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The Pakistan Credit Rating Agency Limited
Press Release

Date
30-Apr-20

Analyst
Muhammad Fahad Iqbal
fahad.iqbal@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 Places Entity Ratings of Basfa Textile (Pvt.) Limited on Rating Watch, Outlook "Negative"

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

The ratings reflect adequate business profile of Basfa Textile (Pvt) Ltd. The Company is engaged in the manufacturing and sale of Viscose Yarn and different varieties of cotton yarn. The Company has over the years successfully created its niche market in viscose yarn. The Company being importer of viscose, remains exposed to exchange rate risk. However, the Company was able to pass on impact of exchange rate to its customers to an extent. Withdrawal of zero rating status has impacted the Company as majority of its customers were unregistered. This led to pressure on topline as the Company was not able to make significant sales. Consequently, the management has decided to restart manufacturing of cotton yarn to diversify the risk. The Company has a strong financial profile characterized by low leveraging and good coverages. The Company has largely cash based sales model, which requires less working capital financing. As a result, the Company has a positive room to borrow at net trade assets level depicting adequate ability to borrow, if need arises.

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. PACRA is closely monitoring the situation and will take rating action accordingly.
The ratings depend on sustaining operations and resumption of production activities. Governance framework and financial transparency needs improvement. At the same time, prudent management of short-term liquidity is considered important. Sustaining business margins while maintaining strong financial profile remains critical.

About the Entity
Basfa Textile (Pvt.) Ltd, incorporated and operational since 2006, is engaged in the manufacturing and sale of Cotton and Viscos Yarn (Capacity: 34,632 spindles). Viscose yarn is sold under the brand name of “Super-Diamond” and Cotton yarn under the brand name of “Super-Gold”. The corporate office of the Company and plant is located at 36-KM Ferozepur Road, Lahore Basfa Textile’s total power requirement is ~3MW which is being provided by LESCO – with two dedicated line.

The CEO/Chairman, along with other family members collectively own (100%) shares of the Company. Board comprises two members including CEO/Chairman and Managing Director. The CEO/Chairman of the Company – Mr. Jahangir Saleem is the founder of the group, having overall experience of ~40 years. Mr. Babar Jahangir, the son of the Chairman. serves as the Managing Director of the Company. He is responsible for operations of the Company and has been associated with the business for close to a decade.

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.