The Pakistan Credit Rating Agency Limited
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Iram Shahzadi

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PACRA Maintains Entity Ratings of Allawasaya Textile & Finishing Mills Limited – Assigns Rating Watch

Rating Type Entity
(03-Mar-23 )
(03-Mar-22 )
Action Maintain Upgrade
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes -

Allawasaya Textile and Finishing Mills are engaged in the manufacturing and sale of PC Yarn, PV Yarn which is man-made fiber & CVC Yarn. In FY22, due to better yarn prices in the local market, the Company's topline grew by 36% and stood at PKR 4.8bln (FY21: PKR 3.5bln). Similarly, due to high expenses, the company's net profitability reflects a slight attrition in FY22. However, in the medium term, the Company’s performance witnessed significant dilution. The company’s operating profit witnessed a dip YoY on the back of higher expenses. The finance cost increased manifold and the company recorded net losses. This was due to multiple factors, chief among them was the impact of a volumetric decline and cotton price adjustment amidst high inflation and significant depreciation of the Pak Rupee. Furthermore, floods’ impact on crops resulted in a shortage of raw materials locally produced. The debt structure is skewed towards short-term borrowings. The rating watch has been incorporated attributable to incurred losses and the aforementioned parameters. Going forward, with better efficiency and a specialized product profile, the management expects the Company’s margins to improve.
During 7MFY23, the textile exports were valued at $10.08bln compared to $10.93bln, reflecting an 8% decline YoY – the declining trend has been recorded in the last few months. The decline in exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand for yarn in international markets is also a challenge. The analysis of 5MFY23 reveals that 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, cotton yarn has shown the largest decline of 35%. Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries. The demand pattern is expected to improve post-Jun-23.
The ratings are dependent upon the sponsor’s support and management's ability to improve margins, and net profitability in upcoming quarters. This includes keeping the debt levels manageable. Any further deterioration in margins or coverages will have a negative impact on the ratings.

About the Entity
Allawasaya Textile and Finishing Mills Limited (the Company), is a listed company engaged in the manufacturing and sale of different varieties of yarn. The Company currently operates 38,232 spindles, after the recent completion of its BMR. The Company fulfills its energy needs in-house and has a production capacity of 4.2MW, as well as a backup connection from MEPCO. The Company is primarily owned by Tauqir Family (37.6%), Jamil Family (35.4%), and Maqbool Family (25%), while the rest is owned by the friends of the families.
Overall control vests in an eleven-member board of directors, which includes five non-executive directors, three executive directors, and three independent directors. Three members represent the Tauqir family, two members represent Maqbool Family, and two members including the Chairman & CEO, Mr. Mian Muhammad Jamil, represent Jamil Family. The CEO – Mr. Alamgir carries extensive experience in the textile industry and is supported by an experienced management team.

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.