PACRA Maintains the Entity Ratings of Ahmed Fine Weaving Limited

The rating reflects the adequate profile of Ahmed Fine Weaving Limited (“AFWL” or “the Company”) within the competitive textile universe of Pakistan. The principal activity of the Company is the manufacturing and sale of grey cloth. AFWL is considered the sponsor's sole line of business when assessing financial strength, which reflects a concentration risk. The Company’s governance framework is characterized by familial dominance, which depicts an adequate delegation of authority matrix. During FY24, AFWL experienced a significant decline in revenues, reaching PKR 7.6bln (FY23: PKR 9.7bln), primarily due to reduced demand for fabric in international markets and a shift in the Company’s sales strategy. This strategy involves performing conversion services, transforming yarn supplied by clients into fabric to improve cash flow management. Over the past year, the Company’s top ten customers in both local and export segments have largely remained stable, with only moderate changes in client-wise business contributions. During FY24, the Company's gross margins improved primarily driven by the service income generated from conversion services. While AFWL's optimization of its operating expenses-to-sales ratio has improved operating margins, a surge in interest burden and a reduction in foreign exchange gains have diluted the Company's net margins. The Company’s management is considering the installation of a 5-megawatt solar power plant to manage energy cost risk. This year's decline in local cotton production at the national level will increase the demand for imported cotton and raise yarn prices, ultimately impacting the Company's supply chain dynamics and cost structure. The funding matrix of the Company revolves around short-term borrowings to meet working capital requirements. The Company’s financial risk is considered adequate with a slightly stretched working capital cycle depicting the industry norm. The Company maintain a highly leveraged capital structure with adequate coverages and cashflows. The availability of local cotton coupled with escalated energy costs driven by increased electricity and RLNG tariffs, elevated labour expenses, necessitated by inflationary pressures and higher finance costs are prime challenges specific to the textile industry. Textile exports of the country reached USD 16.7bln in FY24, a slight increase from USD 16.5bln in the previous year, reflecting a growth of 0.93% YoY. In FY25, the transition from the final tax regime to the normal tax regime is set to impact the profitability of export-oriented units, with a 29% tax on profits and an additional super tax of up to 10%
The ratings are dependent on the Company's ability to enhance business volumes, increase net profitability, and sustain gross margins. Prudent management of the working capital, and maintaining sufficient cash flows and coverages are imperative. Adherence to the debt matrix at an optimal level is a prerequisite for the assigned ratings.

About the Entity
Ahmed Fine Weaving Limited is 100.0% owned by Mr. Ashar Fazal and his family. The BOD is composed of three members, with two representing the sponsoring family and one serving as an executive director. The Company possess a moderate weaving facility with 283 air jet looms. Mr. Ashar Fazal holds dual roles as Chairman of the Board and Chief Executive Officer.