The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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

Rating Type Entity
(27-Jan-23 )
(28-Jan-22 )
Action Maintain Initial
Long Term BBB- BBB-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The assigned ratings of Latif Textile reflect the adequate positioning of the Company in the relative universe. The Company is a manufacturer and exporter of Yarn and Towels, having both Open-end and Ring Spinning technologies for yarn and end-to-end weaving to stitching facilities for towels. The installed capacity is 20,160 spindles and 3,960 rotors along with 72 terry loom for towel weaving and 36 stitching machines. Furthermore, Latif Textile has established a weaving unit, a bleaching plant, and a stitching unit during the period under review. Board comprises two members and both are from sponsoring families. The Company’s management involves experienced professionals looking after the operations of the Company. During FY22, the Company’s revenues stood at PKR 4,093mln (FY21: PKR 2,609mln). The sales mix, dominated by local sales, display stagnancy over the years. The Company enjoys an established customer base in the local market which drives the major revenue. During FY22, the Company also entered the export market and earned good revenues from exports. Margins declined during the period under review due to an upsurge in financial charges (as a result of increased short-term borrowings), rising energy costs, and exchange rates. The financial risk matrix depicts that Company’s leveraging increased due to an increase in total borrowings clocking in at PKR 1,061mln (FY21: PKR 900mln). The import of raw materials has become a challenge to manage, which is quite essential for the continuation of operations. Management of receivables is essential for the Company. The company is expected to adhere to conservative financial discipline, which would be crucial to ratings.
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 nonvalue-added items, the 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 management's ability to capitalize on growth opportunities in a competitive landscape, operate at an optimal level, and sustain margins, going forward. The future prospects of the Company will require significant enhancement in exports and parallel revenue streams to provide comfort to the fundamental source.

About the Entity
Latif Textile was incorporated in 1985 as a private limited company. The principal business activity of the Company is spinning using open-end and ring-spun technologies. The Company is also involved in the manufacturing of towels through end-to-end weaving and stitching facilities. The Company’s ownership solely lies with the sponsoring family where the families of three brothers namely Mr. Younus Haji Latif, Mr. Junaid Haji Latif, and Mr. Amanullah Haji Latif (Late) hold equal shareholding of 33.33% each. The CEO, Mr. Jawwad Junaid, belonging to the sponsoring family, is a foreign graduate and possesses expertise in textiles, and has future-oriented goals for the Company. He is assisted by a professional and 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.