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The Pakistan Credit Rating Agency Limited
Press Release

Date
05-Mar-18

Analyst
Ayesha Qasim
ayesha.qasim@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Assigns Initial Entity Ratings to Gul Ahmed Textile Mills Limited

Rating Type Entity
Current
(05-Mar-18 )
Action Initial
Long Term A
Short Term A1
Outlook Stable
Rating Watch -

The ratings reflect Gul Ahmed Textile Mills Limited’s (Gul Ahmed) established business profile with strong presence in the broader textile value-chain; enabling the company to manage volatility in textile business. Presence in retail with a renowned brand "Ideas" in local market adds up to stronger business risk. The entity has achieved a sizable revenue base, while focus on value added products brings higher gross margins. This emanates from export market orientation, targeting established niche of quality-conscious institutional buyers. Nevertheless, this has led to customer concentration, longevity of relationship with big-name clients in addition to sustained quality would help manage the risk. Net margins are currently squeezed on the back of hefty branding activities and cut throat competition in local market. Gul Ahmed's financial risk profile is relatively strained; characterized by higher long-term debt. However, it is supported by comfortable cash flows, and, in turn, adequate debt-servicing ability. Working capital cycle is stretched on the back of higher inventory needs. Company revamped its production operations recently, replacing spinning and weaving facilities with latest technology. Moreover, retail strategy in local market has been invariably updated to cater changing demands amidst rising competition. These initiatives are expected to result in easing net margins, and, hence, improved cashflows.

The ratings are dependent on the company's ability to sustain its business profile. At the same time, prudent management of its working capital needs and meeting financial obligations will remain important. Improving revenue stream while its margins will provide breather to coverages.

About the Entity
Gul Ahmed Textile Mills Limited (Gul Ahmed) - listed on Pakistan Stock Exchange, commenced operations in 1953. The company, is engaged in the manufacturing of yarn, fabric, garments and home textile products. Management control lies with Bashir family, holding majority stake (~70%) in GATML - through Gul Ahmed Holdings. GATML has strong presence in retail sector through one of Pakistan’s premier retail brand ‘Ideas’. It operates with ~110 retail outlets all over Pakistan. Gul Ahmed exports ~65% of its total revenue while rest is in local market including retail.

Overall control of vests with seven members BoD including the CEO and three independent non executive directors. Four board members belong to Bashir family, out of which two are in executive roles including the CEO, two are non-executive director including Chairman Mr. Mohomed Bashir. Mr. Bashir has over 4 decades of experience of working in textile sector. He is founding member of Gul Ahmed Energy and Habib Metropolitan Bank Limited. For his services in textile, Mr. Bashir has been awarded Sitara e Imtiaz by the Government of Pakistan and he was awarded Grade d' Officier in the National Order of Merit by the President of French Republic in 2007. The CEO, Mr. Zaki Bashir, graduate of Regent's Business School UK, oversees the company affairs with the help of an able management team. The company has made separate business units for its business which includes (i) Spinning, (ii) Weaving (iii) Home Textile (iv) Apparel and Garments; each is a full profit centre.

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.