The Pakistan Credit Rating Agency Limited
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Muhammad Zain Ayaz

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PACRA Maintains Entity Ratings of Ahmed Fine Weaving Limited

Rating Type Entity
(17-Nov-23 )
(18-Nov-22 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The credit ratings assigned to Ahmed Fine Weaving Limited (Ahmed Fine Weaving) are emblematic of its corporate profile, characterized by the steadfast establishment of revenue and profitability. Ahmed Fine Weaving, a publicly unlisted entity, possesses a formidable weaving capacity, boasting 283 Air Jet looms with recent refurbishments in its BMR endeavors. The ownership of this company is vested in Mr. Ashar Fazal and his progeny. Presently, the governance framework is constituted exclusively by the company's sponsors, and there exists an opportunity for amelioration in overall corporate governance by introducing an independent director to the fold. The management of Ahmed Fine Weaving is astutely attuned to the inherent volatility of the textile industry and is unwaveringly committed to the continuous modernization of its machinery to maintain its competitive edge. During FY23, the company's top-line revenues remained relatively stable at PKR 9.69bln, compared to PKR 9.67bln in FY22. This revenue composition stems from a combination of domestic and international markets, with FY23 primarily leaning towards exports, contributing a substantial 54% to the total revenue. Throughout this period, the company's profit margins experienced a marked decline, attributable to factors including heightened financing costs, increased energy-related expenditures, and the adverse repercussions of the global economic downturn. The assigned credit ratings also take into account the financial risks arising from deteriorating working capital and coverage ratios.
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 exports tumbled attributable to high energy costs, shortage of cotton, and uncertainty in the foreign exchange rate. 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. During the month of June 2023, cotton yarn exports increased by 7% MoM. The value-added exports reported a volumetric increase of 16% on a MoM basis. Knitwear and readymade garments witnessed an incline at 18% and 19% respectively. During the month of July 2023, textile exports were valued at $2 billion compared to $2.3 billion, reflecting a slump of 12.6% on a MoM basis. Further analysis reveals an overall decline of 8.6% YoY.

The ratings are dependent on the management’s ability to uphold the entity’s performance trend. Meanwhile, maintaining strong margins and coverages to fulfill financial obligations will remain critical. Improvement in the governance framework is considered important.

About the Entity
The ownership of Ahmed Fine Weaving rests with the family of Mr. Ashar Fazal and his children. The Company’s board of directors comprises three members. Two members belong to the sponsoring family, while one member is an executive director. Sponsoring family dominance and the absence of independent oversight indicates room for improvement in the governance framework of the Company. Mr. Ashar Fazal - the Chairman of the board, is also the CEO of the Company.

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.