The Pakistan Credit Rating Agency Limited
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Muhammad Noor Ul Haq

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PACRA Maintains Entity Ratings of Reliance Weaving Mills Limited

Rating Type Entity
(24-Jun-21 )
(26-Dec-20 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Positive Stable
Rating Watch - -

The ratings reflect moderate business risk profile of Reliance Weaving Mills Limited ("Reliance Weaving" or "the Company") emanating from volumetric growth in exports and better pricing. Over the years, the Company has undertaken continuous BMR translating into operational efficiencies and higher production volumes. The Company has improved its overall margins despite the higher cotton price. Moreover, the Company has ramped up the capacity utilization significantly, in both spinning and weaving segments, give a comfortable picture, ahead. Going forward, the Company aims to undertake further expansion into spinning and weaving, financed through a mix of internal and external sources. Recent induction of independent directors on the Board has improved governance structure. The Company has a sizeable strategic investment in the energy sector in a group company. Reliance Weaving has a relatively squeezed financial capacity when considering leverage. However, the Company has availed moratorium relief, hence principal repayments are deferred for a year. Ratings positively take in to account the track record and presence of experienced & professional management team which possesses considerable experience in the textile business. The assigned ratings incorporate strong sponsors support and the explicit guarantee provided by majority sponsors on all debt related obligations of the Company. Moreover, synergies between the group companies are considered positive.
The Positive Outlook signifies the improved revenue and profitability along with the other improved financial parameters. Moreover, comfort can also be drawn from the business risk profile backed by the healthy growth in the business correspondent space as well as benefits from the strong financial position of the sponsors.
The ratings are dependent on the management's ability to prudently mange the liquidity and debt profile of the Company, particularly working capital, while sustaining and improving its business margins. Going forward, support from sponsors would remain critical.

About the Entity
Reliance Weaving Mills Ltd., a listed concern, commenced operations in 1990. The Company is engaged in the manufacturing and marketing of yarn and greige fabric. Reliance Weaving operates with five units, constituting two spinning and three weaving units, having capacities of 65,280 spindles and 427 looms, respectively. The Company caters its power needs via in-house production, as well as MEPCO and LESCO connections. Fatima Group, a leading corporate group in Pakistan, owns majority stake (79%) in Reliance Weaving. The Group has diversified interests in fertilizer, sugar, textile, energy, transmission, packaging, and foreign trade.

The overall control of the Company vests in seven-member board of directors with the Chairman – Mr. Fawad Ahmed Mukhtar and the CEO – Mr. Faisal Ahmed Sheikh. Five directors are Fatima Group’s family members, including two executive directors, while two members are independent directors. The board members have diversified experience, and relatively long association with the Company. Mr. Ahmed, a textile industry veteran, has a diversified experience. He is supported by a team of seasoned professionals.

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.