. 71 percent year-on-year to clock in at Rs. 23, 959. 65 million. This was on account of higher quantum of sales of PFY coupled with high prices. During the year, the company increased its production capacity to 75000 MT and utilized 76 percent of its installed capacity. Cost of sales grew by 41. 47 percent year-on-year on account of increase in commodity prices and Pak Rupee depreciation. Higher off-take and better pricing resulted in 70. 15 percent year-on-year rise in gross profit with GP margin climbing up to 13. 26 percent in 2022. Distribution expense grew by 41. 84 percent in 2022 on account of higher sales volume which drove up the handling, freight and transportation charges. Administrative expense also grew by 23 percent year-on-year as higher installed capacity required more human resource induction. Employee headcount grew from 769 in 2021 to 832 in 2022, translating into higher payroll expense. Other expense posted year-on-year growth of 39. 34 percent in 2022 due to higher provisioning done for WPPF, higher impairment for long-term investment and slow moving stores and spares as well as higher exchange loss. However, this was offset by 210. 70 percent growth in other income which was the result of gain on disposal of property, plant and equipment. Operating profit grew by 101 percent in 2022 with OP margin hiking to 11 percent. Finance cost grew by 145. 85 percent year-on-year in 2022 due to high discount rate as well as increased borrowings which took the gearing ratio to 58 percent. However, investment income came to rescue with 100 percent year-on-year growth in 2022 on account of higher dividend income from Messrs Gatro Power (Private) Limited. Bottomline grew by 71. 46 percent year-on-year in 2022 to clock in at Rs. 1827. 24 million with NP margin of 7. 6 percent. This was despite the imposition of super tax in 2022. EPS mounted to Rs. 47. 63 in 2022 which was restated to Rs. 23. 81 after the issuance of bonus shares. During 2023, GATI’s net sales grew by 14. 29 percent year-on-year to clock in at Rs. 27, 383. 78 million. However, it couldn’t trickle down to produce a healthier bottomline. The main reason for the lackluster performance was low sales volume due to dumping by Chinese PFY producers, slow supply of raw materials from Messrs, Lotte and also because of shortage of gas. Moreover, low demand of PET pre-forms produced by the company from downstream industry also affected sales volume. Due to import restrictions imposed by the government, the company wasn’t able to complete the import of machinery and spare parts for its new projects under installation which halted the timely commencement of their operations. The topline growth was merely the result of price revisions while sales volume remained depressed during the year. Furthermore, high cost of sales due to Pak Rupee depreciation, higher commodity prices as well as energy prices pushed gross profit down by 54. 24 percent year-on-year in 2023 with GP margin falling down to 5. 31 percent. Distribution expense rose by 28. 66 percent in 2023 due to spike in freight & distribution charges. Administrative expense also multiplied by 43. 54 percent in 2023 due to high inflation. Number of employees also grew from 832 in 2022 to 837 in 2023. Other expense tumbled by 61. 72 percent in 2023 as the company didn’t book any profit related provisioning during the year. Other income also shrank by 79 percent in 2023 due to high-base effect as GATI recorded gain on disposal of its property, plant & equipment and also wrote back some of the liabilities no more payable in 2022. Operating profit tapered off by 79 percent in 2023 with OP margin falling down to 2 percent. Finance cost mounted by 243. 59 percent in 2023 due to high discount rate and also because of increased short-term borrowings for working capital requirements and increased long-term borrowings for CAPEX. During the year, GATI completed phase 2 expansion of its PFY plant which increased its capacity from 75000 tons per annum to 99000 tons per annum. Furthermore, the company also installed a polymer plant with capacity of over 230, 000 tons. The company also commissioned expansion project for recycled yarn from PET bottle flakes besides enhancing the production capacity of black yarn by 25 percent. Elevated borrowings drove up GATI’s gearing ratio to 68 percent in 2023. Investment income grew by 375 percent in 2023 which almost offset the finance cost incurred by the company during the year. Robust investment income was the result of handsome dividend from Messrs Gatro Power (Private) Limited. GATI’s net profit slipped by 88. 76 percent year-on-year to clock in at Rs. 205. 30 million in 2023 with EPS of Rs. 2. 68 and NP margin of 0. 75 percent. GATI’s net sales posted 24. 21 percent year-on-year rise in 2024 to clock in at Rs. 34, 013. 58 million. This was due to the impact of Pak Rupee depreciation. Overall demand remained sluggish due to excessive dumping of imported yarn in the local market at exceptionally low prices. Moreover, low demand from downstream industry due to existing political and economic crisis as well as elevated level of inflation also took its toll on GATI’s sales volume during 2024. As a result, the company had to operate on curtailed capacity despite the fact that the company had invested generously in increasing its annual capacity to around 95, 000 tons. This resulted in hefty increase in fixed cost per unit which included depreciation of its newly installed capacity. Gross profit grew by 43. 56 percent in 2024 with GP margin inching up to 6. 14 percent. Distribution expense dropped by 21. 30 percent in 2024 on account of lower sales volume which resulted in lower handling, freight and distribution charges incurred during the year. Administrative expense surged by 12. 46 percent in 2024 on account of inflationary pressure which drove up the payroll expense despite workforce contraction from 837 in 2023 to 768 in 2024. Other expense mounted by 31. 35 percent in 2024 due to impairment booked on ECL. Other income multiplied by 288. 28 percent in 2024 due to tremendous profit on deposits, exchange gain, reversal of provision for WWF, liabilities no longer payable written back, gain on disposal of fixed assets and amortization of long-term loan granted to a subsidiary company. Operating profit strengthened by 151. 60 percent in 2024 with OP margin ticking up to 4. 1 percent. What turned tables for GATI was a spike of 39. 10 percent in its finance cost during the period which was the result of record high discount rate. The company settled a huge portion of its outstanding loans in 2024 which resulted in gearing ratio of 49 percent. Regrettably, there was no significant investment income to offset high finance cost as was the case in the previous years. This was due to no dividend income received during the year on account of disturbance in the operation of Messrs Gatro Power (Private) Limited due to irregular gas supply. Consequently, GATI made net loss of Rs. 204. 36 million in 2024 with loss per share of Rs. 2. 36. After four years of posting topline growth, GATI recorded 22. 60 percent year-on-year decline in its net sales in 2025 which clocked in at Rs. 26, 328. 04 million. While demand was already grappling due to dumping of imported yarn, the company had to downward revise its prices during the year due to a drastic fall in the prices of international raw material prices. The company had huge stockpiles of raw materials and finished goods inventory from the previous year, resulting in hefty inventory loss. Since 2020, the company has invested Rs. 20 billion to increase its capacity of mixed deniers from 65000 tons in 2020 to around 99000 tons. This not only resulted in high finance cost for the company (long-term financing acquired for capital expenditure) but increased idle capacity also resulted in high fixed cost per unit. Gross profit diminished by 57. 55 percent in 2025 with GP margin falling down to its lowest level of 3. 36 percent. During the year, National Tariff Commission (NTC) imposed anti-dumping duty on Polyester Filament Yarn from major Chinese exporters ranging from 5. 35 percent to 20. 78 percent. Distribution expense multiplied by 47. 72 percent in 2025 due to higher handling, freight and transportation charges incurred during the year. Conversely, administrative expense ticked down by 13. 41 percent in 2025 due to workforce rationalization to 749 employees which resulted in lower payroll expense. Other expense mounted by 38. 23 percent in 2025 due to exchange loss and higher impairment loss recorded on long-term investment in its wholly owned subsidiary companies. Conversely, other income diminished by 61. 43 percent in 2025 due to a drastic decline in profit on deposits and no exchange gain recognized during the year. For the first time over the period under consideration, GATI posted operating loss of Rs. 101. 45 million in 2025. Finance cost ticked up by 3 percent in 2025 due to a momentous increase in short-term borrowings. Increased borrowings coupled with a decline in cash and bank balances and equity resulted in a gearing ratio of 58 percent in 2025 versus 49 percent in the previous year. No investment income was recorded during the year The company posted net loss of Rs. 1971. 12 million in 2025, up 864. 54 percent year-on-year. This translated into loss per share of Rs. 18. 13 in 2025. Recent Performance (1HFY26) During the first half of the ongoing fiscal year, GATI posted 3 percent uptick in its net sales which clocked in at Rs. 13, 528. 61 million. The imposition of anti-dumping duty on PFY from major Chinese exporters and its ingenuous implementation since September 2025 appears to have produced a positive impact on the demand and price of locally produced yarn. This coupled with initiatives to cut down energy cost by increasing solar power capacity resulted in 480. 58 percent enhancement in gross profit in 1HFY25 with GP margin clocking in at 3. 21 percent versus GP margin of 0. 57 percent recorded in 1HFY25. Lower POL prices resulted in 38. 96 percent thinner distribution expense in 1HFY26. Administrative expense also slid by 4. 69 percent in 1HFY26 likely due to workforce rationalization. Other expense mounted by 137. 93 percent in 1HFY26 apparently due to exchange loss and increased impairment loss on long-term investments. Other expense was offset by 157. 52 percent higher other income recognized during the period which appears to be the consequence of investment of Rs. 350 million in Shariah compliant TDRs as well as amortization of government grant. GATI was able to post operating profit of Rs. 97. 83 million in 1HFY26 versus operating loss of Rs. 428. 60 million recorded in 1HFY25. Finance cost tapered off by 26. 69 percent in 1HFY26 due to monetary easing and lesser outstanding liabilities as of December 31, 2025. Net loss contracted by 50. 93 percent in 1HFY26 to clock in at Rs. 738. 49 million. This translated into loss per share of Rs. 6. 79 in 1HFY26 versus loss per share of Rs. 13. 84 posted in 1HFY25. Future Outlook The future performance of GATI is contingent upon how effectively the dumping of Chinese PFY is controlled by imposing and collecting anti dumping duties (ADD) on the importers. This will not only benefit the local producers but will also take the indigenous PFY production to a level which will meet the local demand and create import substitution. While the market share of GATI and its cost element highly depend on the external circumstances, what GATI can do right now to build up its margins and bottomline is to undertake efficient capital risk management and scale down its gearing ratio which has been growing unabatedly, culminating into mounting financial cost. This can be done by issuance of right shares. Moreover, GATI can tap export market and sell PFY to the countries which have high ADD or restrictions on the import of Chinese PFY. This will enable the company to utilize its idle capacity and also benefit from fluctuations in the value of local currency.

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