PACRA Maintains Entity Ratings of Ahmed Hassan Spinning Limited | Assigns Negative Outlook
Ahmed Hassan Spinning Limited (AHSL) specializes in the manufacturing and export of yarn with an average count of 21/1 CDD. The installed capacity is 28,152 spindles. Sales mix compromises of local and as well as exports with export destinations in China and Korea. During FY22, the Company’s net profit stood at PKR 75mln (FY21: PKR 207mln). However, afterward, the Company’s performance witnessed significant dilution. This was due to multiple factors, chief among them was the impact of a volumetric decline in exports and cotton price adjustment amidst inflation in the economy and significant depreciation of the Pak Rupee. Furthermore, floods’ impact on crops resulted in a shortage of raw materials locally produced. This issue along with the price adjustment resulted in high raw material costs. During 3MFY23, the topline declined by 57.4% as compared to its corresponding period last year. Finance costs and other expenses witnessed a normal rise. Consequently, the bottom line reflected a loss of PKR 30mln. In order to hedge increasing receivables and further operating losses, the Company decided to cease production at the beginning of December 2022. The management is eying that the manufacturing facility will remain closed for most of 2QFY23 where improvement in demand pattern is awaited. Negative Outlook and Rating Watch incorporate the closure of the manufacturing facility, steel decline in performance, and resultant losses incurred. During FY22, Pakistan's textile exports grew owing to increased volumetric growth of (16% YoY) in the value-added segment, a steep rise in global demand, and record-high cotton prices. However, during 5MFY23, textile exports were valued at $7.44bln compared to $7.76bln, reflecting a 4% dip YoY – the declining trend recorded in the last two months. The fall in export value has mainly come from volumetric decline as prices of almost all categories have either increased or stayed flat. This has taken a fiscal year to date exports into negative with a 1.4% decline in the first four months (July – October) FY23. Among value-added items, bedwear has witnessed the largest decline of 19% (on an MoM basis), down to $217 million. Knitwear remained on the downward path in October 2022 and declined by 10% to $392 million. Among non-value-added items, cotton yarn has shown the largest decline of 35%. Moreover, a slowdown is expected in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries.
The ratings are dependent upon the Company’s ability to steer out of the current challenges while improving the risk profile. The governance framework and financial transparency has room for improvement. The company is expected to adhere to conservative financial discipline, which would be crucial to ratings.
The Company was incorporated on: 20th October, 2016 under the companies Ordinance 1984 as Ahmed Hassan Spinning Limited. The Company is family-oriented business therefore the ownership rests with Mian Muhammad Parvaiz (Late) family: Mr. Muhammad Aurangzeb (31%), Mr. Muhammad Jahanzaib (31%), Mrs. Waheeda Parvaiz (28%), Mr. Ahmed Hassan (6%) and Miss Faiza Parvaiz (3%).