Analyst
Muhammad Hassan
muhammad.hassan@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of Roomi Fabrics Limited
Rating Type | Entity | |
Current (27-Dec-19 ) |
Previous (28-Jun-19 ) |
|
Action | Maintain | Maintain |
Long Term | A- | A- |
Short Term | A2 | A2 |
Outlook | Stable | Stable |
Rating Watch | - | - |
The ratings reflect adequate business profile of Roomi Fabrics Limited (Roomi Fabrics’ or ‘The Company’) and its association with Mahmood Group. The Company is principally engaged in the manufacturing of yarn and griege fabric, primarily catering to the fashion market. The Company has built a significant investment portfolio that is managed at the group level. The Company witnessed growth in its topline and margins which led to improved profitability from core operations. Overall profitability of the Company remains a function of income from its large investment portfolio in shape of dividends and capital gains/losses. Although the Company is invested in blue-chip scrips, high market risk exposes the Company to volatile returns. This concern is magnified as the investments are partially financed through short-term borrowings. The recent upsurge in equity market favors the Company’s investment portfolio as valuations increase. Free Cashflows have recently shown improvement resulting in better coverages. However, financial profile of the Company remains stretched given highly leveraged capital structure and limited borrowing capacity. Board’s vast experience and association with Mahmood Group bodes well for the Company.
The ratings are dependent on the Company’s ability to improve its financial profile by reducing leveraging. The management is working on this front and timely materialization of these initiatives is critical. Additionally, maintaining margins and improving profitability from core operations is important. Significant deterioration in coverages and/or margins will impact the ratings.
About
the Entity
Roomi Fabrics is a venture of Mahmood Group, which was originally established in 1935, by entering the tannery business. Now the group has presence in complete cotton chain (growing to finished products), tanneries, real estate, and food. Cumulatively the group operates ~300,000 spindles and ~850 looms, out of which 36,000 spindles and 228 looms come under Roomi fabrics. The group has lately entered into the hospitality sector, putting up hotels along 'Avari Express' in Multan. Mahmood Group Sponsors cumulatively own 64% directly via individuals and the remaining shareholding is owned through group companies.
Overall control vest with eight board members, all of whom are from the sponsoring family. Mr. Jalaluddin Roomi is the CEO of the Company, who has more than 30 years of experience in the textile industry. He has vast experience in leading different government, semi-government and public limited companies. Currently he also serves on the board of Arif Habib Corporation and Shakarganj Limited.