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Financial Policies of Lucky Knits
Pvt Ltd
Submitted To: Kamran Rabbani
Daryl Anthony
Khizer Moosvi

Financial Policies of Lucky Knits Pvt Ltd

Prof. Introduction to Business Finance
Institute of Business Management
Respected Sir,
We are submitting here the Term Project of IBF given to us on the topic
Financial management policies of Lucky Knits Pvt Ltd. The research
on this report has provided us extensive knowledge of our course
concepts as well as its implementation in practical world. We believe
that the report will be in accordance with the guide lines provided for
its preparation.
The following report has prepared us for the financial practices
operated in industries and strategic implementation of almost all the
topics of our course which will help us to a greater extent in our future
professional careers. We owe gratitude to the Finance Manager of
Lucky Knits, Mr. Shiraz Mahmood for providing us with the information
and giving us precious time
We are thankful to you for your assistance in making this report. If you
have any queries regarding the report we will be obliged to discuss it
with you at your request. We will be grateful if you provide us with
suggestions to improve our study.
Yours sincerely,
Ghansham Kessani
Daryl Anthony
Khizer Moosvi

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Financial Policies of Lucky Knits Pvt Ltd


Lucky Knits is a private

limited company. It is a latest addition
to Yunus- Karims Group of companies
and was established in 2004. A totally
vertical facility for knit garments with
an initial installed capacity of 800,000
lbs. a month and phase II scheduled for
June 2006 for 2 million lbs a month
capacity. They are one of the largest
vertically integrated companies
manufacturing a variety of fabrics and


Competitors: In textile market, there are a lot of competitors of lucky knits. But lucky knits
had a powerful brand image in market. Its due to the YUNUS BROTHERS
because it is a largest conglomerate in Pakistan. Competitors of Lucky knits
are: The little Knit kit Company
Pure Handknit
St John
Draper Kniting.



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Financial Policies of Lucky Knits Pvt Ltd

Yunus Brothers Group ("YB") was founded in 1962 as a commercial exporter

of cotton yarn to far-east countries under the dynamic leadership of late Mr.
Abdul Aziz Tabba
YB consists of nine companies with an annual turnover of over USD 800
million with export sales accounting for over 68% of annual turnover
YB is a leading textile house and is engaged in diverse aspects of textile
manufacturing consisting of spinning, weaving, processing, finishing and
Besides playing a leading role in textile, YB has diversified its activities and
owns the largest cement manufacturing plant in the country with a
production capacity of 7.5 million tons per annum
YB received more than 20 export trophies from the Government of Pakistan,
including one for the highest overall exports and another for the highest
exports in the Textile sector


Yunus Brothers is the flagship company and trading arm of the group which
was formed in 1962 by Chairman (Late) Haji Abdul Aziz Tabba. Starting as a
small commercial Exporter of Yarn and Grey Cloth to Far Eastern countries,
the company developed rapidly and expanded its Exports to Europe and USA
also. Yunus Brother Group is recognized internationally in the world of
Textiles and enjoying a strong reputation in respect of consistent quality,
reliability and superb customer services. The YB Group is engaged in
diversified manufacturing activities including Textile Spinning, Weaving,
Processing, Finishing, Stitching, Trading, Cement Manufacturing and Power
Generation. The Group consists of the following industrial units:
1. Lucky Cement Limited
2. Gadoon Textile Mills Limited
3. Fazal Textile Mills Limited
4. Yunus Textile Mills Limited
5. Lucky Textile Mills
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Financial Policies of Lucky Knits Pvt Ltd

6. Lucky Energy (Private) Limited

7. Lucky Knits (Private) Limited
8. Royale Linen New Jersey - USA
9. Security Electric Power Company Limited
10. Lucky Paragon Ready Mix Limited
11. Yunus Energy Limited
The YB Group is not only a partner in the economic development of the
country, but also a well-wisher who believes in the highest ideals of
Corporate Social Responsibility. The YB Group has established Aziz Tabba
Foundation which is engaged in a number of social welfare activities for the
benefit of poor and needy people. The projects sponsored by the Group
1.Tabba Heart Institute, Karachi
2.Aziz Tabba Dialysis Centre, Karachi
3.Women & Children Hospital Ghazni Khel
4.Lucky Welfare Dispensary, Pezu
Yunus Brothers Group:
Yunus brothers Group (YB) was initiate its operations in
1962 as a commercial exporter of cotton yarn to a
number of Far East countries whilst being an active
member in the international trading of numerous
Fazal Textile Mills Limited
Fazal Textile is a spinning mill with over 65,000 installed
spindles that produce 100% Grey cotton ring spun yarn
and a wide range of Blended and Heather yarns.
Gadoon Textile Mills Limited
The first of only two mills in the world which started
producing compact core spun yarn, the Gadoon Textile
Mills house 194,392 installed spindles producing high
quality compact yarn, murata jet spinning yarn, core
spun yarn and 100% Grey cotton ring spun yarn.
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Financial Policies of Lucky Knits Pvt Ltd

Lucky Cement Limited

Lucky Cement is the largest Portland cement producer in
Pakistan that has a capacity of 7.75 mtpa. It has a dry
process technology that runs on 100% coal firing system.
Yunus Textile Mills Limited
A complete vertically integrated textile mill that
incorporates state-of-the-art machinery which employs
the processes of weaving, printing, dyeing and finishing.
With a subsidiary branch in New Jersey USA by the name
of Royale linens, it is the largest exporter of home textiles
from Pakistan.
Lucky Energy (Pvt) Limited
A NEPRA approved captive power unit that supplies
uninterrupted power to Fazal Textile Mills and Lucky
Textile Mills with a generation capacity of 17.60MW.
Aziz Tabba Foundation
Incorporated in 1987, it is a platform where various
humanitarian projects in the fields of health, education
and housing have been initiated. It provides steadfast
financial support to Aziz Tabba kidney center as well as
the Tabba Heart Institute.
Aziz Tabba Kidney Center
State-of-the-art health and laboratory facilities are available which provide
dialysis facilities at exceptionally subsidized rates, treating patients without any
discrimination whether it is financial or otherwise. The center has also invested
in 24 dialysis machines that are present, catering to an average of 100 dialysis
procedures a day, working round the clock.
Tabba Heart Institute
The institute is a highly modern 120 bed hospital which has treated more than
30,000 patients since its inception. It includes clinical laboratory services and
satellite outlets throughout the city.


Lucky Knits Pvt Ltd

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Financial Policies of Lucky Knits Pvt Ltd

A strategic global player with core businesses in textile and

commercial, industrial and residential real estate

A debt free corporation with aggressive investment projects in


A socially responsible company, striving to serve our business partners,

communities and collaborators.

A service company, with manufacturing and technological capabilities

Established in Year 2001 under the umbrella of Yunus Brothers, the

plant has grown over the last ten years to be one of the prominent
Garment exporting houses in Pakistan.

Are one of the few company which have a vertical infrastructure

starting from Spinning to finishing

Mission of Yunus Brothers:
To provide our customers with products and services of a higher quality and
value, promptly catering to their needs with efficiency and honesty, making
them our partners and allies. In turn, they will reward us with leadership in
sales, generation wealth and prosperity for our employees, associates,
shareholders and the communities that we serve.

Vision of Yunus Brothers:

To be leaders in our core business, Textiles and Real Estate, by providing
added value for the products and services we offer and always exceeding our
customer's expectation.

Mission of Lucky Knits Pvt Ltd

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Financial Policies of Lucky Knits Pvt Ltd

To provide unrivalled quality and assurance to all our

customers by employing techniques that serve both our
internal and external environments with most economical
of prices with 100% on time deliveries.

Vision of Lucky Knits Pvt Ltd

To be recognized as the best knitted garment
manufacturing in the World
Whilst providing a socially responsible commitment to the
environments we invest in.

We believe in forging long-term relationships with our customers and our
employees. Our main goal is delivering our customers superior customer
service by catering their needs with efficiency and honesty as well as making
allies in every business opportunity.
We believe in excellence: we strive to exceed our customer's expectations.
We believe in sharing and nurturing the development of the communities in
which we have operations. We believe that people are the most valuable
resource we have. We pride ourselves in developing core capabilities striving
to be a partner and success factor for our customers and clients.


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Financial Policies of Lucky Knits Pvt Ltd

STRENGTHS: (capabilities of the company)

Extensive and inside local - global market knowledge.

Strategic alliances with corporations in the supply chain - access to

technology and innovation.

Powerful group of companies, mainly because of established name

In-House logistics - lowering transportation costs to balance economies

of scale.

Debt free corporation

Vertically integrated operations.

Strong financial position

Incentives and promotional opportunities to employees and workers

Recently captured ICI


Low Advertising and Less Exposure.

Dependency on cotton yarn

Low Gratuity and PF funds.

Increasing General & Administrative Expenses


Less competitors

Demand for cotton yarn in Gulf region

Less freight charges for export of cotton yarn

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Financial Policies of Lucky Knits Pvt Ltd


Expansion in textile industry due to loans by bank and support of

umbrella companies

Advancements in technology.

Interest loan from Bank Al-Habib at low cost may be an effective tool
for competing in market


Government Regulations on process cycle

Price Competition- price of raw material

Alliance Opposition

Environmental factors of Pakistan ( energy crisis and political unrest )

Labor Union problems lack of man power

Modular production- in chain form

Cost threat in international market

Financial Management Policies

Working Capital Management

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Financial Policies of Lucky Knits Pvt Ltd


Working capital
management involve
s the relationship
between a firm's shortterm assets and its
short-term liabilities.
The goal of working
capital management is
to ensure that a firm is
able to continue its operations and that it has sufficient ability to satisfy both
maturing short-term debt and upcoming operational expenses. The
management of working capital involves managing inventories, accounts
receivable and payable, and cash. It consists of three main approaches which
are as following:
1. Aggressive approach: Using short term notes to finance the working
2. Conservative approach: Using long term loan to finance the working
3. Hedging approach: Using short and long term finance against the
working capital
When we interviewed the finance manager asking him about the approaches,
he answered that since the company has a stable business and an
established umbrella company although not as large as huge brands or
renowned mills and industries, thus they use the aggressive approach which
tells that they risk more in order to generate more change either profit or
loss depending on the performance of the business.
The main eye of the company is on exporting its products and incurring profit
with quality service. So that they make sure that they dont have to face
losses as they previously had more risky investments which led to losses in
two consecutive years (2009). They now try to reduce risk elements. For
these reasons the financial manager and staff devote a considerable portion
of their time to working capital matters. The management of cash,
marketable securities, accounts receivable, accruals, and means of short
term financing is the direct responsibility of the finance manager, except
managing inventories. It finances through equity, bank borrowing and
lending via various sources.

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Financial Policies of Lucky Knits Pvt Ltd


Their hedging approach consists of booking foreign exchange currency,

receipt invoices in foreign currency and investment in stock market. It is
discussed in detail in receivable management.
The manger also told us that if working capital is not managed properly, it
will effect directly on the companys returns and share price. Similarly the
company has to safeguard its fixed assets as well which will be discussed

Current/Fixed Assets
As truly said,
Procedures should be such that
if expensive equipment is
removed, it will be missed within
a reasonable time, and some
record will exist as to who had
access during that period.
Raymond H. Peterson,
Accounting for Fixed Assets, 2nd ed. (New York: John Wiley and Sons, 2002)
The best practices help to seek out potential savings in companys fixed
asset base and save time in the process. These are the guides of the
Establish an accurate baseline of fixed assets
Select the right tool for the job
Rely on accurate depreciation calculations
Stay up-to-date with legislative changes
Produce targeted financial reports
Get trained on the system you employ

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Financial Policies of Lucky Knits Pvt Ltd


The manager also told us that they purchase high level of fixed assets. The
trade cycle of the company is of 120 days i.e. 3 times a year. It wholly
includes the collection of yarn, spinning, dyeing, apparel work, making of
products (finishing) and their sale. In short it consists of the activities
involved from production to exporting the yarn. Therefore the company
requires high level of fixed assets to yield greater output.
The manager also told us that this leads them to finance their loans from
banks (if borrowed) and generates enough funds for other miscellaneous
expenses. Depreciation is charged using the reducing balance method. The
whole trade cycle also requires current assets, but investment is a little
greater in fixed assets comparatively. This tells that the company has low
liquidity high profitability and high risk. The purchase of firms fixed assets
are determined by its scale of production. Disposal of asset is recognized
when significant risk and rewards incidental to ownership have been
transferred to buyers
The permanent current assets are the minimum amount of current assets
required by the company to maintain its operations. The major assets on the
banks balance sheet are long term loans, advances, stock in trade, secured
trade debts, cash and loans from associated companies.

Cash Management / Inventory Management

Cash management is not the core job of the company. The company keeps
minimum cash balance and it also has marketable securities and
investments to replenish cash in times of urgency. 80% of the purchase of
raw material is local so they maintain safety stock to keep the production in
flow throughout the year without hindrance of environment and prices. They
follow FIFO inventory system.

We asked the manager about consideration banking and the system used by
them. The manager replied that they use London international banking
standards. The funds are transferred via eFunds transfer as the money is
efficiently transferred abroad and received here. Their main business is
exporting outside Pakistan. Thus they rely on Bank Al-Habib. Being old
customers and project of established group, Bank Al-Habib has provided
them with certain rates according to KIBOR (Karachi Interbank Offered Rate).
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Financial Policies of Lucky Knits Pvt Ltd


Other option for generating cash is discounting of receivable bills from Bank
Al-Habib. Since their operations are concerned with customers outside
Pakistan, they have sales in dollars and the difference in currency rates gives
them the advantage. Also, the company uses indirect
cash flow method.

Investments in marketable securities

All the purchases and sales of securities that require
delivery within the frame established by regulation or
market convention such as T+2 purchases and sales are
recognized at the trade date. Trade date is the date on
which the company commits to purchase or sale of
assets. 50% investment is by YB. AT&A (American textile
and apparel) is the major buyer.
The management determines the appropriate
classification of the investment made by the company in
accordance with the requirements of International Accounting Standards
(IAS). It classifies its investments in the following categories:
Financial assets at fair value through profit and loss
Investments that are acquired for the purpose of generating profit from short
term fluctuations in prices are classified as financial assets at fair value
through profit or loss held for trading. These investments are marketed to
market. Net gains and losses arising from these are then taken to the profit
and loss account.
Held to maturity investments
Investments with a fixed maturity where the company has the intent and
ability to hold to maturity are classified as held to maturity investments.
These are carried at amortized cost using effective interest rate method.
Available for sale investments
Investments intended to be held for an indefinite period of time, which may
be sold in response to the needs for liquidity or changes in market prices are
classified as available for gains and losses arising on change in fair
values of these investments are taken to the other comprehensive income.
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Financial Policies of Lucky Knits Pvt Ltd


When these securities are disposed off or impaired, the related fair value
adjustments previously taken to equity are transferred to profit and loss

Receivable Management
Lucky Knits is an Exporting company. The credit policies for customer are 75
to 180 days. Polices for supplier are 45 to 75 days, collections made by bank
in time due to transaction in LCs. Trade cycle is 120 days. The receivables
are recognized at original invoices less an allowance for uncollectible
amounts. An estimate is made when collection of full amount is no longer
probable. The mode of transfer is through cheque and LCs. All the payments
and receivables abroad are dollar based. The main banking system used by
them is Bank Al-Habib. The interesting point is that when the company
requires funds for its operations, it gets these bills discounted by Bank AlHabib. The export invoices are discounted at 0.25%. This is the way they use
hedging approach. They dont take payments from the banks on the spot,
instead they negotiate with the bank at some rates lets say they will take
the money of all the receipts not at the current prevailing rate but after 3
months at Rs 108 per dollar. Basically they hedge in order to insure
themselves against a negative event.
Credit risk:
The companys overall risk management focuses on the unpredictability of financial
markets. Credit risk is the risk that one party will fail to discharge an obligation and
cause other party to incur financial losses. It arises when a number of financial
instruments or contracts are entered into with the same party, or when the counter
party is engaged in similar business activities. Concentration of credit risk indicates
that relative sensitivity of the companys performance to development affect a
particular industry.

Operating and Financial Leverage: interest cost loans

The main duties of the manger are:

the allocation of Funds & to manage treasury account

Keeping debt information about debtors
Maintain liquidly & inventory position
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Financial Policies of Lucky Knits Pvt Ltd


Operating Leverage is a measurement of the degree to which a firm or

project incurs a combination of fixed and variable costs.
Financial leverage: The degree to which an investor or business is utilizing
borrowed money. Companies that are highly leveraged may be at
risk of bankruptcy if they are unable to make payments on their debt; they
may also be unable to find new lenders in the future
A business that makes many sales, with each sale contributing a very slight
margin, is said to be less leveraged. As the volume of sales in a business
increases, each new sale contributes less to fixed costs and more to
profitability. The company maintains a leverage of 20 % (Operating) to 80%
(financial). Lucky Knits uses intercompany lending as well as loans from Bank
Al-Habib at negotiated interest rate. Interest rate is according to KIBOR.
Lending is also taken from outside sources, thus this company is an American
dependent organization.

Financial Forecasting and Planning Budget

We asked the manager: How does the company make budget for future
forecasting? What is the main variable responsible for fluctuation in the
Answer: like other knitting companies, Lucky Knits also focuses on planning
for future targets and making budgets to estimate the costs and expenses to
be incurred by the company, and also purchase of assets and funds for their
purchase. Lucky Knits policy for making budget forecasting focus on
following points:

Financial targets, including revenue, margin, profit, cash flow

(indirect method), and debt levels.

Operating targets and key performance indicators, including

inventory turns, product and service quality, supplier effectiveness,
sales closing rate, and customer satisfaction.

Main variable: Yarn in Raw material and Labor wages and incentives.

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Financial Policies of Lucky Knits Pvt Ltd


It has kicked off the second quarter of the ongoing fiscal with a strong
performance. The top line touted growth of 14 percent compared to the
same period of FY12
Lucky knits needs to review its risk policies. It should concentrate on current
asset management as well
The strongest investment of lucky knits is in the discounting of bills at dollar
rate and then hedging the foreign currency. As Bank Al-Habib is their main
bank for carrying transactions, they are offered loans at nominal interest
cost. They are benefitted from certain Intercompany lendings also @ 0%
interest charge
They have a stable receivable turnover which is 3 times a year. This shows
that they have reliable and loyal customers. They have reduced stock out
chances by maintain sufficient amount of safety stock and standardized cost
accounting systems
Being a part of already established name, it should concentrate on social
projects from its own side.

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