The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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PACRA Maintains Entity Ratings of Rustam Towel (Pvt.) Limited

Rating Type Entity
(29-Apr-22 )
(29-Apr-21 )
Action Maintain Upgrade
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Rustam Towel (Pvt.) Limited ('Rustam Towel' or 'the business', a conventional family-owned business concern, is operating for over two decades in the towel industry as an export-oriented towel manufacturer. It holds a stable position and is classified among the top ten towel exporters of the country, with a strong customer foothold based in Europe and America. The Country's textile exports have witnessed a growth of ~ 25% in 1HFY22 and stood at $9.4bln as compared to $7.4bln in 1HFY21, whereas towel exports contribute ~ 6% (value-wise) of it. The exports of towels increased by 22% in 1HFY22 as compared to the same period last year which is a positive sign. The rating incorporates the operational strength of the business as it is well integrated vertically. The revenues are expected to witness an uptick as there has been a worldwide surge in demand for towels on account of improved hygiene practices. To capitalize this opportunity a capacity expansion of total 48 looms is underway, currently, 24 looms have been installed out of 48 looms and production capacity is now increased by ~33%, the expansion is funded by internal cash. Towel industry enjoys relatively better margins that are reflected in Rustam Towel’s profitability as well. On standalone basis, the business concentration levels – both customer and geographical – are well managed with having a policy of capping revenue through an intermediary. The business was able to achieve growth in revenue of ~14% during 1HFY22 due to volumetric and price increases in sales and enjoys reasonable margins and profitability. Finance Risk profile appears adequate, with comfortable coverages, stretched working capital cycle, and leveraged capital structure; encompassed short-term borrowings for working capital management. The ratings also draw comfort from strong financial strength of sponsors. Rustam Towel is a private limited hence, room for improvement in its governance structure continues to be essential.
The ratings are dependent upon the business’s ability to improve its revenues, margins, and profitability. Meanwhile, the ideology to dilute borrowing levels and adherence to sound financial discipline gives comfort to the ratings. Strengthening of governance structure and financial transparency will lend support to the ratings.

About the Entity
Rustam Towel (Rustam Towel) was incorporated in 1998. It is engaged in manufacturing and marketing of different varieties of towels. Rustam Towel is a private company owned by Dogar Family. Mr. Sanaullah, along with his son and three brothers, owns the Company. Rustam Towel's board comprises five members representing Dogar Family. Mr. Sanaullah Dogar, the Chairman, and CEO carry with him over three decades of experience in the textile sector. He is supported by his brothers. Mr. Waseem Dogar – youngest brother being the director - largely manages overall day-to-day affairs of the Company.

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.