The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Upgrades Entity Ratings of Zahidjee Textile Mills Limited

Rating Type Entity
(02-Nov-22 )
(25-Oct-21 )
Action Upgrade Upgrade
Long Term A A
Short Term A1 A2
Outlook Stable Stable
Rating Watch - -

The rating upgrade incorporates Zahidjee Textile’s improved business and financial risk. The business risk profile is supported by the Company's established track record of operating in spinning and weaving segments. Continuous BMR activities have led to significant growth in operations in recent years. During FY22, the Company increased its spinning capacity to 133,344 spindles from 93,024 spindles financed through a mixture of internal and external sources for the manufacturing of finer count. The operating performance of the Company witnessed a sizable improvement in FY22. The revenue base recorded a healthy increase and stood at PKR 27.9bln (FY21: PKR 16.6bln). The Company’s sales volume was enhanced attributable to an increase in local sales and better yarn prices. Improved financial risk profile attributable to a decrease in leveraging and an increase in coverage. The debt structure is skewed towards long-term borrowings. Further, room to borrow displayed improvement along with reduced debt payback. Going forward, improved performance was recorded in recent quarters along with sustaining financial risk profile and efficient utilization of enhanced capacity. 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. Floods have added another challenge, especially pertaining to the availability of the cotton crop.
The Company's financial risk profile remains strong, characterized by sufficient cash flows and, in turn, strong coverages, driven by augmented profitability. Ratings are also underpinned by a moderately low leveraged capital structure, growth in the equity base, and a good corporate governance framework.

About the Entity
Zahidjee Textile Mills Limited, incorporated in 1990, is a family-owned business primarily engaged in the production and sale of cotton yarns, blended yarns, greige fabric, and textile made-ups. The Company operates with 133,344 spindles and 280 looms. It is listed on Pakistan Stock Exchange. The Zahid family - sponsors - cumulatively hold the majority (~96%) stake via family members. The family also has interests in real estate. Overall control of the Company vests with a seven-member Board of Directors, comprising four family members, including the CEO, and three independent directors. Management control vests with Mr. Muhammad Zahid – CEO and co-founder of Zahidjee Textile. The CEO is supported by a seasoned management team. The board has appointed Mr. Ahmed Zahid as a new Chairman effective from July 6, 2021. Moreover, Mr. Muhammad Junaid was appointed as director to fill the casual vacancy due to the resignation of Mr. Muhammad Sharif. Zahidjee Textile has a stable and experienced senior management team which is supported by clear reporting lines as per a formalized organogram and satisfactory monitoring process.

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.