PACRA Maintains the Entity Ratings of Zahidjee Textile Mills Limited

The ratings reflect the adequate positioning of (“Zahidjee Textile Mills Limited” or “ZTML”) in the competitive textile landscape. It functions as a vertically integrated unit equipped with cutting-edge production mechanisms that ensure premium quality products across its spinning, weaving and stitching facilities. It specializes in various categories of yarn (with multiple counts ranging from 8s to 52s), fabric and made-ups. To maintain its product competitiveness and meet future demand, the Company executed a capital expenditure of ~PKR 3bln for the installation of ~16,800 new high-end spindles for manufacturing of finer yarn counts thereby enhancing its customer base; which has been commercialized; financed through a debt-to-equity mix of 70:30. A substantial portion of the Company’s topline is invested in the local market, contributing PKR 34.8bln, with a dominant share of PKR 32.2bln from Yarn sales, while made-ups and cloth generated PKR 3.2bln in the export segment. During FY24, the Company experienced an upward trajectory in revenue growth, reaching PKR 37.7bln (FY23: PKR 32.3bln), mainly attributable to the production of finer yarn counts, which augmented ZTML’s final product pricing matrix for its local customer base, consisting of stable entities. In terms of volume, yarn is the Company’s top-selling product constituting ~85.4% of the total revenue followed by a minute share of waste and leftover, conversion receipts and cloth. In the international market, the Company offers a broad range of products, including sheets, draw sheets, pillowcases, knitted sheets, patient gowns and tablecloths. During FY24, the dilution in gross margins was caused by the procurement of imported raw cotton to elevate product quality and rationalize the supply chain matrix, coupled with escalating energy costs driven by higher electricity and gas tariffs and a surge in salaries and wages in line with the country’s inflationary trends. The funding matrix of the Company revolves around the strategic allocation of funds to short-term investments in term deposit receipts, which supplement the liquidity profile and augment net profitability through the inflow of interest income, taxed at favorable rates. However, the magnified financial cost led to a decline in the bottom line due to a surge in long-term conventional borrowings. The Company funds its working capital requirements through internally generated cash flows and short-term debt along with a PKR 260mln loan from sponsors. The Company’s financial risk profile is considered moderate with an adeptly managed working capital cycle and moderately leveraged capital structure. The cash flow and coverages of the Company are considered adequate. During the preceding years, the investment in expansion and continuous BMR activities through the subsidized TERF facility has equipped the Company with ample production capacity and the management intends to pursue no further expansion.
The ratings are dependent on the intact business operations under the current economic conditions. The improvement in the profitability from core operations and coverages remains essential. The sustainability of the financial risk profile remains critical for assigned ratings.

About the Entity
Zahidjee Textile Mills Limited, a public limited Company, was incorporated in Pakistan on July 17, 1990. The Company’s major shareholding rests with sponsors, Mr. Ahmad Zahid (75.0%) and Mr. Muhammad Zahid (21.28%). The remaining shares are distributed among the general public (2.52%) and joint stock companies (1.20%). The board comprises three independent directors, two executive directors and two non-executive directors, chaired by Mr. Ahmad Zahid.