The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Ahmed Fine Weaving Limited

Rating Type Entity
(18-Nov-22 )
(18-Nov-21 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings of Ahmed Fine Weaving Limited (Ahmed Fine Weaving) reflect its business profile emanating from a sustained revenue base and profitability. The Company is a public unlisted company and possesses a weaving capacity of 270 Air Jet looms where BMR has been recently completed. The ownership rests with Mr. Ashar Fazal and his children. The current governance framework is comprised of all sponsors, where inclusion of independent director may pave the way for further improvement in the overall governance. The Company’s management is cognizant of the textile industry’s volatility and has planned up gradation of machinery to remain competitive. The Company’s topline increased, during FY22, to stand at PKR 9.6bln (FY21: PKR 6.6bln); resultant of higher capacity utilization accompanied by good general industry trends. The sales mix represents the contribution from both local and export markets; FY22 is majorly tilted towards export. During the period, margins remained largely the same while there has been an increase in net profit attributable to a sizable improvement in other income. Ratings also incorporate good financial risk manifested by improvement in working capital and sustained coverage.

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. In July to August 2022, the cumulative exports of knitwear increased by 15.4% to $1.32 billion; cotton cloth by 4.2% to $580.5 million, and readymade garments by 5.9% to $911.5 million over their exports in the same period of last year. However, bed wear exports were down 2.9% to $780 million, towels 1.7% to $237.3 million, and cotton yarn sales declined by 18%. 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 management’s ability to uphold the entity’s performance trend. Meanwhile, maintaining strong margins and coverages to fulfill financial obligations will remain critical. Improvement in the governance framework is considered important.

About the Entity
The ownership of Ahmed Fine Weaving rests with the family of Mr. Ashar Fazal and his children. The Company’s board of directors comprises three members. Two members belong to the sponsoring family, while one member is an executive director. Sponsoring family dominance and the absence of independent oversight indicates room for improvement in the governance framework of the Company. Mr. Ashar Fazal - the Chairman of the board, is also the CEO 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.