The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Rating of Reliance Weaving Mills Limited

Rating Type Entity
(23-Dec-22 )
(23-Dec-21 )
Action Maintain Upgrade
Long Term A A
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect the sustained business risk profile of Reliance Weaving Mills Limited. The Company has undertaken continuous BMR translating into operational efficiencies and higher production volumes. The company’s weaving capacity is amongst the highest in the country on a standalone basis. The Company has scored good margins, attributable to strong spinning and a healthy weaving business. A major reason for these results is the timely procurement of cotton at a competitive price. During 1QFY23, the topline of the company increased by 18% YoY to stand at PKR 8,770mln (1QFY22: PKR 7,408mln). Moreover, the Company has ramped up the capacity utilization significantly, in both spinning and weaving segments, giving a comfortable picture, ahead. Going forward, the Company aims to undertake further expansion, financed through a mix of internal and external sources. The Governance of the Company is considered strong. The Company has a strategic investment in the energy sector in a group company. The Financial risk matrix has reflected sustained improvement over the years. The assigned ratings incorporate strong sponsors' support and the explicit guarantee provided by the majority of sponsors on all debt-related obligations of the Company. Moreover, synergies between the group companies are considered positive. During 5MFY23, textile exports were valued at $7.44bln compared to $7.76bln, reflecting a 4% dip YoY – the declining trend recorded in the last two months. The fall in export value has mainly come from volumetric decline as prices of almost all categories have either increased or stayed flat. This has taken a fiscal year to date exports into negative with a 1.4% decline in the first four months (July – October) FY23. Among value-added items, bedwear has witnessed the largest decline of 19% (on an MoM basis), down to $217 million. Knitwear remained on the downward path in October 2022 and declined by 10% to $392 million. Among non-value-added items, the cotton yarn has shown the largest decline of 35%. Moreover, 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 management's ability to prudently manage the liquidity and debt profile of the Company, Prudent management of the cash cycle in the increasing key policy rate scenario, while sustaining and improving business margins remains vital. Going forward, support from sponsors would remain critical.

About the Entity
Reliance Weaving Mills Ltd., a listed concern, commenced operations in 1990. The Company is engaged in the manufacturing and marketing of yarn and greige fabric. Reliance Weaving operates with five units, constituting two spinning and three weaving units, having capacities of 65,280 spindles and 525 looms, respectively. Fatima Group, a leading corporate group in Pakistan, owns a majority stake (78%) in Reliance Weaving. The Group has diversified interests in fertilizer, sugar, textile, energy, transmission, packaging, and foreign trade. The overall control of the Company vests in a seven-member board of directors with the Chairman – Mr. Fawad Ahmed Mukhtar and the CEO – Mr. Faisal Ahmed Sheikh. Five directors are Fatima Group’s family members, including two executive directors, while two members are independent directors. Mr. Faisal Ahmed, a textile industry veteran, has diversified experience. He is supported by a team of seasoned professionals.

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.