The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Kohat Textile Mills Limited

Rating Type Entity
(26-Jun-23 )
(30-Jun-22 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Kohat Textile Mills Limited (Kohat Textile) commenced operations in 1967 and was listed on Pakistan Stock Exchange in 1970. Kohat Textile is the first textile venture of the Saif Group. The Company’s production facilities are located in Kohat, KPK. The assigned ratings are indicative of Kohat Textile Mills Limited's (Kohat Textile) modest business profile. The business offers specialized goods including polyester yarn, acrylic yarn, and viscose yarn to meet the needs of the regional industry. The Company’s revenue is on a growing trajectory, during 9MFY23, sales inched up to PKR 4bln (9MFY22: PKR 3.3bln). The sales portfolio is dominated by local sales. Margins and net profitability recorded a dip attributable to high expenses. COGS increased sizably during 9MFY23 as compared to the respective quarter of the last year. Increased borrowing in the current year resulted in higher finance costs, which impacted negatively on profitability. During FY22, net profitability clocked in at PKR 292mln (FY21: PKR 312mln), whereas, during 9MFY23, net income decreased further to stand at PKR 27mln. The dilution in net income requires attention, going forward. The financial risk matrix suggests moderate leveraging and potential for coverage expansion. With scheduled principal repayments coming up, further core coverage expansion will give comfort. Due to limited profitability and cash maintained, the equity base increased moderately over the period. The Company has the support of the strong financial muscle of the Sponsors over the years. Going forward, it remains essential for cash flows to significantly increase in order to meet forthcoming debt obligations. 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 based on the Company's capacity to continue operating under the current circumstances. The ratings will be impacted if there is a significant decline in sales and/or debt coverages as a result of the protracted downturn, which will increase financial risk. The Company will continue to need the support of Saif Group.

About the Entity
Kohat Textile is a subsidiary of Saif Holdings, with a majority stake (~77.98%). The remaining shareholding rests with financial institutions (10%), the general public (10.12%), and directors (0.87%). Saif Group is one of the renowned corporate groups in Pakistan. The board comprises seven members, all from the sponsoring group, with Osman Saifullah Khan as the Chairman of the BoD. Board members have diversified experience and a relatively long association with the Company. Management control vests with Saif Group. Assad Saifullah – the CEO – primarily manages the Company’s affairs, 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.