PACRA Maintains the Entity Ratings of Eastern Garments (Pvt.) Limited

The ratings reflect the strong business profile of Eastern Garments (Pvt.) Limited, an export-oriented knitwear unit, the product range includes knitted tops and bottoms, fleece tops, blankets, super/power stretches, workwear, and sportswear. The export destinations include the U.S., Europe, and Australia, out of which the U.S. holds the major portion of exports. However, the business risk remains high owing to the global knitwear industry’s reliance on a few key players. During FY23, the revenue base increased by 29% to stand at PKR 16.6bln (FY22: PKR 12.9bln). Subsequently, the margins reflected an improving trend. The net profitability inclined to PKR 4.5bln (FY22: PKR 2.3bln). During 1QFY24, the top line of the company recorded at PKR 2.1bln (1QFY23: PKR 5.5bln) mainly due to demand pressure in export destinations. The financial matrix indicates a stable profile through good working capital management, strong coverages, and low leveraging. On a standalone basis, the Company’s customer concentration remains high. However, comfort is drawn given its relationships with established international brands. 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. Furthermore, the management is eyeing more penetration in the export markets to strengthen its customer base by establishing its own marketing department there. During FY23, textile exports were valued at $16.5 billion as against $19.33 billion, reflecting a 15% year-on-year decline – a downward trend seen since the beginning of FY23. Exports declined due to higher energy prices, cotton shortages, and uncertainty in foreign exchange rates. Taming the demand represented by export routes was also a challenge. During FY23, value-added products such as knitwear, bedwear, towels, and ready-made garments saw an annual decline of 13 percent. Basic textiles, including raw cotton, cotton yarn, and cotton fabrics, declined by 21 percent year-on-year. During the month of June 2023, cotton yarn exports increased by 7% MoM. Value-added exports reported volume growth of 16 percent on a month-on-month basis.
The ratings are dependent upon the management's ability to capitalize on growth opportunities in a competitive landscape, operate at optimal levels, and intact margins. Moving forward, formal succession planning and improvement in the governance framework remain of vital importance.

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 eight 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 a 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.