The Pakistan Credit Rating Agency Limited
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Muhammad Fahad Iqbal

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PACRA Maintains Entity Ratings of Allawasaya Textile & Finishing Mills Limited, Assigns 'Rating Watch'

Rating Type Entity
(30-Apr-20 )
(30-Oct-19 )
Action Maintain Maintain
Long Term BBB- BBB-
Short Term A3 A3
Outlook Stable Stable
Rating Watch Yes -

The ratings reflect Allawasaya Textile and Finishing Mills Limited’s (the Company) association with three industrial families of Multan and demonstrated support of sponsors. Sponsors have a presence in the oilseed extraction industry and other segments of textile value-chain. The Company is involved in the manufacturing and sale of cotton yarn and man-made fibers. The Company enhanced its capacity by 8,500 spindles during the year, though it still remains relatively small. The Company’s revenue showed significant increase of ~40% due to increase in production capacity which led to higher sales volume. Similarly, the margins of the Company showed improvement due to increase in topline and better procurement of cotton at reasonable price indicating an improvement in profitability. However, the COVID-19 will have negative impact going forward and the production and the business will be affected overall. The financial profile of the Company is characterized by moderate leveraging and low coverages. The Company took additional debt to finance BMR. Material improvement in cash flows, in line with upcoming debt obligations, remains imperative.

The 'Rating Watch' signifies COVID-19 outbreak and a challenging economic environment. The entire textile chain is expected to be impacted due to the lockdown in Pakistan and major export destinations of the sector. The demand is expected to contract while eventual resumption of operations and recovery of the sector remains uncertain. The Government and SBP have announced several initiatives to provide support. PACRA will monitor the situation and accordingly take action.
The ratings are dependent upon the sponsor support and management's ability to improve margins, profitability and the Company’s competitive position in the industry. This includes keeping the debt levels manageable. Any deterioration in margins or coverages amidst prolonged lockdown will have a negative impact on the ratings.

About the Entity
Allawasaya Textile and Finishing Mills Limited (the Company), is a listed company engaged in the manufacturing and sale of different varieties of yarn. The Company currently operates 38,712 spindles, after the recent completion of its BMR. The Company fulfills its energy needs in-house and has a production capacity of 4.2MW, as well as a backup connection from MEPCO. The Company is primarily owned by Tauqir Family (37.6%), Jamil Family (35.4%) and Maqbool Family (25%), while rest is owned by the friends of the families.

Overall control vests in an eleven-member board of directors, which includes five non-executive directors, three executive directors and three independent directors. Three members represent Tauqir family, two members including the Chairman, Mr. Mian Muhammad Jamil, represent Jamil Family while two members including the CEO, Mr. Mian Tanvir Ahmed, represent Maqbool Family. The CEO carries the extensive experience of the 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.