The Pakistan Credit Rating Agency Limited
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Iram Shahzadi

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PACRA Upgrades Entity Ratings of Allawasaya Textile & Finishing Mills Limited

Rating Type Entity
(03-Mar-22 )
(26-Apr-21 )
Action Upgrade Maintain
Long Term BBB BBB-
Short Term A2 A3
Outlook Stable Stable
Rating Watch - Yes

Pakistan is the fourth-largest producer of cotton in the world. Punjab is of special importance in this regard as about 80% of the total production is produced in Punjab. This year, the cotton crop is being cultivated on about 4 million acres, which is expected to yield an average of more than 17 million per acre. The Punjab government is providing Rs. 1,000 per bag of approved varieties of seeds and whitefly protection to cotton growers for an area of more than 200,000 acres at a subsidy of Rs. 4.4 billion. The approved BT varieties of cotton are IUB 13, MNH 886, BS 15, Niab 878, and FH 142 while other approved varieties for specific districts should be selected in consultation with local agronomists.
Allawasaya Textile and Finishing Mills’s (the Company) is involved in the manufacturing and sale of PC Yarn, PV Yarn which is man-made fiber & CVC Yarn. The upgrade reflects the partial completion of the planned expansion as well as an improvement in the financial risk profile. Due to better yarn prices in the local market, the Company's topline grew by double digits in FY21. Similarly, the company's total profitability profile increased in FY21, owing to better gross margins, mostly due to inventory increases. In the medium term, however, rising interest rates on short-term operating funds are likely to be a drag on the Company's profitability. The financial risk matrix performed reflects notable improvement comprising improved cash cycle, healthy gross coverage, and decline in leveraging. Going forward, the Company is planning to acquire debt to finance Planned capacity expansion. Material improvement in cash flows in line with upcoming debt obligations remains imperative.
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 further deterioration in margins or coverages 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 the rest is owned by the friends of the family.
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 the Tauqir family, two members including the Chairman, Ms. Nusrat Jamil, represent Jamil Family while two members including the CEO, Mr. Mian Tanvir Ahmed, represent Maqbool Family. The CEO carries extensive experience in 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.