The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Upgrades Entity Ratings of Reliance Weaving Mills Limited

Rating Type Entity
(31-Dec-18 )
(25-Apr-18 )
Action Upgrade Maintain
Long Term A- BBB
Short Term A2 A3
Outlook Stable Stable
Rating Watch - -

The ratings reflect sound business profile of Reliance Weaving Mills Limited (Reliance Weaving). The company’s revenues are on a growing trajectory over the years, a factor of continuous BMR translating into operational efficiencies and higher production volumes. Over the years, the company has sustained its overall margins, despite challenging textile industry dynamics. Moreover, re-imposition of custom duties and sales tax on cotton & yarn imports, coupled with increasing interest rates has has made it challenging for the local textile industry. While on standalone basis, the rupee devaluation has provided a requisite breather to the company, reflected in improving margins. Fatima Group has parked a strategic investment in energy sector on Reliance Weaving's books. However, major investment portion is in development stage and is not expected to provide returns in near future. The company has a relatively stretched financial profile. This is reflected in higher short-term debt vis-à-vis self-liquidating current assets. Cognizant of these issues, the management is in process of re-profiling its balance sheet in favor of long term debt. The assigned ratings incorporate strong sponsors support demonstrated by explicit guarantee provided by majority sponsors on all debt related obligations of the company.

The ratings are dependent on the management's ability to prudently mange the liquidity and debt profile of the company, particularly working capital, while sustaining its business margins. Going forward, support from sponsors would remain important.

About the Entity
Reliance Weaving Mills Ltd. (Reliance Weaving), 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 61,920 spindles and 448 air jet looms, respectively. The company caters its power needs via in-house production (12.5 MW), as well as NTDC connection. Fatima Group, a leading corporate group in Pakistan, owns majority stake (78%) in Reliance Weaving. The group has diversified interests in fertilizer, sugar, textile, energy, transmission, packaging, and foreign trade.

The board comprises seven members; five directors are representatives of sponsoring group – including two executive directors, the remaining two are independent directors. Mr. Fawad Ahmed Mukhtar is the Chairman of the BoD. Moreover, board members have diversified experience, and relatively long association with the company. Mr. Fazal Ahmed Sheikh – the CEO– a textile industry veteran; primarily manages the company’s affairs, 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.