The Pakistan Credit Rating Agency Limited
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Muhammad Fahad Iqbal

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PACRA Maintains Entity Ratings of Khas Textile Mills (Pvt.) Limited

Rating Type Entity
(23-Aug-21 )
(28-Aug-20 )
Action Maintain Maintain
Long Term BB+ BB+
Short Term A3 A3
Outlook Stable Stable
Rating Watch - -

The ratings reflect the small yet adequate business profile of Khas Textile Mills (Pvt.) Limited emanating from a relatively small revenue base and profitability. The Company manufactures various types of the cotton ring and open-end yarn. The Company is associated with Khas Group of Industries where the group has presence in diverse sectors; including textile, aluminum, poultry, socks, and knitwear and import of building hardware. The Company’s sales volume increased due to increase in local sales from last year and better yarn prices. The sales value, in 9MFY21, has improved from FY20 – attributable to positive textile industry dynamics. Margins recorded uptick due to better yarn prices. The financial risk profile witnessed improvement since last year due to decline in leveraging and slight improvement in coverage. The debt structure is skewed towards short-term borrowings. The Company’s room to borrow improved due to repayment of short-term loans. In addition to long and short-term borrowings, the Company took a loan from its directors worth PKR 1.1bln – a portion of which is intended to be retained as part of equity in the coming years. Going forward, the company intends to enhance the production capacities in coming years. The stretched working capital cycle and overall governance framework needs improvement. Textile exports of the country recorded a double-digit increase of ~23% for FY21 to stand at USD 15.4bln as compared to USD 12.5bln in FY20 due to an increase in demand for textile products internationally, led by good recovery around the globe post-pandemic. Going forward, the textile sector’s outlook is expected to stay stable in the medium term where the demand for textile products is expected to increase. The probability of little attrition in demand remains on the horizon attributable to the outbreak of COVID-19 variants.
The ratings are dependent upon the management's ability to improve margins, profitability and financial profile of the Company. Meanwhile, strengthening of governance practices will have a positive impact on the ratings. Any deterioration in debt coverages leading to higher financial risk or substantial losses will have a negative impact on ratings.

About the Entity
Khas Textile Mills (Pvt.) Limited was incorporated in 2001 as a private limited company. The Company is engaged in manufacturing of different types of the cotton ring and open-end yarn. The Company currently operates 19,680 spindles and 1344 rotors and has a purpose-built manufacturing facility located in the industrial hub -Nooriabad. The Company is entirely owned by the Ashfaq family, which includes Mr. Haji Ashfaq Ahmed and his wife (20%) and two sons (i) Mr. Khurram Ashfaq (40%) and (ii) Mr. Noman Asahfaq (40%) individually and through their respective families.

The board comprises five directors. All of them belong to the sponsor family. Mr. Ashfaq Ahmed – chairman of the Company – has over 45 years of experience in diverse industries, including textiles. Mr. Khurram Ashfaq – Managing Director – has over 23 years of 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.