Muhammad Harris Ghaffar
PACRA Maintains Entity Ratings of Sargodha Jute Mills Limited
The ratings reflect Sargodha Jute Mills Limited’s prominent profile in jute industry emanating from considerable market share, adequate margins. Pakistan's jute industry imports 100% of its raw jute from Bangladesh. The prices of raw jute fluctuate in the international market and have been on a rising trend. This, coupled with rupee devaluation and escalating logistic costs has asserted pressure on industry. However, the Company was able to pass these costs to its customers. Despite the higher jute product prices and imposition of sales tax from July 01, 2019, demand has shown growth during FY21 and 1HFY22. The top-line of the Company inclined to ~20% on annualized basis during 1HFY22 and grew by ~ 57% on YoY basis in FY21. The company's profitability remained stable. During FY 21, exports of the Company increased by ~102% on YoY basis. Going forward, the Company is focusing to further enhance its export sales. Ownership structure of the Company is solely represented by sponsoring family members. Financial risk profile of the Company is considered adequate with comfortable coverages and cashflows. Capital structure is leveraged, where borrowings are mainly comprising of short term to cater working capital requirements.
The ratings are dependent on the company's ability to maintain its organic growth in revenues and sustainability of its margins. Substantial increase in prices of raw material and inability to transfer associated inflationary effect to end customers leading towards lower profitability, margins and/or deterioration in coverages will have implications on the ratings.
Sargodha Jute Mills Limited was incorporated in 1981 as an unquoted public limited company in Pakistan. Mr. Parvez Aslam, through his two sons, Mr. Imran Aslam (28.3%) and Mr. Irfan Aslam (28.3%), and other family members own majority (~75%) shares of the Company. The remaining shareholding of the Company is held by an associated Company, Shahzad Textile Mills Limited (~25%). Sargodha Jute started operations with annual production of 5,000 metric tons in 1984. The Company has increased its annual production to ~30,500 metric tons over the years. The Company is involved in manufacturing and sale of jute products like hessian cloth, sacking bags, twines and yarn locally and in export market.