The Pakistan Credit Rating Agency Limited
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Iram Shahzadi

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PACRA Maintains Entity Ratings of Crown Textile

Rating Type Entity
(16-May-23 )
(16-May-22 )
Action Maintain Initial
Long Term BBB- BBB-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Crown Textile's export-oriented textile unit is primarily engaged in the production and sale of Men's, Ladies and Children's knitted garments. The Company only purchases yarn and does everything else in-house (knitting, dyeing, printing, embroidery, washing, cutting, stitching, and so on). The major portion of the revenue base is derived from exports. Export sales are made through wholesalers and retailers. Sales are majorly concentrated in the US (FY22: 80%; FY21: 80%) while the company is also making efforts to expand its outreach in other regions. The Company enjoys long-term associations with several esteemed brands abroad namely KHQ Investment LLC, Puma, SportLife Brands LLC, Terramar Sports Inc., and many others. The ratings derive strength from robust growth in the top line in FY22 largely emanating from higher volumetric sales. While gross margins decreased due to largely stagnant average selling prices amidst a competitive export market and an increase in the cost of sales. The Company has a good financial profile characterized by healthy coverages, moderately leveraged capital structure, and improving working capital management. Going forward, Unit 3 of the Company will be operational in Jun24 which will bring in further efficiency and improve margins. The strategic and operational affairs of the Company are overseen and managed directly by the owner of the company. During 9MFY23, the textile exports were valued at $12.47bln compared to $14.24bln, reflecting a 12% decline YoY - the declining trend has been recorded in the last two quarters. The Country’s textile exports for the month of March clocked in at US$1.26bln, up 7% MoM. The decline in the previous overall exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand in international markets is also a challenge. During the month of March, value-added textile exports increased by 6% MoM to US$863mln mainly due to Readymade Garments and Knitwear increasing by 8% and 12% MoM respectively while towels decreased by 6% MoM. Basic textiles witnessed an increase of 8% MoM to US$230mln in Mar-23. In volume terms, Knitwear, Readymade Garments, Bedwear, and Towels increased by 18%, 13%, 5%, and 2% MoM respectively. Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries. The demand pattern is expected to improve in the upcoming quarters.
The ratings are dependent on the management’s ability to uphold the entity’s performance trend. Meanwhile, maintaining strong margins and coverages to fulfill financial obligations will remain critical. Improvement in the governance framework is considered important.

About the Entity
Crown Textile (Crown) began as a very small business in 2000 as a single-member company. The Company is principally engaged in the manufacturing and export of knitted garments. Crown produces more than 4mln ready-made garments every month including 50,000kgs of knitted raw fabric per day also 50,000kgs of dyed fabric per day. Salahuddin & Co. Chartered Accountants are the company’s external auditors. They have expressed an unqualified opinion on the financial statements of the company for the year ended June 30th, 2022.
The ownership of the Company rests with the family of Mr. Muhammad Nadeem. The major shareholding of the Company is owned by Mr. Muhammad Nadeem (98%) and the rest is with his wife. The position of CEO is vested with Mr. M. Nadeem. Mr. Nadeem - B.Com - has an experience of more than 3 decades in the textile industry.

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.