The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Updates Entity Ratings of Fazal Cloth Mills Limited

Rating Type Entity
(07-Sep-22 )
(05-Nov-21 )
Action Upgrade Upgrade
Long Term A A
Short Term A1 A2
Outlook Stable Stable
Rating Watch - -

Fazal Cloth Mills enjoys a strong business profile as a leading producer of yarn and cloth. The Company's large size yielding economies of scale, diverse customer base, and broad product portfolio in spinning & weaving segments provides a competitive advantage. In recent years, the Company has been able to capitalize on additional capacities thereby generating incremental volumes, mainly in the spinning segment, eventually translating into improved margins and profitability. With expansion plan execution, the company has shown unwavering growth in profitability in recent quarters. During 9MFY22, Fazal Cloth generated revenue of PKR 47.6bln along with a bottom-line of PKR 4.8bln. The share of export sales to total revenue has increased significantly to 45%. The Company enjoys a strong equity base of PKR 40.6bln as of Mar-22. Fazal Cloth has a moderately leveraged capital structure and strong coverages. During FY22, Pakistan's textile exports surged to $19.3bln (recording a growth of 26%). Exports grew owing to increased volumetric growth of (16% YoY) in the value-added segment, a steep rise in global demand, and record high cotton prices. Under the value-added category, the knitwear segment remained the top performer by posting 34% YoY growth in exports to $5.1 billion in FY22 due to a sharp rise in global demand, especially in the US and European countries. Other value-added segments such as ready-made garments, bed wear, and towel posted YoY growth of 29%, 19%, and 19% to $3.9 billion, $3.3 billion, and $1.1 billion respectively. However, a slowdown is expected in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries.
The ratings are dependent on the Company’s ability to maintain strong business profile amidst current circumstances. Sustainability of relative position along with improved margins and profitability remain vital.

About the Entity
Fazal Cloth, a listed concern incorporated in 1966, is engaged in the manufacturing and marketing of yarn and fabric. The Company operates with eight spinning units (271,908 spindles, 3,660 open-end rotors, 1,752 MVS spindles/rotors and 119 doubling machines) and a weaving unit (224 air jet looms). The Company’s majority stakes are owned by Fazal Group and Fatima Group (~45% each). The remaining shareholding rests with financial institutions (~6%) and the general public (~4.7%). Herein “Group means members of the family without reference to any law of Pakistan”. The Company’s board comprises of total nine members which includes equal representation (three each) of Fazal Group and Fatima Group, while the remaining three are independent directors. The management control vests with Fazal Group. Mr. Rehman Naseem, CEO, heads the management team; and he is supported by experienced team members. M/s. KPMG Taseer Hadi & Co., Chartered Accountants serves as external auditor for Fazal Cloth. They have expressed unqualified opinion and review report for FY21.

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.