The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of A.J. Textile Mills Limited

Rating Type Entity
(12-Oct-22 )
(12-Oct-21 )
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

AJ Textile, a private limited company is a group concern of Aziz group – one of the oldest conglomerates, with business ventures in Textile (Yarn Production); FMCG (Match Manufacturing), Laminated Boards, MDF and Particles Chip Board Production. The Group has entered into Real Estate Sector with its first project (AJ Tower) under development in Islamabad. Over the years, since its commencement, the Company has expanded into three units with an installed capacity of 109,432 spindles, producing blended, cotton, and plied yarns in Ring and Vortex spinning (equivalent to 15,000 spindles). The Company has installed a power generation capacity of 9 MW power plant and a 5.6 MW solar plant on its profile. Further solar plant capacity is expected to be raised by 1.4 MW. The ratings incorporate the Company’s moderate yet improving business profile where the revenue is emanating from a single segment. Further improvement in the control environment remains vital. The management meetings are held regularly with follow-up points to resolve or proactively address operational issues, if any, eventually ensuring a smooth flow of operations. The Company largely caters to the needs of the local market. During 9MFY22, the revenue of the company increased by 46% YoY to stand at PKR 8.3bln along with sizably improved profitability. The Company has a moderately leveraged capital structure, maintained over the years. The strengthening of the equity base has enhanced the risk absorption capacity of the company. Coverages improved, whereas, the cash cycle remained intact. 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 improving the business profile under the current economic conditions; and a strong financial profile with strong coverages. Improvement in governance framework and inclusion of independent oversight remains essential. The ability to generate ensuing cash flows to fulfill its financial obligations will remain critical for the ratings.

About the Entity
AJ Textile’s board consists of four members, all belonging to the Aziz family. Mr. Mohsin – the Chairman, possesses 40 years of industrial experience. He is a former member of the Senate of Pakistan. Mr. Afan Aziz; son of Mr. Mohsin Aziz, has been associated with the company since 2002. He possesses over 20 years of industrial experience. The Company's current operational capacity comprises 109,432 Spindles. The total energy requirement of the Company is met by in-house power generation capability of up to 15.6MW, achieved through ~5MW gas-based generators, along with HFO & solar-based power plants.

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.