PACRA Maintain the Entity Rating of Saif Textile Mills Limited

Saif Textile Mills Limited (“STML” or “the Company”) rating emanates from the strapping profile of its sponsoring group, the Saif Group. The Saif group has an appreciable presence in diversified industry segments like Power, Textile, oil & gas exploration, Real Estate, IT & Communication and Healthcare. STML produce a variety of Yarn as accru yarn is their prime selling product followed by mélange yarn and dyed yarn. The Company has minute export volumes and is contributed by the sale of surgical cotton. The Company's financial health has been challenged by the deterioration in company-specific business fundamentals coupled with sluggish trends in the spinning industry and under-stress macroeconomic indicators. During 9MFY24, STML reported a topline of PKR 9,563mln (FY23: PKR 11,692mln, 9MFY23: PKR 8,337mln) and generated a profit after tax of PKR 74mln mainly supplemented by a loan wavier of PKR 600mln from Saif Holding. The gross profit margin improved to 12.6% in 9MFY24 (FY23: 4%, 9MFY23 4.4%), however, magnifying finance cost has diluted the net profit margin to 0.8% (FY23: -9.7%, 9MFY23: -9.9%). The recent cut in the monetary policy rate will provide a cushion in the profitability matrix of the Company. The management of the Company remains committed to aligning its financial performance with projected targets. The financial strength of the Company is underpinned by the financial backing of the Saif Group and its ongoing support to STML. An agreement is in place for an unsecured finance facility of up to PKR 1.5bln from Saif Power, specifically designated for debt servicing and fulfilling working capital needs. STML is authorized to utilize this facility and make repayments under it at its discretion. The company's financial risk profile is under stress but some gradual recovery is expected. The company relies on short-term borrowings to fuel its working capital requirements. The cashflows and coverages of the Company are considered adequate and require prudent management to fund core operations. The Company's maintained leverage capital structure with a 61.4% leveraging ratio, mirroring the industry's propensity for increased borrowings. The size of the textile industry in Pakistan is estimated to be PKR 2.62Trn ~3.0% of the total GDP as of FY23. The composite & garment segment in the textile sector has a contribution of ~ PKR 1.6Trn mainly dominated by knitwear, readymade garments, bedwear and towels followed by PKR 775bln from spinning and PKR 637bln from weaving. The escalation in energy tariffs & finance costs, PKR devaluation and ensuring the availability of optimum quality raw materials are prime challenges.
The ratings are dependent upon the continuity of financial support from sponsors. The augmentation in profitability matrix while generating sufficient cashflows with improved coverages remains critical. The adherence of debt matrix at an optimal level is a prerequisite for assigned ratings. The sponsor support remains critical for ratings sustainability. Moreover, it is still crucial to strengthen the equity foundation.

About the Entity
Saif Textile is majorly owned by Saif Holdings (49.58%) followed by NIT (5.80%), State Life (3.90%), and significant free-float (40.72%). Company's core operating activity is spinning, with their final products being yarn and surgical cotton. Company is equipped with an installed capacity of 105,744 spindles and 19 doubling machines. The board comprises eight members, including the Chairman - Mr. Javed Saifullah Khan. The board members have vast knowledge and expertise in the textile industry, though diversity in experiences exists as well, ensuring a requisite skill mix for strategic planning.