The Pakistan Credit Rating Agency Limited
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Iram Shahzadi

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PACRA Assigns Entity Ratings to H.A.R Fibres (Pvt.) Limited

Rating Type Entity
(29-Mar-23 )
Action Initial
Long Term BBB-
Short Term A2
Outlook Stable
Rating Watch -

H.A.R Fibres (Pvt) Limited reflects the adequate positioning of the company in the textile spinning industry. The company deals in the manufacturing of carded yarn of three blends: Cotton, Polyester cotton & Viscose (Coarse (1s –20s). The Company imports 70% of its cotton from the United States, Brazil, and Africa, with the remaining 30% coming from Punjab and Sindh. The efficiency parameters reflect room for improvement. The ratings incorporate the Company’s moderate yet improving business profile where revenue emanates from a single segment. Further improvement in the control environment remains vital. Management meetings are held regularly with follow-up points to resolve or proactively address operational issues, eventually ensuring a smooth flow of operations. The liquidity profile is underpinned by adequate cash flow coverages in relation to outstanding obligations. The ratings also incorporate a low-leveraged capital structure. The Company’s capital needs emanate from financing inventories and trade receivables for which the Company relies on short-term borrowings (STBs). Going Forward, the Company is planning to start a BMR, which will add 1,000 rotors to the existing capacity which will enhance the total capacity to 30,232 spindles. The total cost of CAPEX is estimated to be PKR 100mln, which will entirely be funded from equity. BMR is expected to bring in efficiency gains, lowering cost per spindle, and will consequently improve margins.
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 improve margins, profitability, and financial profile of the Company. This includes keeping the debt levels manageable and improving the business profile of the company in upcoming quarters. Sponsor’s support and business acumen remain important for the ratings.

About the Entity
H.A.R Fibres (Pvt) Limited was established in 2018. The Company is a part of H.A.R Group, with H.A.R Textile Mills (Pvt.) Limited is the other group company, which is operational since 1958. The Company is a venture of the "Shahid Family", a well-respected family of yarn trading in Faisalabad. The Company is engaged in the manufacture and sale yarn. The Company operates a single spinning unit with 20,232 spindles. Mr Shahid Mehmood Sheikh owns 40% shareholding of the Company. While the remaining is divided between his sons Mr Haroon Shahid, Mr Faizan Shahid & Mr Adan Shahid. The overall control of the Company vests in the four-member board of directors. All the board members are qualified in different disciplines and carry ample experience in textile as well as other industries. Mr Shahid Mehmood Sheikh - CEO - has been in the yarn trading business for the last 45 years.

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.