Nishat Chunnian Swot Analysis

MANAGEMENT Project on

Submitted to:

Miss Beenish Chauhdary

Submitted by:

Fizzah Khalid Butt Naila Azam Joiya

3242 3259

Lahore College for Women University

Nishat Group: Nishat Group is one of the leading and most diversified business groups in South East Asia. With assets over PRs.300 billion, it ranks amongst the top five business houses of Pakistan. The group has strong presence in three most important business sectors of the region namely Textiles, Cement and Financial Services. In addition, the Group has also interest in Insurance, Power Generation, Paper products and Aviation. It also has the distinction of being one of the largest players in each sector. The Group is considered at par with multinationals operating locally in terms of its quality of products & services and management skills

Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit of entrepreneurship and has led the Group successfully to make it the premier business group of the region. The group has become a multidimensional corporation and has played an important role in the industrial development of the country. In recognition of his unparallel contribution, the Government of Pakistan has also conferred him with Sitara-e-Imtiaz, one of the most prestigious civil awards of the country. The Textile business is further subdivided into 2 textile divisions: Nishat Faisalabad and Nishat Chunian divisions. The textile capacity of the group is the largest in the country. An addition of 20,000 new spindles, 100 new air jet looms and new dyeing plant has increased the existing capacity of 242,000 spindles, 740 looms and dyeing and finishing capacity of 5 millions meters. The group is the largest exporter of textile products from Pakistan for more than a decade. Nishat provides quality piece dyed fabrics in heavy twills to some of the world's leading brand names like GAP, Old Navy, Banana Republic, DKNY, Tommy Hilfiger, Chaps and Sears.

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Nishat Group has also been a pioneer in power generation in the private sector of the country. Nishat setup the first power generation unit in the private sector in 1995. In 1991, Nishat Group ventured into the financial sector through the acquisition of Bank. MCB Bank Ltd. has grown ever since and is now the largest bank in the private sector. MCB has a network of over 1200 branches employing over 12,000 people. Our vision of tomorrow is a better quality of life for the people of Pakistan

Nishat Chunian Limited: Nishat (Chunian) Limited was incorporated in 1990 as a public limited company with an equity investment of Rupees 100 million. A spinning mill having a capacity of 14,400 spindles was established at Bhai Pheru, Tehsil Chunian. It started commercial production on 10 March 1991. The capacity was enhanced to 19,200 spindles in 1998. In 1998, the Company diversified its business interest by venturing into a weaving project with the installation of 99 air jet looms.

A new state of art spinning unit started production in November 2000, increasing the total spinning capacity to about 40,872 spindles. Subsequently weaving capacity was increased to 212 air jet looms while the spinning capacity was increased to 50,952 spindles. During the period ended 30 June 2005, the Company enhanced its spinning capacity substantially by acquiring the operating assets of Umer Fabrics Limited comprising of 38,544 spindles and by addition of a new spinning unit with 40,128 spindles. In 2006, the Company also diversified into Home Textile Business. The Company is currently operating with 142,196 spindles, 293 looms, a modern dyeing and finishing plant having capacity of 71,000 meters per day and captive power plants with a total capacity of 33MW.

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Economic Environment The year under review is from July 2006 to June 2007. During the year, country's economy remained stable. However, Year 2006-07 was one of the most difficult years for Pakistan’s textile industry. Higher cotton prices, higher wages and severe price competition reduced the profitability margins across the whole textile industry. Cotton prices were higher by around 7% whereas prices of yarn remained stagnant resulting into losses for the spinning industry. Higher fuel prices and gas load shedding disrupting the operations of the power generation, resulted into higher fuel charges. Tightening of monetary policy further increased the already high interest rates. The year under review is from July 2006 to June 2007. During the year, country's economy remained stable. However, Year 2006-07 was one of the most difficult years for Pakistan’s textile industry. Higher cotton prices, higher wages and severe price competition reduced the profitability margins across the whole textile industry. Cotton prices were higher by around 7% whereas prices of yarn remained stagnant resulting into losses for the spinning industry. Higher fuel prices and gas load shedding disrupting the operations of the power generation, resulted into higher fuel charges. Tightening of monetary policy further increased the already high interest rates.

Performance of the Company During the year under review, the Company's profitability is at its lowest in last ten years. Sales during the year are highest ever at Rs. 7,678 million as compared to Rs. 6,551 million during the last year. This shows an annual increase in sales of around 17.20%. However, the Company's profit before tax has sharply declined to Rs. 111.16 million as compared to Rs. 340.80 million last year. Profit after tax is Rs. 10.16 million because of the tax provision of Rs. 101 million as the Company is under presumptive tax regime. Higher cost of production and increased price competition has reduced the profitability margins substantially. The Company's gross profit margin dropped to 12.47% from last year's 17.84%. Further increase in the financial charges also reduced the profitability. Financial charges are Rs. 648 million showing an increase of Rs. 154 million over the last year. Earning per share (EPS) is Rs. 0.14 as compared to Rs. 3.34 last year. The reduced profitability of the company is attributable to a number of factors. This was the first year our Home Textiles Plant came into production and initially capacity utilization remained below break even level. During the year we had a partial shutdown in one of our spinning units for shifting of machinery for change in the product mix. Higher cotton prices and partial shutdown of the spinning unit resulted into a loss of around Rs. 150 million in our spinning division during the year. Currently our Home Textiles Division is operating at more than 80% capacity. Moreover after changing the product mix of the spinning units, our spinning division is operating at above breakeven level. Keeping in view the present scenario we are hopeful to have a higher profitability in next year.

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Investments During the year under review, the Company made no substantial investment in the plant and machinery. Presently we are operating with 142,196 spindles, 293 air jet looms, 1 Dyeing & Stitching plant and captive power plants with the combined capacity of 33 MW.

Financial Structure A conservative financial structure has been employed in view of the seasonality and cyclicality of the textile industry. We have identified the targeted levels of the critical financial ratios and decisions for future investments are made subject to the constraints of these financial ratios. During the year under review, financial charges have increased by 31%. This is mainly due to the general hike in the interest rates in the country. The illustration shows the last five years' financial charges as a percentage of sales.

Business Strategy Aggressive marketing has been the major factor in our consistent profitability over the past years. Our strategy is to remain at the cutting edge in terms of exploring new markets and new products. The focus is on niche marketing with specialized products. We have differentiated our business through consistent quality, reliable delivery and proactive handling of customer's needs. Investment in state of the art technology and top quality human resources has been key element of our business strategy. The organizational structure is lean with very little hierarchy and bureaucracy compared to other organizations of similar size. This gives us the flexibility to respond quickly to the changes in the market situation.

Corporate Profile of Nishat Chunnian: Nishat stands up to its social responsibilities both in terms of environment and Welfare. The company covers housing and medical expenses for its employees and also provides schooling for their children. A high school has been opened for the children of the employees and general public of the area. A hospital has been constructed in the vicinity of the plant. The company also provides recreational and sports facilities for the resident employees at the production premises. NCL has also established a school and hospital under the Mian Mohammad Yahya Trust, at a cost of around US$ 700,000. The trust is sponsored by NCL and members of the sponsors family. The high school opened in 2000 for the children of the employees and general public of the area; has a staff of around 40 teachers and offers education to 400 students. The hospital has also been constructed in the vicinity of the plant; enabling local population to get immediate medical attention instead of traveling to the nearest city. Around 80 patients are treated daily in the hospital by a staff of 30 people which includes 6 qualified doctors

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Units of Nishat Chunian: It comprises of 3 units: Spinning Weaving Home Textiles

Spinning: The spinning facility of Nishat Chunian consists of five units with a capacity of 150,000 spindles, producing 90 million pounds of yarn per annum. To maintain a consistent product quality, stringent measures are taken not only in the sophisticated in-house labs, but throughout the production process

Spinning Products: YARN TYPES

COUNT RANGE

COMPOSITION

END USE

CARDED COTTON YARNS

Ne 6/1 – 20/1

100% Cotton

Denim Fabrics Hosiery

Pakistani, Australian, Extra-Long- Circular Staple CIS, Brazilian, PIMA and Hosiery Egyptian Cottons Upholstery Denim.

and

COMBED COTTON YARNS

Ne 14/1 – 100/1

CORESPUN STRETCH YARNS

Ne 7/1 – 40/1 Stretch Lycra accredited by Dupont Stretch Fabrics for Also available in unbranded Denim and other Spandex. Woven Fabrics

BLENDED YARNS

Ne 10/1 – 80/1

SLUB YARNS

Ne 4.5/1 – 20/1 100% Cotton Denim, Upholstery Ne 6/1 – 40/1 Polyester and Viscose-Rayon in and Sweaters Blended various blends

COMPACT

Ne 40/1 – 100/1

Polyester, Acrylic, ViscoseRayon, CoolMax ®, eVAP ®, Modal ®, Tencel Lyocell ® , Amicore, Bamboo fiber, soyabean fiber and Metallic Fibers are available, pure as well as in various Cotton blends

Knitted, Fabrics, and

Sportswear, Active wear, Sweaters, Upholstery and Industrial Fabrics

100% Cotton with properties of High

thread

count

6

YARNS

low hairiness, improved sheeting evenness, strength and elongation shirting

and

fine

PLIED YARNS 2, 3, and 4 ply

Our entire count range is also Knitted as well as available in 2, 3 and 4 ply, auto- Woven Fabrics spliced and knotless

Weaving: The weaving mill consists of state of the art Picanol Omni, Omni Plus and Toyota air jet looms in various widths ranging from 110 – 150 inches, providing greater flexibility in catering to customer needs. The renowned European company Benninger-Zell manufactures the Sizing and Warping machinery.

Products of Weaving: Fabric Category

Design

APPAREL

Count Range

Description

Composition

Twills Drills Broken Twills Bedford Cords Ottomans Canvases Herringbone Matts Panamas Ribstops

Shirting fabrics with a weight range of 50-150 GSM and Bottoms with a weight range of 200-450 GSM.

100% Cotton , blends of Cotton with Polyester, Viscose, Linen, Nylon, Lycra, Elaspan and Spandex; Cotton Slub, PC Slub and Slub lycra; Spun Poly and Poly Filament.

SHEETING AND UPHOLSTER Y

Percales Satins Striped Sateens Poplins

100% Cotton, blends Sheeting fabrics of of Cotton with upto 1000 thread Polyester, Cool count with single Max®, T-400™, ply yarn. Ne 40/1 – 141 eVAP®, Modal, 120/1 inches Tencel, Bamboo Upholstery fabrics Fiber, Soyabean made with plied Fiber, Milk Fiber and yarns Amicor.

FANCY ITEMS

Dobby fabrics 100% Cotton and Ne 20/1–Ne 128 Dobby Items made using up to blends of Polyester 80/1 inches 14 frames. and Cotton.

STRETCH

Width

Shirting: Ne 40/1 – 120/1 Bottoms: Ne 5/1 30/1

72 inches

–

One way Sheeting and Cotton blended with Ne 10/1 to and two way apparel fabrics lycra or spandex Ne 60/1

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stretch fabrics SLUB

Warp slub, weft slub Upholstery and 100% cotton and PC Ne 6/1 tp Ne and cross apparel fabrics slubs 40/1 hatch

Home Textiles: The dyeing and finishing plant has a monthly capacity of 3.0 million yards per month with an equivalent stitching capacity. These plants are equipped with state of the art machinery specially designed to cater to high thread count fabric. During the dyeing, finishing and stitching processes, several measures are taken to ensure timely delivery of high quality fabric. This includes special care in fabric handling, full width rail stitching, PVA based size recovery, various devices to avoid creases and band mark variation, special unwinding devices, efficient squeezers, a computerized dye dispensing system and an on-line measurement and storage of data at every machine.

Home Textile Products: The dyed and finished Sheeting and Upholstery range comprises of high density fabrics with widths up to 340 cm and yarn count range of Ne 40/1 – 100/1. This includes Percales up to 350 thread count and Sateens up to 800 thread count. We also produce high thread count sheeting fabric of unmatched quality with 1000 thread count. Other products in this range include fabric with upto 6 pick insertions, dobby fabric with intricate designs using 12-14 frames and fabrics made using plied, slub, dyed and fancy yarns. In addition to 100% cotton, a number of fibers in various blends are used including Polyester, Viscose, Modal, Tencel, Bamboo, Soyabean and Milk Fiber. We also use Lycra, Cool Max®, eVAP, T-400™ and Amicor

Dyes and Finishes: NCL offer a wide range of dyes and finishes which can be adapted in accordance with customer requirements. The various dyeing options include Pigment, Vat, Reactive, Sulphur and Disperse. Some of the various finishes NCL can do are Water Resistant/Repellant, Soil and Stain Resistant, Wrinkle Resistant, Anti-microbial, Ultra Soft Hand Feel, and Fire Resistant. We have also developed antimicrobial, frangrant and ultra fast color finishes.

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Bed Linen: Products in this category include Bed Sheet Sets, Valance Sheets, Bed Skirts, Quilt covers and Comforter Shells.

Curtains: The product range also includes Curtains, Pelmets, Cushions, Tie Backs, 5 pieces Drapery Set, and Rod Percillia, which are offered to customers as separate items, as well as complete Curtain Sets. We also offer Tier Swag Sets for kitchen windows and Shower Curtains

Table Linen: NCL produce Tablecloth, Table Runner, Napkins and Ruffles Round.

Nishat Chunian Power limited: Keeping in view the energy crisis in the country, NCL has also ventured into the power business. With a capacity of 200 MW an Independent Power Plant (IPP) is being set up at 66 km Lahore Multan Road. The power plant costing US$ 235 million has an operational deadline of March 2010. Wartsila Finland is the EPC contractor for the project. The Fuel Supply Agreement has been finalized with Shell Pakistan; the first such supply agreement in the history of Shell Pakistan. The plant has been set up under a 25-year ‘take or pay’ agreement with WAPDA, who is bound to make capacity payments – which are backed by the Sovereign Guarantee of the Government of Pakistan.

Hierarchy Chart: A hierarchy is an arrangement of objects, people, elements, values, grades, orders, classes, etc. A hierarcy chart shows that what comes after what.

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Technical Director Spinning 1, 4, 5

GM stitching

Director Europe Marketing

MarketingFabric

Technical Director Processing

Director USA Marketing

GM spinning 2

Manager Admin & personnel

Admin

General Manager Weaving

Manager Purchase

Purchase

Technical director Sinning 3

Technical Director and GM

Site

MarketingHome Textile

CHIEF EXECUTIVE

BOARD of DIRECTORS

Director Yarn Marketing

Director Finance

Finance

Manager Audit

General Manager

audit, secretarial works

Accounts,

Manager Accounts and Tax

Marketing -Yarn

A hierarchy chart of an organization shows the formal structute of an organization’s positions and it shows that who reports to whom and clear the confusions.

Hierarchy Chart of Nishat Chunian Ltd

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Swot Analysis : SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans. SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as Strengths (S) Weaknesses (W), And those external to the firm can be classified as Opportunities (O) Threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. The outcome from a SWOT Analysis enables organizations to focus on strengths, minimize weaknesses, address threats, and take the greatest possible advantage of opportunities available.

The SWOT Matrix A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm's strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity. To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:

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S-O

strategies pursue opportunities that are a good fit to the company's strengths.

W-O

strategies overcome weaknesses to pursue opportunities.

S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats.

SWOT ANALYSIS OF NISHAT CHUNIAN: Strengths: NCL’s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Nishat Group is the largest group in Pakistan in terms of sales, which were approximately Rs.16 billion (US$ 400 million equivalent) last year. NCL is in businesses namely power generation and textile. Our textile division, Nishat Chunian has a spinning capacity of 144,803 spindles located in 5 units. Due to having setups at difference locations, we have a benefit of utilizing infrastructure like roads, electricity load, BMR etc) The product range is 100% cotton yarn, ranging from 6/1 to 30/1 in carded yarns and from 12/1 to 100/1 in combed yarns. In addition to the above we are also in core spun stretch yarns of 2 and 3 ply yarns and slub yarns. The total capacity is 59 million lbs of yarn per annum The weaving capacity is 293 air jet looms wider width. The fabric is being exported to various companies in Hong Kong, Japan, Korea, USA, South Africa, India and Europe. The company believes in product innovation and has successfully leveraged its strength in yarn manufacturing to make a variety of fabrics.

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NCL timely adds value to its product like addition of dying facility and home textile manufacturing (mention the year of operations) Sales comprises more than 80% as export which saves in taxation Internal cost controls Most optimum cost of financing and exploration of for-ex transactions like hedging and forward booking NCL Textile Industry is an Independent & Self-Reliant industry. Availability of abundant Raw Material helps to control costs and reduces the lead-time across the operation. Availability of Low Cost and Skilled Manpower provides competitive advantage. Large varieties of cotton fiber are available and have a fast growing synthetic fiber industry. NCL has large and diversified segments that provide wide variety of products. Growing Economy and Potential Domestic and International Market. NCL has Manufacturing Flexibility that helps to increase the productivity. Qualified and skilled management Health working environment Produces greige fabric for apparel, sheeting, home furnishing and fancy items in 100% Cotton, Polyester Cotton (PC) and Chief Value Cotton (CVC). Fabric for apparel has been consistently catering to the demands of the export markets as well as the local garment industry. In sheeting we have successfully made sheeting fabric with counts up to 400 threads using Ne 100/1. This high-count fabric is one of its kind and of unmatched quality. With rising demand for fancy items, NCL has also ventured into producing items like slub yarn fabric and stretch fabric. NCL now ranks among the first rate stretch fabric producers in the national and the international markets.

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Now installing 200MW power plant, which gives electricity to WAPDA network worth approx US$ 235 million, which will give, guaranteed substantial returns to the shareholders

Weaknesses The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:

NCL Textile Industry is highly Fragmented Industry. NCL Textile Industry is highly dependent on Cotton. Lower Productivity in various segments. There is Declining in Mill Segment. Lack of Technological Development that affect the productivity and other activities in whole value chain. Infrastructural Bottlenecks and Efficiency such as, Transaction Time at Ports and transportation Time. Unfavorable labor Laws. Lack of Trade membership, that restrict to tap other potential market. Lacking to generate Economies of Scale. NCL has to pay Higher Indirect Taxes, Power and Interest Rates.

Opportunities The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include: Growth rate of Domestic Textile Industry is 6-8% per annum. NCL has a Large, Potential Domestic and International Market. Product development and Diversification to cater global needs.

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Elimination of Quota Restriction leads to greater Market Development. Market is gradually shifting towards Branded Readymade Garment. Increased Disposable Income and Purchasing Power of Customer opens New Market Development. Emerging Retail Industry and Malls provide huge opportunities for the Apparel, Handicraft and other segments of the industry. In NCL greater Investment and FDI opportunities are available.

Threats Changes in the external environmental also may present threats to the firm. Some examples of such threats include:

Competition from other developing countries, especially China. Continuous Quality Improvement is need of the hour as there are different demand patterns all over the world. Elimination of Quota system will lead to fluctuations in Export Demand. Threat for Traditional Market for Power loom and Handloom Products and forcing them for product diversification. Geographical Disadvantages. International labor and Environmental Laws. To balance the demand and supply. To make balance between price and quality

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CENTRALIZATION AND DECENTRALISATION: Centralization: Centralization is the process by which the activities of an organization, particularly those regarding decision-making, become concentrated within a particular location and/or group mostly the top management of organization. In a centralized organization, the decisions are made by top executives or on the basis of preset policies. These decisions or policies are then enforced through several tiers of the organization after gradually broadening the span of control until it reaches the bottom tier

Decentaralization: Decentralization also called departmentalization is the policy of delegating decision-making authority down to the lower levels in an organization, relatively away from and lower in a central authority. A decentralized organization shows fewer tiers in the organizational structure, wider span of control, and a bottom-to-top flow of decision-making and flow of ideas.

Decision Making System Of Nishat Chunian: The decision making system of NISHAT CHUNIAN LIMITED is in between the centralized and decentralized. In past it was fully centralized but as time is passing and the organization is expanding and getting larger day-by-day the decision making system is getting decentralized. Right now some of its policies are made by only top management and in some lower management is also included so the system is not purely centralized not decentralized.

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