Bhanero Textile Mill Case Study in Pakistan

Mian Mohammad Salim, founder of the Umer Group of Companies, returned from Lahore on July 24, 2005 after visiting his textile units in Sheikhupura. After receiving reports from his office in Karachi, on progress of works while he was away, he snuggled into the comfortable leather chair and leaned his head on the head-rest; his mind swayed back to the old times – a well-deserved journey which earned him the emperor status never to look back again! Sitting snugly in his office, he unconsciously took a walk down the memory lane and marveled at how much he had accomplished in a little time with the grace of Almighty.

The journey began with the establishment of Bhanero Textile Mills Ltd. in 1979. For a common man with no initial sizeable amount of investment, it was a great achievement to have built an entire group of successful companies – diverse businesses and industrial units which constitute his empire!

History & Expansions

Bhanero Textile Mills Limited (BTML) is the pioneer textile mill of the Umer Group of Companies. Established in 1982 by four brothers, namely Mohammad Salim, Mohammad Sharif, Mohammad Shaheen and Mohammad Shakeel, the company is completely owned and operated by the family. All the four brothers with one son each is on the board of directors.

Umer Group owns a diverse range of businesses nationwide which includes textile, footwear, leather garments, tannery, and construction. The group also owns and operates different power generation plants, which are located near the textile mills.

Umer Group has three textile mills (core business), one of which is Bhanero Textile Mills Limited with head office in Karachi and a regional office in Lahore. Three separate production units, two spinning and one dyeing, comprise Bhanero Textile Mills Ltd. (BTML). One of the spinning units (Unit #1) was established in 1982 and is located in Kotri, District Dadu while the other spinning unit (Unit #2) was established in 1991 at Feroz Watuwan, Sheikhupura, Punjab. The dyeing unit (Unit #3) is linked with the premises of Unit #1.

1998-99: A Period of nightmare

Mohammad Salim, lost in his thoughts and thankful of the bounties of the Almighty, suddenly got tense when the period of 1998-99 flared in front of his eyes. Even today after a lapse of 6 years, he remembers vividly the moment in time when even the giants in the textile sector were not spared.

Mohammad Salim recalled the widespread tension during 1998-99 – a never-ending period, when the future of the textile industry looked utterly bleak. It was a time when even the major players in the textile sector had doubts about continuing their said businesses while many small and medium sized manufacturers were compelled to leave due to a poor liquidity base. However Mian Mohammad Salim’s faith in the Almighty and strong conviction upon his leadership capability helped him to carry on and emerge as a victor in those tough times. The saying goes, “Be like a duck, remain calm on the surface and paddle ceaselessly underneath”.

Kotri Plant

Bhanero Textile Mills Ltd. (Unit #1) is the pioneer unit of the group and located at Kotri. It consists of 20,000 Spindles and 192 Rotors with related complete back process machines along with two-for-one Twisters and a laboratory equipped with the latest testing equipment. A Cotton Dyeing Unit is also linked with the mill's premises to specialize the unit for production of all sorts of counts in Mélange Yarn and 100% Carded/Combed Dyed Cotton Yarn suitable for Knitted/Woven Fabrics, Apparel and Home Textiles. This unit is capable of producing 100% Rayon Yarn.

Cotton: Main ingredient of the Textile Industry

Cotton, belonging to a family that includes hibiscus and okra, produces a natural vegetable fiber used in the manufacture of cloth. This exceedingly unprotected crop produces sweet nectar that attracts a variety of destructive insect pests, including the boll weevil, bollworm, armyworm, and the red spider. In addition to insect pests, there is also a very destructive fungus, called the wilt that attacks the root system of the cotton plant.

Pakistan’s Cotton

Cotton is the most important produce of Pakistan and its contribution in the national economy is outstanding. It is also a major foreign exchange earner for the country. Pakistan’s cotton is recognized the world over as one of the finest cotton for spinning of coarse and medium count yarns. It has got excellent strength, desirable micron ire, good uniformity ratio and compare favorably with cottons in the comparable staple range.

Periods of Crisis

The spinning sector of Pakistan passed through a crisis during the period 1992-93 to 1998-99, i.e. for more than half a decade. Cotton production declined to 7.468 million bales in 1994-95. It recovered to 10.583 million bales in 1995-96 but started declining again and reached the lowest level of 7.100 million bales in 1998-99. Attack by cotton leaf curl virus (CLCV) in epidemic proportions both in the cotton belts of Punjab and Sindh during the aforesaid period was the major cause of successive failures of cotton crop. Continuous shortfall of cotton production against mill requirements plunged the spinning sector into a grave crisis, causing wild escalation in cotton prices. From 1991-92, the prices of cotton escalated by 186% in 1998-99. On the other hand cost of production increased because of high interest rates, high electricity tariffs and inflation etc. Unfortunately, these developments also coincided with slump and recession in the international market since mid-nineties. Consequently, yarn prices increased only by about 120%, thereby causing many small and medium sized spinning firms to shut down their plants. Textile industry, which has been the bulwark of Pakistan's economy, was suddenly in doldrums.

Finally the miserable plight of the spinning sector attracted the attention of the Government of Pakistan at the highest level. In order to provide relief to the textile industry in general and to the spinning sector in particular the GOP announced a number of relief packages.

During the period 2000-2001 to 2002-2003 cotton production ranged between 10 million to 10.5 million bales and the cotton and yarn prices remained stable. The spinning mills continued their manufacturing operations without wild fluctuations in cotton prices.

The stability of cotton prices proved beneficial to the spinners. Firstly, it became possible for the spinners to enter into advance sale contracts for yarn with local and foreign clients on the basis of calculated profits without exposure to the risk of escalation in cotton prices. Secondly, the spinners interpreted the characteristics of the yarn in terms of fibre properties of cotton most suitable for producing the yarn quality required by the clients and made long term arrangements for its procurement and plan production programs accordingly. Thirdly, minimization of changes in production programs improved machine utilization and process efficiency. Fourthly, processing of consistent cotton quality facilitated optimization of processing parameters and production of required yarn quality.

Reasons for downfall in the Nineties

During the nineties a combination of factors adversely affected the industry, mainly:

• Removal of export duty on raw cotton, increasing domestic prices to international levels and beyond.
• Infestation of the cotton crop by leaf curl virus, reducing supply sharply and increasing prices.
• Frequent changes in governments creating inconsistency in policies of the Government and Financial Institutions.
• Rapid expansion of the installed industry in the hands of new entrants who did not have the managerial skills or the liquidity base to succeed.
• Rapidly changing global markets, specially the shift towards man-made fibres.
• Growing hostility from external sectors, such as geopolitical factors that have affected country image and credit worthiness, creating macro level impediments for the country as a whole.

As a consequence, many textile units fell sick creating a huge infected loan portfolio with the banks. In reaction, the banks withheld financing from the textile industry either for BMR or expansion.

Industry Outlook

Economic view: The textile industry of Pakistan remains the largest contributor to the GDP, exports and employment. The Budget 2004-05 has reduced customs duty on all types of plants, machinery and equipment not locally manufactured to 5%^[1] thus ensuring that Textile exporters make use of equipment and machinery in textile production and produce high quality textile goods of international standard. BTML has taken advantage of this policy and has been in the process of acquiring technologically advanced machines for its new plants^[2].

Pakistan’s slow paced march into international markets, in the post-quota period, has been due to lower level of investments in the processing and value-added textile sectors. This impacts the output quality, as a result of which value-added products fetch lesser price. It is an area where the industry should invest and improve. Although major groups have invested money in the processing and finishing units, but the effort is too insignificant. BTML is yet to move into the finished textile units and has limited itself to the spinning and weaving operations only.

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