The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Updates Entity Ratings of Eastern Garments (Pvt.) Limited

Rating Type Entity
(02-Mar-23 )
(05-Aug-22 )
Action Upgrade Maintain
Long Term A- BBB+
Short Term A2 A2
Outlook Stable Positive
Rating Watch - -

The ratings reflect the improving business profile of Eastern Garments (Pvt.) Limited an export-oriented knitwear unit. Previously, the sales mix comprised of both woven as well as knitwear garments. Recently, the major reliance is on knitwear garments. Though, the business risk remains high owing to the global knitwear industry’s reliance on a few key players as well as the competitive international denim market. Profitability sizably improved attributable to the recent expansion, the Company’s topline has reflected sizable growth (1HFY23: PKR 9.5bln, 1HFY22: PKR 6.4bln). The same trend has been reflected in the net profitability. Margins also recorded a robust increase. On a standalone basis, the Company’s customer concentration remains high. However, comfort is drawn given its relationships with established international brands. Ratings incorporate a stable financial profile characterized by modest leveraging and strong coverages. Further, the professional management team as well as the sponsors’ ability to provide support when required in the past is noted. Meanwhile, the corporate governance framework has room for improvement. During 7MFY23, the textile exports were valued at $10.08bln compared to $10.93bln, reflecting an 8% decline YoY – the declining trend has been recorded in the last few months. The decline in exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand for yarn in international markets is also a challenge. The analysis of 5MFY23 reveals that 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 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 post-Jun-23.
The ratings are dependent upon the management's ability to capitalize on growth opportunities in a competitive landscape, operate at optimal level and sustain margins. Excessive borrowing, leading to higher leverage and/or deterioration in coverage, can impact the ratings negatively. Meanwhile, improvement in governance framework and equity growth remains important.

About the Entity
Eastern Garments (Pvt.) Limited, incorporated in 1980, is engaged in the production and sale of knitwear and woven garments. Its operations comprise knitting, dyeing, finishing, printing, embroidery and stitching. The Company’s production facilities are divided into six units, all located in Sindh Industrial Trading Estate, Karachi. The Company’s shareholding rests equally with Mr. Noor Mohammed and his son, Mr. Nizar Noor.
Overall control of the Company vests in a two-member Board of Directors, comprising the sponsors. Mr. Noor Mohammed is the Chairman and CEO of Eastern Garments with background in banking and over four decades of experience in the textile industry while Mr. Nizar Noor has been the Managing Director of the Company since 1997. The management team comprises experienced and professional individuals with significant autonomy to execute operational matters.

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.