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The Pakistan Credit Rating Agency Limited
Press Release

Date
30-Apr-19

Analyst
Muhammad Hassan
muhammad.hassan@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 Maintains Entity Ratings of Zahidjee Textile Mills Limited

Rating Type Entity
Current
(30-Apr-19 )
Previous
(28-Dec-18 )
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect stable business profile of Zahidjee Textile. The Company mainly operates in spinning segment, followed by a weaving unit. Continuous expansion and BMR activities have led to significant growth in topline in recent years. Currency devaluation and full operations of recently completed spinning unit have benefitted the Company’s margins. Recent expansion and rise in working capital needs has increased financing requirements. However, leveraging remains modest. The Company has utilized fixed interest rate lines that provide some respite in rising interest rate environment. The financial risk profile remains strong. This is supported by improving free cash flows and, in turn, strong coverages. Recent induction of independent directors on the Board has improved governance structure.
The ratings are dependent on sustaining business margins as well as strong coverages and financial profile. Meanwhile, optimal utilization of recent capacity enhancement is considered important. Going forward, buildup of a non-core income stream will have positive implications on ratings along with better governance framework.

About the Entity
Zahidjee Textile Mills Limited, incorporated in 1990, is a family-owned business primarily engaged in the production and sale of cotton yarns, blended yarns, greige fabric and textile madeups. The Company operates with 93,024 spindles and 280 looms. It is listed on Pakistan Stock Exchange. The Zahid family - sponsors - cumulatively holds majority (~95%) stake via family members. The family also has interests in real estate and investment banking.

Overall control of the Company vests with a seven-member Board of Directors, comprising four family members, including CEO, and three independent directors. Management control vests with Mr. Muhammad Zahid – CEO and co-founder of Zahidjee Textile – while his father, Mr. Muhammad Sharif, is the Chairman. Both have several decades of textile experience. The CEO is supported by a seasoned management team.

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.