The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Assigns Entity Ratings of Khas Textile Mills (Pvt.) Limited

Rating Type Entity
(29-Aug-19 )
Action Initial
Long Term BB+
Short Term A3
Outlook Stable
Rating Watch -

The ratings reflect the small yet adequate business profile of Khas Textile Mills (Pvt.) Limited emanating from relatively small revenue base, thin margins and profitability. The Company is associated with Khas Group of Industries. The Company manufacturers various types of cotton ring and open end yarn. Despite challenging textile industry dynamics, Khas Textile managed to maintain its volumes. Subsidized gas rates for textile industry have made the local textile industry cost competitive, though withdrawal of zero rating status will affect liquidity of the industry. On standalone basis, the Company’s sales volume increased due to capacity enhancement from recently completed BMR and better yarn prices. Increased cotton prices have put pressure on margins and, in turn, profitability. The Company has a highly leveraged capital structure and weak coverages. The Company has stretched its working capital cycle, though in line with the industry average. Limited cash flows from operations and higher finance cost led to stretched coverages. These are expected to improve due to repayment of long term loans in the near future. The debt structure is skewed towards short-term borrowings, which led to asset-liability mismatch. The overall governance framework needs strengthening.
The ratings are dependent upon the management's ability to improve margins, profitability and financial profile of the Company. Improving asset-liability will be critical. Meanwhile, strengthening of governance practices will have a positive impact on the ratings. Any deterioration in debt coverages leading to higher financial risk or substantial losses will have negative impact on ratings. Khas Group of industries has presence in diverse sectors; including textile, aluminium, poultry, socks and knitwear and import of building hardware.

About the Entity
Khas Textile Mills (Pvt.) Limited was incorporated in 2001 as a private limited company. The Company is engaged in manufacturing of different types of cotton ring and open end yarn. The Company currently operates 19,680 spindles and 840 rotors and has a purpose built manufacturing facility located in the industrial hub -Nooriabad. The Company is entirely owned by Ashfaq family, which includes Mr. Haji Ashfaq Ahmed and his wife (20%) and two sons (i) Mr. Khurram Ashfaq (40%) and (ii) Mr. Noman Asahfaq (40%) individually and through their respective families.

The board comprises five directors. All of them belong to the sponsor family. Mr. Ashfaq Ahmed – chairman of the Company – has over 45 years of experience in diverse industries, including textile. Mr. Khurram Ashfaq – Managing Director – has over 23 years of experience in textile industry and is supported by an experienced 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.