Sohail Ahmed Qureshi
PACRA Maintains Entity Ratings of Sargodha Jute Mills Limited
The ratings reflect Sargodha Jute Mills Limited’s strong profile in jute industry emanating from robust market share, adequate margins. Pakistan's jute industry depends 100% on raw jute imports from Bangladesh. The prices of raw jute fluctuate in the international market and have been on a rising trend lately. This, coupled with devaluation of rupee has increased costs for the industry. The Company was able to pass on these increased costs to consumers. Despite the higher jute product prices and imposition of sales tax from July 01, 2019, demand has shown growth during 1HFY21. The top-line of the Company declined 4.8% on annualized basis and grew by 86% on YoY basis in 1HFY21 which shows the cyclical nature of Jute industry. The Company's profitability was under pressure due to lower sales and higher finance costs. However, after Mar-20 cut in interest rate has provided some relief. The capital structure of the Company is moderately leveraged comprising short-term borrowings only. The Company enhances its borrowings at the end of 1HFY21 for working capital management as second half of the financial year involves more business activity. The Company manages its working capital adequately with cushion at trade level available with moderate coverages. The ratings incorporate financial strength and proven track record of the sponsoring family.
The ratings are dependent on the company's ability to maintain its revenues and margins. Substantial decrease in margins leading to lower profitability and/or deterioration in coverages will have implications on the ratings.
Sargodha Jute Mills Limited was incorporated in 1981 as an unquoted public limited company in Pakistan. Mr. Parvez Aslam, through his two sons, Mr. Imran Aslam (28.3%) and Mr. Irfan Aslam (28.3%), and other family members own majority (~75%) shares of the Company. The remaining shareholding of the Company is held by an associated Company, Shahzad Textile Mills Limited (~25%). Sargodha Jute started operations with annual production of 5,000 metric tons in 1984. The Company has increased its annual production to ~30,500 metric tons over the years. The Company is involved in manufacturing and sale of jute products like hessian cloth, sacking bags, twines and yarn locally and in export market.