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
(30-Mar-19 )
(28-Dec-18 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect 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. Textile industry in general and spinning industry in particular suffered from low international commodity prices. On standalone basis, the Company has improved its business profile on account of better product quality and efficient raw material procurement. Financial profile of the company is characterized by lean working capital cycle, adequate coverages and high leveraging. The Company maintains a highly leveraged structure with borrowing utilized for working capital and CAPEX. The Company 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 enough 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 engaged in production of Fabric and operates with a weaving unit comprising 324 looms. The Company is majorly (~84%) owned by Nagina Group, through group companies and sponsoring individuals. While 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 occupies executive role, 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.