PACRA Maintains Entity Ratings of Alhamd Corporation (Pvt.) Limited

The Alhamd Corporation (Pvt) Limited (“ACL” or “the Company”) rating emanates from the adequate profile of the Company in the spinning industry of Pakistan. The principal operating activity of the Company is the manufacturing and sales of cotton/blended yarn. The Company operates with an operational capacity of 170,472 spindles. According to ACL management, the Company has a capacity utilization of 97.0% as of Dec-23. The Company has a family-dominated board that depicts room for improvement in the corporate governance framework. The management of the Company possesses industry specific exposure and its structure reflects adequate delegation of authority matrix. The sales portfolio of ACL is primarily dominated by local sales with a minute contribution by the export segment. During FY23, the top line of the Company showed a growth of 14.4% mainly attributed to cotton yarn price impact. The product slate of the Company mainly comprised of PC, CVT, CT and combed yarn. During FY23, the margins and profitability matrix of the Company were under stress and the prime contributing factors include expensive raw material procurement, escalated energy tariff and hike in policy rate which inflates the finance cost. However, in 3MFY24, the Company regained some of its momentum and generated a green bottom line. Previously in Nov’23, ACL executed a CAPEX by successful commercialization of a new unit with an operating capacity of 43,776 spindles for expansion purposes and is now planning to install ~ 8.0 Mega Watt solar plant to optimize energy cost risk. The working capital cycle of the Company is stretched given high extent of short-term borrowings at the moment. The cashflows and coverages of the Company are considered adequate. The ACL has leveraged capital structure. The management of the Company is mindful of performance alignment with their financial projections. The spinning industry is highly fragmented and consists of ~368 dedicated spinning units with an estimated size of PKR 775bln and 13.4mln number of spindles installed as of FY23 according to an economic survey of Pakistan. The projected cotton production estimate is revised and projected to be 11.5mln bales and currently, production reached up to ~8.26mln bales surpassing FY23 total production of 4.91mln bales. During FY24 better local raw cotton yield is expected to supplement the Companies for import substitution. Pakistan's requirement for imported cotton stands at 3.5 million bales to 4 million bales this year. The recent elevation of energy tariffs and the availability of locally procured raw cotton are the prime challenges specific to the industry.
The ratings are dependent upon the sustainable performance of the Company both in terms of topline and bottom line. The generation of sufficient cashflows to supplement business operations and maintenance of coverages at an adequate level remains vital for the ratings. The adherence to the debt matrix at an optimal level is a prerequisite for the assigned rating.

About the Entity
The Company was incorporated in 1983 as a public limited company, under the previous name i.e., 'Alhamd Textile Mills Limited'. Later, the Company was voluntarily delisted from the Stock Exchanges in 2004 and converted to a private limited company in 2005. The Company's manufacturing facility is located in Dera Ghazi Khan, a major cotton-growing area of Pakistan. The majority stake (74%) of the Company is vested with Sheikh Afzaal Ahmed, and his son, Mr. Asad Imdad Sheikh (25% stake). There are four board members, two from the sponsor family i.e., Sheikh Afzaal Ahmed and Mr. Asad Imdad Sheikh and rest are the executive directors.