PACRA Revises Entity Ratings of Allawasaya Textile and Finishing Mills Limited

The rating decision of Allawasaya Textile and Finishing Mills Limited (“AWTX”, or “the Company”) reflects its stressed business fundamentals, which adversely impact its business risk and financial risk profile. This is driven by consistent losses over the past eight quarters, excluding 6MFY24, which have significantly eroded the Company’s equity, leading to liquidity constraints and a debt overhang. The Company is currently facing three key challenges: (i) an increase in yarn imports under the EFS scheme, leading to the underutilization of existing capacities due to reduced local demand in 1QFY25; (ii) reliance on short-term borrowings to bridge the funding gap, resulting in soaring finance costs; and (iii) escalating energy tariffs. However, the Company's management anticipates gaining momentum in the coming quarters, primarily driven by the installation of a 3-megawatt solar power plant as part of its renewable energy initiatives, along with a continued decline in the policy rate. These factors are expected to provide relief from the ongoing financial squeeze. The Company’s product slate and revenue streams are divided into four categories: CVC yarn, PC yarn, PV yarn, and PP yarn. During FY24, AWTX recorded 62% topline growth mainly attributable to the resurgence of demand for 30s count yarn. However, in 1QFY25, the Company’s sales declined to PKR 780mln (1QFY24: PKR 1,670mln) due to a drop in local yarn demand, as imports served as a substitute, coupled with unfavourable pricing dynamics. Energy costs represent the primary risk factor for the sustainability of the Company’s cost structure, as evidenced by a 102% increase in power and fuel costs, which significantly dilutes profitability. This is further compounded by finance cost of PKR 272mln resulting in a net loss of PKR 245mln. The Company's financial risk profile is negatively affected by a deterioration in its credit quality metrics AWTX needs to rationalize its funding structure by securing an equity injection from its sponsors and implement a strategic plan to strengthen its business fundamentals, ensuring its continued competitiveness. Textile exports reached USD 16.7bln in FY24, up 0.93% YoY from USD 16.5bln. The composite and garments segment led with USD 9.1bln, followed by weaving at USD 6.5bln and spinning at USD 1.0bln. In 5MFY25, exports stood at USD 7.6bln.
The ratings are dependent upon the Company’s ability to improve its performance in terms of business volumes and core profitability from operations. Maintaining optimal capacity utilization, generating sufficient cash flows, and improving coverage ratios remain critical to the ratings. An equity injection from sponsors is essential to alleviate cash flow strain. Adherence to the debt matrix at an adequate level is a prerequisite for the assigned rating.

About the Entity
Allawasaya Textile and Finishing Mills Limited (the Company), is a listed company engaged in the manufacturing and sale of different varieties of yarn. 98.5% of the Company’s shareholding is distributed among family members of Mian Jamil, Mian Idrees and Mian Tauqir Overall control vests in an eleven-member board of directors. The CEO – Mr. Alamgir Jamil carries extensive experience in the textile industry and is supported by an experienced management team