SIGNIFANCE

IMPACT ON PROFITABILITY & COMPETITORS

DECLINE GROSS MARGIN

o The company witnessed the largest growth in revenue so far. Majority of the revenue is sourced
from exports and including local sales with increase of 5%.
which made up of total turnover net is Rs. 7.86 billions in first two quarters of 2022.
o However, the higher topline did not translate into higher profitability as cost of production
consumed over 90 percent of revenue that reduced gross margin to 8.35% at the end of two
quarters.
o Revenue in the first two quarters of FY22 has increased by 76.63% However, owing to a rise in
cost of
production due
to increase in
cotton prices,
prices of raw
materials, dyes
chemicals, &
increase in gas
tariff in addition
to a rise in
ocean freight,
profitability was
lower year on
year as net
margin recorded
o (Decline GP
Margin upto
6.62%)
o The second
quarter of FY22
saw revenue
higher by
almost 63 percent year on year as sales volumes continued to grow. But yet again, cost of
production shrunk profitability as in the winter months the company had to resort to usage of
diesel to fulfil orders that raised costs further. Thus, net margin was recorded at 1.8 percent for
the year versus 4.4 percent seen in 2QFY21.
o COMPETITOR (SASHA DENIM PVT LTD) ( BANGLADESH BASED CO.)

Particulars 2020 in 2021 in 1st Quart 2022 2nd Quart in Combine of

Billion Billion in Billion Billion two quarter
 (BDT) (BDT) (BDT) (BDT) with 1HFY
2021

Sales/ Revenue 7.33 9.018 2.33 3.33 5.66

Sales Growth -7.45% 23% -0.68% 42.93% 25.52%

(compare with (compare with (yearly Basis)
Last Qtr) Last Qtr)

Cost of Good Sold 6.32 7.92 2.05 2.98 5.03

inclusive D & A

COGS Growth -3.45% 25.37% -0.56% 45.80% 27%

(Assume on
avg it may
vary in next
quarters)

Gross Profit 1.01 1.098 0.28 0.35 0.63

GP Margin 13.77% 12.17% 12.017% 10.51% 11.13%

GP Profit Excluding 1.67 1.781 0.439 0.519 0.958

Dep & Amortization

GP Margin 22.78% 19.74% 18.84% 15.6% 17%

Excluding Dep &
Amortization

Sasha Denims Pvt Ltd (Avg rate 1.95 PKR) (73% exports belongs to Denim)

 INADEQUATE PRICING
 Trying to keep pace with the rise in raw material costs makes it challenging for Artistic
Milliners to figure out how much to charge customers. “We did a 5 percent upcharge for
one season, but by the time we produced the fabric, our prices had gone up 10 percent to
15 percent,” he said. “The cost to produce has outpaced the selling price even with the
upcharges.”

IMPACT ON EMPLOYEES

 20% decline in Labour Force since 2020 due to cut the cost for better profitability
( on avg artistic downsized around 1400 labors in 2 years )
 However 18.4% growth in Employees In two years due to adaption of advance
technologies and their placements and operations.

Note: cost saving is not significant as more technical and qualified staff require high pay
and new technology require initial heavy investment and maintenance cost.

IMPACT ON CUSTOMERS

 Reputational loss
ADM making continuous efforts to keep its prices according to customer’s expectations,
as Artistic denim mill is known to be opting an optimum pricing strategy globally and
due to recent increase in cost creates serious complication on artistic whole infrastructure
and setup.
 Choice of Other Brands
If customers are unhappy with denim prices at artistic Denim, they don’t have much
choice because the situation is the same around the world except currency exchange
effect.
 Change in preferences of fabric :
Due to rapid increase in cotton and Denim Prices consumer may prefer other alternative
instead of 100% cotton jeans they may use blended jeans / other material such as tencel
modal (wood pulp) however ADM also utilizing this modal with ProModal but its
competitors are more efficient. Such as SM denim mill offering 2.75 Oz weighing which
is lightest Tencel denim.