PACRA Maintains Entity Ratings of Shahzad Textile Mills Limited, Assigns 'Rating Watch'

Shahzad Textile Mills Limited - a public listed company - manufactures ring spun cotton yarn and synthetic blended yarns. Meanwhile, the Company has also added Socks to its product profile. The ratings reflect the Company’s modest, albeit improving business profile. Recent rationalization of yarn capacity and addition of sock manufacturing unit are expected to bring efficiency and growth as the Company moves into value added segment. The revenue and margins of the Company decreased on comparable basis as the outdated unit no. 3 was phased out. The new sock unit is now operational and is expected to supplement revenues. The profitability of the Company remained low as exports suffered from lower demand for cotton yarn owing to the US-China trade war. The Company's maintains a low-leveraged capital structure, strong coverages and lean working capital cycles. Although these indicators have suffered due to lower sales and profitability but remain robust.
The Rating Watch signifies the prevailing uncertainty due to the outbreak of COVID-19 pandemic. This has impacted the entire textile chain as demand contracts due to shutdown in domestic and global markets and tough economic conditions. Recent SBP measures will provide some respite in this regard. The Company’s production facilities have been shut down in line with the provincial Government’s directive of lockdown, with the exception of sock manufacturing unit as it has verified export orders. PACRA is closely monitoring the situation and will take rating action accordingly.
The ratings depend on sustaining operations and resumption of production activities. Maintaining business margins post-expansion into socks manufacturing is important. Meanwhile, prudent working capital management and maintaining financial discipline will remain critical.

About the Entity
Shahzad Textile Mills commenced its operations in 1981 as a public limited company. Mr. Imran Aslam (CEO) along with other family members collectively own majority (~73%) shares of the Company. The remaining shareholding of the Company is held by Corporates (~6%) and institutions (~21%). Shahzad Textile is in the business of manufacturing ring spun cotton and synthetic blended yarns, with a total installed capacity of ~63,648 spindles. Moreover, due to the recent expansion into socks manufacturing, the Company is now involved in the export of a variety of socks along with its yarn.

The board of the Company consists of seven members, out of which two are executive, four non-executive and one independent director. Mr. Imran Aslam is looking after the Company’s operations from more than two decades as CEO and is supported by an experienced management team.