Ellcot Spinning Mills Limited ('ESML' or 'the Company') was incorporated in 1988 under the Companies Ordinance, 1984 (repealed with the enactment of the Companies Act, 2017) as a public limited company.

ESML has been associated with Nagina Group ("the Group")since its inception. Over the period, the Group has managed to grow from a single spinning company to multiple spinning entities and a weaving company.

The Company is primarily engaged in the manufacturing and sale of yarn, with an installed capacity of 79,200 operating spindles and an annual production capacity of approx 16.5mln kgs, based on 26/s count. The Company has a total energy requirement of 8.33MW, primarily met through gas generators. ESML has already installed a 2.4MW solar power plant and is in the process of installing an additional 1.1MW. The Company’s manufacturing facility is located in district Kasur, Punjab.

ESML is majority (~70.93%) owned by the Nagina Group, through the group companies (24.32%) and sponsoring individuals (46.61%), including Mr. Raza Ellahi Shaikh (12.79%) and Mr. Amin Ellahi Shaikh (12.79%).The remaining stake of the Company rests with financial institutions (~23.21%) and the general public (~5.85%).

The Nagina Group's stability is anchored by the Ellahi family's strong leadership and a clear governance structure. The Group has a structured line of succession, as seen in ESML, where Mr. Raza Ellahi Shaikh and Mr. Amin Shahzada Ellahi Shaikh serve as non-executive directors, while Mr. Haroon Ellahi Shaikh holds the position of executive director. However, the transfer of ownership to the next generation is yet to be realized.

Nagina Group is one of the oldest medium-sized textile houses in Pakistan, operating for more than five decades with credential expertise in spinning and weaving. The Group has adequately expanded its capacities despite the competitive textile industry.

The Group comprises of three listed public limited companies, namely; i) Ellcot Spinning Mills Limited, ii) Prosperity Weaving Mills Limited (PWML) and iii) Nagina Cotton Mills Limited (NCML), and six private limited companies i.e., Monell (Pvt.) Limited, Icaro (Pvt.) Limited, Haroon Omer (Pvt.) Limited, Ellahi International (Pvt.) Limited, ARH (Pvt.) Limited and Pacific Industries (Pvt.) Limited. The Group can provide comfort in case any future demand arises.

ESML's board comprises ten members, out of which five members are non-executive and two members occupy executive seats, including the CEO, while three directors are independent.

Mr. Shahzada Ellahi Shaikh, the Chairman, possesses 48 years of experience in the textile industry and holds a bachelor’s degree in economics and international relations. Among the other board members, Mr. Shafqat Ellahi Shaikh has 43 years of industry-specific experience and holds a B.A. in economics and religion from Columbia University. Mr. Shaukat Ellahi Shaikh has 46 years of overall experience in the textile industry and holds a bachelor’s degree in economics and political sciences.

Three committees: audit committee, executive committee, and human resource & remuneration committee, are in place to assist the board in relevant matters and ensure proper oversight. During FY25, board meetings were held quarterly, to discuss the Company's performance. The minutes of the board meetings are documented properly. The sponsors play an active role and provide guidance to the management in the Company's operations.

M/s. Rahman Sarfaraz Rahim Iqbal Rafiq, Chartered Accountants, serve as the external auditors to the Company. The firm is listed in the A category on the State Bank of Pakistan's panel of auditors and has expressed an unqualified opinion on the financial statements of the Company for FY24.

The top-tier management positions of the operating companies within the Nagina Group (NCML, ESML and PWML) are held by the Ellahi family. The management's control vests with the Ellahi family through a defined reporting line, ensuring operational excellence. The Company's organizational structure is broadly divided into seven functional departments: (i) marketing, (ii) finance, (iii) accounts, (iv) administration and corporate, (v) commercial (fixed asset procurement), (vi) export and (vii) internal audit.

Mr. Haroon Shahzada Ellahi Sheikh is the Chief Executive Officer of the Company. He is well versed with the textile business and has strong business acumen. He is supported by a team of seasoned professionals, supplementing his expertise. Mr. Muhammad Ahmad is the Chief Financial Officer. He is associated with ESML since 2006 and is also well verse with the textile business.

The management meetings are held on a daily basis with follow-up points to resolve or proactively address operational issues, if any, eventually ensuring a smooth flow of operations. The Company’s MIS can be classified into three categories on the basis of reporting periodicity – daily, weekly and monthly.

The Company has upgraded its system from FOXPRO technology to Oracle ERP solution. It enables the users to efficiently record loom-wise packed fabric production and supports BAM-wise recording of warping, sizing, loom, and folding processes. The ERP solution helps to streamline core business operations, enhance financial management, and provide real-time insights for more informed decision-making.

The Company is accredited with multiple certifications for compliance and quality assurance, namely; ISO 9001:2008, Standard 100 by OEKOTEX, Global Organic Textile Standards (GOTS), Organic Content Standard, Organic Content Standard 100 and Organic Content Standard Blended.

During MY25, approximately 24.4mln MT of cotton was produced globally, compared to about 24.2 million MT in MY24. Throughout the year, low cotton production was observed in India and Pakistan. However, this was partly offset by increases in cotton production in China, the United States, and Brazil by roughly 9.7%, 19.4%, and 15.7%, respectively. China remains the largest producer and consumer of cotton worldwide (MY21-25). Pakistan's cotton output declined by approximately 30.7%, due to reduced cultivation area and a surge in duty-free imports of cotton and yarn, which disrupted domestic markets. Conversely, cotton imports increased by around 234.0% YoY during the same period to satisfy domestic demand (FY24: roughly 70.0% YoY decline). Cotton arrivals for FY24-25 totaled to about 5.5mln bales. The target for cotton production in FY26 is set at approximately 10.2mln bales.

The sector's rising dependence on imported cotton poses a supply-side risk. During the FY25 ended, imports accounted for approximately 35% of the cotton supply (~11% in FY24), adding about USD 1.27bln (USD 448mln in FY24) to the country's import bill. Textile exports reached USD 17.9bln in FY25, a modest rise from USD 16.7bln the previous year, reflecting a 7.2% year-over-year growth. The largest contribution came from the composite and garments segment, at USD 14bln, which included the weaving segment at USD 1.8bln and the spinning segment at USD 0.7bln. The production of cotton cloth in FY25 declined by approximately 0.7% year over year, reaching around 877.1mln square meters. During FY25, about 25.3% of the cotton cloth produced was exported (compared to roughly 27.2% in FY24), with the rest used for the domestic market. The country's fabric exports fell by approximately 4.4% on YoY basis in FY25 (FY24: up about 5.8% on YoY basis), with approximately 23.4% of Pakistan's cotton cloth exports going to Bangladesh (compared to about 19.9% in FY24), followed by the USA with about 8.1% of cotton cloth exports (approximately 7.8% in FY24).

In FY25, the transition from the final tax regime to the normal tax regime is expected to affect the profitability of export-oriented units, with a 29% tax on profits and a super tax of up to 10%. The recent removal of GST exemption (Finance Bill, 2025) on textile inputs for exporters registered under the Export Facilitation Scheme (EFS) will offer tax protection and create a level playing field for domestic cotton and yarn producers. Currently, international cotton prices are higher than the price of locally produced cotton. The gap has widened to approximately 9.8 cents per pound (as of July 18, 2025), resulting in an average increase of about USD 36.8 per bale of imported cotton. A greater reliance on imported cotton could lead to higher raw material costs, ultimately impacting yarn prices and profit margins for the sector. Conversely, energy and finance costs are expected to stay within a range, given the projected reduction in interest rates and the absence of any major energy tariff increases.

While the sector continues to demonstrate resilience on the export front, the margin outlook for FY26 appears challenging. Upstream segments such as spinning face greater downside risk from raw material inflation, while vertically integrated composite units with stronger export linkages are better positioned to defend profitability. Overall, the sector hinges on the ability to secure a stable cotton supply chain and navigate upcoming fiscal adjustments. Without structural improvement in domestic cotton production, earnings volatility is likely to persist.

ESML derives strength from its association with the Nagina Group, which holds a prominent position in the textile industry with a long operating history. The Group's extensive spinning capacity enhances ESML's competitive standing. However, on a standalone basis, ESML’s share in the local spinning industry is minimal.

During 9MFY25, the Company reported a topline of PKR 12.1bln (FY24: PKR 15.5bln, 9MFY24: PKR 11.3bln), reflecting a YoY growth of 7.1% on the back of improved yarn prices.The Company's strategic move to a finer yarn count of 26/s reduced volumetric sales but successfully boosted sales value. The Company's revenue stream comes solely from yarn sales, with ~87% contributed by the local market and the rest ~13% from direct exports.

During 9MFY25, gross margin experienced a decline to 6.5% (9MFY24: 7.0%) primarily due to a demand shortage of yarn, coupled with a hike in raw material and energy costs. This translated into a deteriorated operating margin (9MFY25: 4.4%; 9MFY24: 4.8%). Despite this net margin improved to 0.9% (9MFY24: 0.5%), attributable to diminished finance costs (9MFY25: PKR 263mln, 9MFY24: PKR 381mln).

The Management remains focused on achieving its financial projections through strategic initiatives, including cost reduction, targeted marketing, and product diversification to strengthen resilience. A key part of this strategy is to improve financial performance by reducing energy costs through increased reliance on renewable energy sources.

The Company fulfills its working capital requirements through a mix of internal cash flows and short-term borrowing. At the end-Mar25, the net working capital cycle reduced to 77 days (FY24: 80 days) owing to a decrease in inventory days (9MFY25: 54 days, FY24: 58 days). The Company witnessed a significant increase in trade assets (9MFY25: PKR 4,530mln; FY24: PKR 3,952mln), as inline with the industry trend.

During 9MFY25, the Company recorded a decline in free cash flows (9MFY25: PKR 807mln; 9MFY24: PKR 866mln) on account of a decrease in EBITDA. Finance cost decreased  to PKR 263mln during the 9MFY25 (9MFY24: PKR 381mln). Reduction in finance cost improved the interest coverage, resulting in 3.1x during the nine months of FY25 (9MFY24: 2.5x) and the debt pay back period reduced to 5.2 years (9MFY24: 6 years).

At end-Mar25, the Company's leverage decreased to 47.1% (FY24: 49.9%). The total debt decreased to stand at PKR 3,826mln (FY24: PKR 4,201mln); out of which, short-term borrowing constituted only 0.3%. The equity base of the company improved to stand at PKR 4,289mln (FY24: 4,211mln), attributable to the increase in the unappropriated profits.