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The Pakistan Credit Rating Agency Limited
Press Release

Date
03-Apr-23

Analyst
Iram Shahzadi
iram.shahzadi@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Assigns Entity Ratings to Mount Fuji Textiles Limited

Rating Type Entity
Current
(03-Apr-23 )
Action Initial
Long Term BBB
Short Term A2
Outlook Stable
Rating Watch -

Mount Fuji Textile Limited (‘Mount Fuji’ or ‘The Company’) is a Public (unlisted) Limited Company, which is supported by its presence in the export-oriented value-added textile segment, significant control over quality maintenance, extensive sponsor experience, and three-decade operating track record in the textile business. The Company has sound internal control and IT framework; however, room for improvement exists in the governance structure given the private limited status of the company. The ratings of the Company incorporate the progressive growth over the years. While crossing the PKR 7bln mark in FY22, the topline registered a sizeable growth of 47% (FY21: 48%) primarily driven by an increase in fabric prices, while volumetric growth remained nominal. Sales mix represents a major contribution from the export market; FY22 majorly tilted towards exports at 86% of total revenue (FY21: 85%). The Company enjoys an established customer base with several export destinations in European Countries (56%), the United States of America (30%), and the United Kingdom (11%). The management is planning further penetration into the Australian market in the upcoming years. Overall client wise concentration risk in sales remains elevated. Profitability margins (on a both gross and net basis), following a decline in FY22, fell further in the ongoing year on the back of the current weak macroeconomic environment, all-time high inflation suppressing purchasing power of the masses, higher markup rates, unstable forex parity and depleting foreign exchange reserves will remain major challenges. The liquidity profile is underpinned by adequate cash flow coverages in relation to outstanding obligations. The ratings also incorporate a moderately leveraged capital structure supported by profit retention. During 7MFY23, the textile exports were valued at $10.08bln compared to $10.93bln, reflecting an 8% decline YoY – the declining trend has been recorded in the last few months. The decline in exports is driven by attrition in the demand pattern of export avenues.
The ratings are dependent on the management’s ability to uphold the entity’s growing performance trend. Meanwhile, maintaining strong margins and coverages to fulfill financial obligations will remain critical.

About the Entity
Mount Fuji Textile Limited (‘Mount Fuji’ or ‘The Company’) was incorporated as a Private Limited Company on August 12, 1986, under the Companies Ordinance, 1984 (Now the Companies Act, 2017) and was converted into a Public (unlisted) Limited Company with effect from May 07, 1992. The principal business of the Company is the manufacturing and export of garments and home textile products. The company has three units. The Company has five sectional warping machines. The Company has a weaving facility of 138 Sulzer and 84 Airjet Looms. The ownership of the Company rests with the family of Mr. Ashraf including his sons. The major shareholding of the Company is owned by Mr. Ahmed Ashraf (28.57%), While the remaining is equally distributed between the sons of Mr. Ashraf. The Company’s board is dominated by sponsor-family members; comprises four members, including the Chairman - Mr. Ahmed Ashraf, and Chief Executive Officer (CEO) – Mr. Abdul Latif Ashraf. There are no independent directors on the board.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.