The Pakistan Credit Rating Agency Limited
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Muhammad Adil Kaleem

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PACRA Maintains Entity Ratings of Prosperity Weaving Mills Limited

Rating Type Entity
(25-Sep-20 )
(28-Sep-19 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Prosperity Weaving Mills Limited, incorporated in 1991, is a part of one of the oldest medium-sized textile group in Pakistan - Nagina Group. The ratings reflect modest business profile of Prosperity Weaving; characterized by stable revenue, along with moderate margins. Prosperity Weaving’s topline dampened during 9MFY20; a resultant of lower production. The Company is adding 36 new looms to the capacity; to boost operational efficiency and achieve higher production volumes in the coming financial year. Prosperity Weaving caters to the need of local industry as well as export markets. However, the Company's operations came to a halt for an entire week during the last quarter of FY20, on account of the outbreak of COVID-19. The entire textile chain suffered due to lockdowns in Pakistan and internationally. Production resumed on 7th April,2020; since the Government allowed export-oriented sector to recommence operations. The financial profile of the Company is represented by lean working capital cycle; healthy coverages; and high leveraging - emanating from BMR/Expansion related borrowing. Nevertheless; the larger portion of long term debt was borrowed at SBP's concessionary rates, which was immensely favorable for the Company. The Company is exposed to market risk as exhibited by the impact of pandemic induced volatility in the stock market; which resulted in lackluster portfolio performance during 9MFY20. Any significant decline in investments leading to losses, and eventually equity erosion, will have an impact on the financial profile of the Company. The management’s ability to manage this risk is critical. In order to relieve pressure on cashflows caused by the pandemic- led economic slowdown, the Company availed SBP's moratorium relief and deferred principal repayments for one year. Reduction of 625bps in interest rates by SBP shall also provide respite in this regard. The demand for textile products is beginning to recover, as some major economies around the world reopen; while a few others are still observing vigilance to tackle an expected second wave of pandemic. The assigned ratings derive comfort from Prosperity Weaving's association with Nagina Group.
The ratings are dependent upon sustained market position of the Company. Moreover, the Company’s ability to generate enough cash flows to fulfill its financial obligations is critical, along with prudent investment decisions.

About the Entity
Prosperity Weaving was incorporated in 1991 as a public limited company. The Company is engaged in production of Fabric and operates with a weaving unit comprising 324 looms. The majority stakes (~84%) of the Company is held by Nagina Group, through group companies and sponsoring individuals. The remaining shareholding rests with general public and financial institutions. Nagina Group is one of the oldest medium-sized textile houses in Pakistan. Operating under Ellahi’s for five decades, developing credential expertise in spinning and weaving over the period of time.

Prosperity Weaving's board composition has been increased to ten members; out of which six members are non-executive directors, while one director carries the executive role. Whereas, two more joined as independent directors, increasing it to three. Mr. Shahzada Ellahi Shaikh – the Chairman – carries with him over two decades of experience in local textile industry. The board members are well versed in textile industry; and possess diverse experiences. The directors’ expertise on different stages of the textile value-chain benefits the board in efficient decision making.

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.