The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Maintains Entity Ratings of Prosperity Weaving Mills Limited

Rating Type Entity
(28-Dec-18 )
(30-Jun-18 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflects modest business profile of Prosperity Weaving Mills Limited (Prosperity Weaving). The company’s revenues are on growing trajectory over the years, owing to continuous BMR translating into operational efficiency, eventually higher production volumes. The company caters to the need of local industry as well as export markets. Re-imposition of custom duties and exclusion of tax rebate on yarn and greige fabric coupled with increasing interest rates have made the local industry ever competitive. On standalone basis, the rupee devaluation has provided a requisite breather to the company to sustain its business margins, despite declining exports share. The company has a highly leveraged structure with borrowing utilized for working capital and capex. Working capital cycle is stretched, though in line with peers; any improvement will bring efficiency. Prosperity Weaving Mills intends to gradually build a sizable investment portfolio. This exposes the company to market risk as exhibited by recent volatility in stock exchange. Any significant decline in investments leading to losses, and eventually equity erosion, will impact the financial profile of the company. The management’s ability to manage this risk is critical. However, the assigned ratings derive comfort from Prosperity Weaving Mills association with Nagina Group.

The ratings are dependent upon sustained market position of the company. Moreover, the company’s ability to generate cash flows to fulfill its financial obligations is critical. At the same time, prudent management of investment portfolio is important.

About the Entity
Prosperity Weaving was incorporated in 1991 as a public limited company. The company is majorly (~84%) owned by Nagina Group, through group companies and sponsoring individuals. The remaining stakes rests with general public and financial institutions. Nagina Group – one of the oldest small-sized textile houses in Pakistan – comprises three listed public limited companies – and six private limited companies, all engaged in various aspects of Textile value chain. The company is operating under Ellahi’s for over five decades.

Prosperity Weaving's board comprises eight members out of which six are non-executive, one occupy executive roles, while one director is independent. Sponsors dominance on board along with control over key management positions poses challenge to the management, thus, hampers effective governance. Mr. Shahzada Ellahi Shaikh - the Chairman, carries with him over two decades of experience. The board comprises vast knowledge and extensive experience of textile industry, benefiting the board in efficient decision making.

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.