PACRA Maintains Entity Ratings of Kohat Textile Mills Limited

The ratings reflect moderate business profile of Kohat Textile Mills Limited (Kohat Textile). The Company caters to the needs of local industry and deals in specialized products i.e. polyester yarn, acrylic yarn and viscose yarn. Kohat Textile is a net importer of raw material. This exposes the Company to exchange rate volatility and eventually dilutes its profit margins. However, the impact was limited as the Company has adequately invested in technological up gradations and expansion projects to remain cost competitive as reflected in improving margins. In FY19, the Company's revenues grew, posting a growth of 32% year-on-year. However, in 1QFY20, revenue dropped on the back of zero rated sales tax withdrawal by the Government, which lead to lower demand from the market. The Company’s Net Margin has been affected adversely due to significant hike in finance cost caused by 85% increase in policy rates, reflected by reduced coverages. The Company's financial profile is considered adequate on the back of adequate working capital cycle, coverages and moderate leverage. Going forward, improvement in cash flows is critical for meeting financial needs. The assigned ratings derive comfort from experienced management team, strong financial muscle of the Sponsors and their timely support to the Entity in the form of subordinated loans.
The ratings are dependent on managing financial obligations while sustaining business margins, along with prudent management of working capital. Any deterioration in revenues and/or debt coverages leading to higher financial risk or subdued profitability will have a negative impact on the ratings. Saif Group's support to the Entity will remain critical.

About the Entity
Kohat Textile commenced operations in 1967 and was listed on PSX in 1970. Kohat Textile’s is a subsidiary of Saif Holdings, with majority stake (~77.98%). The remaining shareholding rests with financial institutions (10%), general public (10.12%) and directors (0.87%). Saif Group is one of the renowned corporate groups in Pakistan. The Company operates with a single spinning unit having a capacity of 35,280 spindles - manufacturing specialized yarn.

The board comprises seven members, all from the sponsoring group, with Osman Saifullah Khan as the Chairman of the BoD. Board members have diversified experience, and relatively long association with the Company. Management control vests with Saif Group. Assad Saifullah – the CEO – primarily manages the Company’s affairs, supported by a team of seasoned professionals.