The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Upgrades Entity Ratings of Fazal Rehman Fabrics Limited

Rating Type Entity
(23-Feb-22 )
(25-Aug-21 )
Action Upgrade Maintain
Long Term A A-
Short Term A2 A2
Outlook Stable Positive
Rating Watch - -

The ratings reflect Fazal Rehman Fabrics Limited’s (Fazal Rehman Fabrics) favorable business profile characterized by sizable revenue base and healthy margins. The upgrade incorporates the Company's improving business profile plus its strong financial risk matrix reflected by reasonable working capital cycle; healthy coverages. The ratings incorporate consolidated position of the parent and that of the wholly owned subsidiary. The Company achieved commendable profitability in FY21 of more than PKR 1bln. The momentum was maintained in the subsequent quarter. The company has a sizable pool of short-term investments, which supplement the ratings in terms of available liquidity and also resulting non-core income. During 1QFY22, the Company's topline witnessed 69% YOY growth to stand at PKR 5.5bln. Furthermore, improved margins strengthened bottom-line to stand at PKR 543mln. The financial matrix reveals increase in leveraging, during the period, on account of capacity enhancements financed through long-term borrowing. Healthy coverage and reduced debt payback are displaying comfortable picture. The management is positive about sustaining the growth momentum, going forward. Furthermore, the Company is planning to establish towel unit with capacity of 10 tons production per day. During the period July-December FY21-22, textile exports of the country surged 26 percent YoY, fielding $9.39 billion in total export remittances, as compared to $7.44 billion in the same period last year. This is attributable to increase in demand for textile products internationally and channeling of export orders towards Pakistani market. On a YoY basis, the exports of value-added textile items increased in both quantity and value in December 2021. Going forward, the textile sector’s outlook is expected to stay positive in the medium term where the demand for textile products is expected to sustain. In the local market, the textile sector has recorded strong performance. The relief measures introduced by the State Bank of Pakistan such as deferment of loan payments for one year, low-interest rates, and salary refinance scheme also provided comfort to the sector. Many players have also availed the TERF scheme announced by the Central Bank. This will lead to overall leverage of the sector to increase; however, on relaxed financing rates. The sustainability of demand pattern for the current higher orders from Europe and USA remains essential for the feasible utilization of added capacity by textile players.
The ratings are dependent on the management’s ability to uphold the entity’s strong business performance. The assigned ratings derive comfort from the Company's association with Fazal Group. Meanwhile, prudent management of cash flows and maintaining strong coverage to fulfill financial obligations arising from increased leveraging will be critical, going forward.

About the Entity
Fazal Rehman Fabrics Limited (Fazal Rehman Ltd.), incorporated in 2004, started operations in 2007. It is engaged in manufacturing and marketing of greige fabric. The Company operates with 475 air-jet looms. Fazal Rehman Ltd. is a wholly owned subsidiary of Ahmed Fine Textile Mills Limited. Fazal Group has interests in Textile, Fertilizer, Energy, and Real Estate sectors. The board of directors contain seven members in total. Management control vests with Fazal Group with Mr. Rehman Naseem (representative of Fazal Group) having operational control.

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.