Malek Spinning to shut down the denim unit of its subsidiary

Publicly listed Malek Spinning Mills Limited, a concern of New Asia Group, has decided to close the denim bottoms production unit of its subsidiary company - Salek Textile Limited - because of business instability from the unit since its inception.

At a recent board meeting, Malek Spinning's directors also decided to sell the assets of the denim unit, to pay off the liabilities of the subsidiary company.

After the disclosure of this news on the website of the Dhaka Stock Exchange (DSE), Malek's share price slid 3.19% to close at Tk27.30 each on Sunday, compared to the previous trading session.

The company's Managing Director A Matin Chowdhury told The Business Standard, "We missed some orders before the Covid-19 outbreak. As a result, the business from this unit declined."

"Denim exports have suffered the most due to the coronavirus pandemic. We have been incurring losses for the last two years," he added.

"The unit was built on a piece of leased land in Gazipur. The duration of the lease has also expired. And, it will take one to one and a half years to shift the unit to another place. Therefore, we are closing the unit considering the current state of the business."

"The unit will be shut down from 31 December. The workers' dues have already been paid," he further said.

Malek Spinning started the denim export under its subsidiary Titas Spinning and Denim Company Limited. In 2014, Titas Spinning amalgamated with Salek Textile Limited. Malek Spinning owns 97.92% shares of Salek Textile. It produces 66 lacs pcs of denim products per annum.

In fiscal 2020-21, the company earned Tk198.56 crore from the export of denim products, which was 6% higher than the previous fiscal year. But it incurred losses for the 2017-18 and 2018-19 fiscal years.

In April this year, the fabric unit of Salek Textile suffered a fire incident and the company informed its shareholders that the facility and goods were under comprehensive insurance coverage. The company said it will get Tk30 crore as an insurance claim.

Malek Spinning produces export-oriented knit yarn. The existing installed production capacity of the company is 1.26 crore kg yarn per annum with 63,624 spindles.

In fiscal 2020-21, the board of Malek Spinning recommended a 10% cash dividend for the shareholders. In that year, its revenue grew 15% to Tk297.62 crore, and its consolidated revenue jumped 54% to Tk1,503.97 crore.

At the end of the last fiscal, its consolidated net profit was Tk65 crore and earnings per share were Tk3.36.

In June this year, the company announced a new investment plan of Tk213.19 crore for boosting the high-valued yarn production capacity.

As per the investment plan, the company will install new machines for producing high-valued yarn to meet the buyer requirement. This new project will create value addition due to the improvement of product quality which will enable the company to sell its products at higher prices and retain better margins. The proposed investment will be implemented by funds from internal sources as well as loans from banks and other sources.

Earlier, the managing director said, "Our yarn has a lot of demand from buyers because we import cotton from America and make yarn using modern technology. We do not charge a premium for this."

"Along with the advancement of technology worldwide, the quality of yarn has also changed. So, we are investing heavily to produce better yarn."