PACRA Maintains the Entity Ratings of Zahidjee Textile Mills Limited
The ratings reflect the strong positioning of ("Zahidjee Textile Mills Limited" or "the Company") in its respective market. The Company is engaged in the business of manufacturing and sale of yarn, value-added fabrics, and textile made-ups. Over the years, the establishment of a weaving unit and enhanced production capacity exacerbated the Company’s revenue base in terms of volume. During FY23, the company’s top line portrayed a sizeable improvement recorded at PKR 32.3bln (FY22: PKR 27.9bln). The local sales constituted 88.2% of the revenue base (FY23: PKR 28.5bln; FY22: PKR 23.7bln) attributable to a change in strategy. The management has planned to penetrate the local market through the same product range. Local sales are dominated by the sale of Yarn followed by Waste and leftover, Cloth, and Conversion receipts. The export sales exhibited largely the same trend (FY23: PKR 4bln; FY22: PKR 4.4bln). In the International market, the Company sells Cloth/Made-ups. The Company’s export destinations are Africa, South America, Europe, and North America. The margins remained in a comfortable range. The non-core income from financial assets augmented the overall profitability. On the borrowing side, the Company adopted a conservative approach reflected by a dip in total leveraging recorded at 30.4% (end-Jun22: 36.9%). The Company was able to achieve a net profitability of PKR 1.2bln (FY22: PKR 3.9bln). The free cash flows from operations displayed a decline whilst the coverages remained in a moderate range. The Company’s financial risk profile exhibits a good risk absorption capacity. Going forward, the management of the working capital cycle remains essential. On the strategic side, the Company has planned an expansion by implementing 50,400 spindles in two phases. Out of this, 20,160 spindles shall be implemented in the first phase. Despite macroeconomic challenges, the management is expecting good capacity utilization levels in the upcoming quarters. The sponsors enjoy four decades of experience in textile manufacturing and trading. The investment in Zahidjee Towers Pvt. Limited and several real estate projects add to the financial muscle of the Sponsor. During FY23, textile exports were valued at $16.5 billion compared to $19.33 billion, reflecting a dip of 15% YoY – the declining trend has been witnessed by the start of FY23. The suppressed demand pattern exhibited by export avenues was also a challenge. During FY23, value-added products such as knitwear, bedwear, towels, and ready-made garments witnessed a decline of 13% YoY. The basic textiles including raw cotton, cotton yarn, and cotton cloth posted a drop of 21% YoY.
Ratings are dependent on the company’s ability to maintain a strong business profile under currently stretched industry dynamics. Improving profit margins and healthy coverages remain vital and any deterioration in the financial risk profile will have a negative impact on ratings.
Zahidjee Textile Mills Limited, incorporated in 1990, is a family-owned business. Currently, the Company operates with 133,344 spindles and 280 looms. It is listed on the Pakistan Stock Exchange (PSX). The Zahid family - sponsors - cumulatively hold the majority (~96.28%) stake. Overall control of the Company vests with a seven-member Board of Directors, comprising three independent directors. Mr. Ahmed Zahid is the Chairman. The management control vests with Mr. Muhammad Zahid – CEO and co-founder of the Company. The CEO is supported by an experienced management team which is supported by clear reporting lines as per a formalized organogram and satisfactory monitoring process.