PACRA Maintains Entity Ratings of A.J. Textile Mills Limited

Pakistan's spinning sector, with an estimated size of ~PKR 775bln, has lately come under pressure due to heightened commodity prices and high cost of business emanating from increased cotton/fibre prices leading to significant working capital requirements. This has eroded the bottom-line margins for the spinning sector players. The recent hike in energy tariffs further elevated the challenges for the industry. Overall, the industry's cash flow and in turn liquidity remains stretched. This led the industry's overall outlook to be placed on a Watch.
AJ Textile Mills Limited ("AJ Textile" or “the Company”) ratings incorporate affiliation with Aziz Group ("the Group") having presence across various sectors of the economy. The Group holds interests in Textile (Yarn Production); FMCG (Match Manufacturing), Laminated Boards, MDF and Particles Chip Board Production. The Company is engaged in yarn production, and currently, operates with a capacity of 113,264 spindles. The ratings take comfort from the Company's consistent and sustained growth in its business risk performance. During FY24, the topline of the Company improved by ~28% mainly triggering from local sales (~90%), followed by exports (~10%). Topline gathered a value driven support i.e. from an increase in yarn price. However, margins and inturn profitability posted a dip due to a substantial increase in raw material (fiber) cost along with inflated energy prices and higher wages have significantly impacted the Company's manufacturing cost. On net level, escalated finance cost has impacted profits, and in turn margins. The Company has incurred substantial CAPEX on solar energy (currently at 9MW). This is expected to reduce the operational expenses, going forward. On the financial risk front, the Company maintains adequate cashflow to meet its short-term & long-term obligations as evident from interest cover (FY24: ~4.8x, FY23: ~3.4x). The ratings also take comfort from the Company's reduced borrowing exposure leading to strong capital structure along with adequate working capital management.
The ratings are dependent on management’s ability to sustain its growth in revenues, margins and profitability. Prudent management of the working capital, and maintaining sufficient cash flows and coverages are imperative. Improvement in governance structure and alignment of the Company's performance with its financial projections remains vital for the ratings.

About the Entity
A.J. Textile Mills ("AJ Textile" or "the Company") commenced operations in 1993 as a private limited company. The Company manufactures yarns with a capacity of 113,264 spindles. The Company's ownership vests with the sponsoring family: Mr. Mohsin Aziz (~66.65%), followed by Mr. Afan Aziz (~32.61%), Ms. Sahiba Imtiaz (~0.71%) and Ms. Huma Mohsin (~0.03%). The Company's Board is chaired by Mr. Mr. Mohsin Aziz. While, Mr. Afan Aziz heads the Company as the CEO. He is supported by team of experienced professionals.