Ahmad Hassan Textile Mills Limited

CREDIT RATING REPORT | Dec-24

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
27-Dec-24 BBB+ A2 Stable Maintain -
29-Dec-23 BBB+ A2 Stable Maintain -
30-Dec-22 BBB+ A2 Stable Initial -
About the Entity

AHTML a listed concern, commenced operations in 1989. The Company is engaged in the manufacturing of greige fabric, operating with 171 looms. The majority stakes (57%) of the Company are held by Mr. Javed’s family. The Company has a seven-member board, primarily composed of members from the sponsoring family, with two independent directors. The board is chaired by Mrs. Salma Javed while the CEO, Mr. Muhammad Haris overseas Company’s affairs.

Rating Rationale

The assigned ratings of Ahmad Hassan Textile Mills Limited (“AHTML” or “the Company”) reflect its adequate profile within Pakistan's textile sector. AHTML transitioned into a dedicated weaving unit following the demerger of the group and has since then operated as a separate legal entity with no ownership interest in the other Group Company. The Company procures various types of yarn, ranging from 20s count to 100s count, in accordance with client demands and processes them into greige fabric. AHTML mainly produces a variety of fabric types, including Twills, HB, Panama, BFC, Satins, CVC, and Canvas. The management involves experienced professionals looking after the operations of the Company. Since its inception, the Company has managed an intact business risk profile. During FY24, the Company generated a topline of PKR 5.08bln (FY23: PKR 4.33bln), reflecting a year-over-year (YoY) growth of 17.4%. This growth was driven by increased prices for fabric due to improved quality, despite a slight decline in production levels. However, production volumes showed improvement in 1QFY25, with the topline standing at PKR 1.54bln. The sales mix is mainly dominated by local sales contributing ~87.60% inclusive of indirect exports in total gross sales and remaining by export segment. The export destinations of the Company include the U.S., Europe, and Asia. The top customers of the Company include Arshad Corporation (Pvt) Ltd, Dawood Fabrics, US & Dynamo Mills (Pvt) Ltd, Meraj Fatima Fabrics (Pvt) Ltd, H. Y Enterprises, SN International, A.B. Export (Pvt) Ltd, Maypole (Pvt) Ltd. The Company's gross margins experienced a dilution due to expensive raw material procurement and increased energy tariffs. The tightening of commercial credit terms by local yarn suppliers inflated the need for short-term borrowings, resulting in a surge in finance costs and impacting net profitability, which decreased to PKR 40mln in FY24 (FY23: PKR 93mln). The management of the Company is working on some energy efficiency projects, which are expected to optimize energy costs and create some cushion in its cost structure. The Company is considering expanding its business diversification and augmenting its income streams by executing CAPEX in home textiles through the installation of stitching machines, terry looms, and the opening of cattle farms, which is expected to improve its sustainability profile. However, the funding mix and its impact on the financial matrix of the Company need to be analyzed. The financial risk profile of the Company is considered adequate with a moderately leveraged capital structure. AHTML aptly managed its net working capital requirements with a mix of short-term borrowings and internally generated cashflows. The cashflows and coverages of the Company are considered adequate.

Key Rating Drivers

The ratings are dependent upon the management's ability to capitalize on growth opportunities in a competitive landscape, operate at an optimal level, and improve margins and coverages, going forward. Adherence to the debt matrix at an optimal level is a prerequisite for the assigned ratings

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Ahmad Hassan Textile Mills Limited

rating analysis

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Profile
Legal Structure

Ahmad Hassan Textile Mills Limited was incorporated on December 03, 1989, as a public limited company. The Company is listed on Pakistan Stock Exchange.

Background

Established in 1989 by the late Mr. Ahmad Hassan, Ahmad Hassan Textile Mills Limited has emerged as a prominent fabric manufacturer with a distinguished history spanning over three decades within the textile industry. Following a demerger in 2021, the weaving business is retained by the Company whereas the spinning business was transferred to Ahmed Hassan Spinning Limited.

Operations

The Company operates with 171 Looms. BMR and the upgradation of machinery were done over the course. Currently, 159 looms are operating. The total energy requirement of the Company is 2.5MW which is wholly met through WAPDA at the capacity of 7.5MW and internal power generation through a 3MW gas-based and 1.9MW Solar power plant. The production facility is located at M.M Road, Chowk Sarwar Shaheed, District Muzaffargarh.

Ownership
Ownership Structure

The sponsoring family holds a majority stake in the Company (57.1%) through individual holdings while the remaining shares are held by the general public (31.1%) and others (11.8%), including a 10.7% stake held by NIT.

Stability

The company has a structured line of succession, reflected by the equalized distribution of shareholding among Mr. Javed’s family members. Meanwhile, the third generation has already been in business, serving in various capacities. No changes in the ownership structure are anticipated in the near future.

Business Acumen

AHTML, one of Pakistan's longest-established small-scale textile houses, has been operating under the stewardship of the late Mr. Ahmad Hassan’s family for over three decades. Over this period, the company has developed significant expertise in weaving and successfully expanded its operations, demonstrating resilience and adaptability within the highly competitive textile industry

Financial Strength

As the flagship Company of its sponsors, it benefits from unwavering support when required. Over the years, the provision of subordinated loans by the sponsors has further demonstrated their ongoing commitment and backing for the Company.

Governance
Board Structure

AHTML's board comprises seven members. Five members are from the sponsoring family. Three members are non-executive directors, two directors carry the executive role and two are independent directors. Mrs. Salma Javed serves the role of Chairperson. The inclusion of independent oversight has strengthened the governance of the Company.

Members’ Profile

Mr. Muhammad Haris – the CEO – carries with him almost three decades of experience in the local textile industry. The board members have a vast knowledge of the textile industry; though diversity in experiences exists as well. The directors’ expertise in different stages of the textile value chain benefits the board for efficient decision-making

Board Effectiveness

Two committees; Audit and HR, are in place to assist the board in relevant matters and ensure proper oversight. Attendance of board members remains strong and meeting minutes were formally documented.

Financial Transparency

M/s. Yousuf Adil, Chartered Accountants are the external auditors of the Company. They have expressed a qualified opinion on the financial statements of the Company for the year ended June 30th, 2024 on the grounds of payment of gratuity.

Management
Organizational Structure

The Company has an established organizational layout, with overall operations divided into various functional departments, namely: (i) Marketing, (ii) Finance, (iii) Administration & HR, (iv) Accounts, and (v) Commercial (fixed asset procurement). Department heads predominantly report to the Chief Financial Officer (CFO) or the Technical Director (Operations), who subsequently report to the Chief Executive Officer (CEO).

Management Team

The management team is headed by the CEO Muhammad Haris who also holds a degree of MBBS. He is well versed in the textile business providing requisite acumen. He is supported by a team of seasoned professionals, who supplement his expertise. Mr, Jamal Ahmad, the CFO of the Company is a chartered accountant by profession and possesses ~20 years of experience.

Effectiveness

The management meetings are held daily with follow-up points to resolve or proactively address operational issues, if any, eventually ensuring a smooth flow of operations. The Company’s MIS can be classified into categories based on periodicity – Daily, and Monthly.

MIS

The Company has implemented Oracle-based ERP software which integrates the flow of information between various business processes and integrates business transactions with the company’s financial system in real-time.

Control Environment

Ahmad Hassan Textile is accredited with local and international certifications for compliance. The Company follows the latest Quality Assurance Standards for fabric production and trade.

Business Risk
Industry Dynamics

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. The highest contribution came from the composite and garments segment at USD 9.1bln, followed by the weaving segment at USD 6.5bln, and the spinning segment at USD 1.0bln. 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 consistent decline in policy rates over the last two quarters, along with the anticipation of further reductions, is expected to provide a cushion in the financial metrics of the industry.

Relative Position

Ahmad Hassan Textile is the flagship company of the Ahmad Hassan Group. The Group has a long history of operations in Pakistan’s spinning and weaving sectors. This strengthens the Company’s market position. However, on a standalone basis, Ahmad Hassan's share in the local weaving industry is one of the minimal in the relative universe

Revenues

During FY24, the company’s revenue increased by 17% YoY to stand at PKR 5,078mln (FY23: PKR 4,327mln), due to a resurgence in the demand. The company’s export share of total revenue declined to 34% (FY23: 42%) of the total revenue, and the company's large portion of its export base comprises indirect exports. During 1QFY25, the revenue increased by 18% YoY to stand at PKR 1,544mln (1QFY24: PKR 1,296mln).

Revenues and Margins.
Margins

During FY24, the company’s gross margins decreased to 6.0% (FY23: 8.5%). This translated to a decline in the operating margin to 3.9% (FY23: 6.1%). The finance cost of the company increased to PKR 132mln (FY23: PKR 87mln) resulting in a declined net margin of 0.8% (FY23: 2.1%). During 1QFY25, gross margins declined to 6.6% (1QFY24: 7%). Consequently, the operating margin declined to 5% (1QFY24: 4.4%). The finance cost was recorded at PKR 50mln (1QFY24: PKR 29mln) due to the increase in the short-term borrowings. Consequently, net income decreased to PKR 9mln (1QFY24: PKR 26mln). The net profit margin was recorded at 0.6%.(1QFY24: 2%)

Sustainability

The Company has a long-term plan to incorporate home textile and terry products into its product line and also intends to increase the captive generation of power through solar. Moreover, the newly erected solar unit holds a capacity of 1.9MW. Furthermore, the company is planning to replace old looms with newly imported looms having the latest technology

Financial Risk
Working capital

At end-Sept24, the net working capital cycle days were recorded at 63 days (At end-Jun24: 66 days) on account of decreased inventory days (Sep'24 72days, Jun24: 85days) The trade assets of the company increased by 13% to stand at PKR 2,190mln (At end-Jun24: PKR 2,052mln) while the ST trade leverage adequacy ratio stood at 39% (Jun;24: 35%).

Working Capital Management
Coverages

At end Jun'24, the company's FCFO inched down to PKR 231mln (Jun'23: PKR 285mln). The interest coverage declined to 1.9x (Jun'23: 3.7x) mainly attributable to increasing finance costs. The debt coverage also declined to 0.8x (Jun'23: 1.7x). Whereas, the debt repayment period of the Company stretched to 4 years (FY23: 1.6 years). At the end Sep'24, the free cash flows increased to PKR 90mln (Sep'23: PKR 58mln). The interest coverage remained the same at 2.0x (Sep'23: 2.3x) as well as the debt coverage at 0.9x (Sep'23: 0.9x).

Coverages
Capitalization

At end-Sept24, the leveraging of the company increased to 37% (end-Jun24: 38.3%) as the total borrowings increased to PKR 1,021mln (end-Jun24: PKR 1,071mln). Short-term borrowings constitute 55.3% of total borrowings. Whereas, the equity base inched up to PKR 1,843mln (end-June24: PKR 1,834mln).

Capital Structure
 
 

Dec-24

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Ahmad Hassan Textile Mills Limited

financial summary

(PKR mln)

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Sep-24
3M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 1,697 1,719 1,648 1,703
2. Investments 0 0 0 0
3. Related Party Exposure 17 28 18 19
4. Current Assets 2,283 2,156 1,676 1,833
a. Inventories 1,169 1,257 1,116 1,395
b. Trade Receivables 598 367 226 217
5. Total Assets 3,997 3,903 3,343 3,555
6. Current Liabilities 987 846 769 949
a. Trade Payables 679 586 531 649
7. Borrowings 1,021 1,077 608 732
8. Related Party Exposure 63 63 63 63
9. Non-Current Liabilities 84 84 103 86
10. Net Assets 1,843 1,834 1,800 1,726
11. Shareholders' Equity 1,843 1,834 1,800 1,726
B. INCOME STATEMENT
1. Sales 1,544 5,078 4,327 5,545
a. Cost of Good Sold (1,443) (4,772) (3,958) (5,207)
2. Gross Profit 101 307 370 338
a. Operating Expenses (24) (109) (107) (80)
3. Operating Profit 77 198 263 259
a. Non Operating Income or (Expense) 0 35 (16) (1)
4. Profit or (Loss) before Interest and Tax 77 233 247 258
a. Total Finance Cost (50) (132) (87) (52)
b. Taxation (19) (60) (67) (5)
6. Net Income Or (Loss) 9 40 93 201
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 90 231 285 283
b. Net Cash from Operating Activities before Working Capital Changes 44 115 201 244
c. Changes in Working Capital (7) (411) (11) (249)
1. Net Cash provided by Operating Activities 37 (297) 190 (5)
2. Net Cash (Used in) or Available From Investing Activities 11 (161) 2 (151)
3. Net Cash (Used in) or Available From Financing Activities (55) 197 (97) 41
4. Net Cash generated or (Used) during the period (8) (260) 94 (114)
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 21.6% 17.4% -22.0% 45.3%
b. Gross Profit Margin 6.6% 6.0% 8.5% 6.1%
c. Net Profit Margin 0.6% 0.8% 2.1% 3.6%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 5.4% -3.6% 6.3% 0.6%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 1.9% 2.2% 5.3% 13.2%
2. Working Capital Management
a. Gross Working Capital (Average Days) 100 107 125 94
b. Net Working Capital (Average Days) 63 66 75 54
c. Current Ratio (Current Assets / Current Liabilities) 2.3 2.5 2.2 1.9
3. Coverages
a. EBITDA / Finance Cost 2.2 2.8 4.6 7.9
b. FCFO / Finance Cost+CMLTB+Excess STB 0.9 0.8 1.7 1.9
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 2.7 4.0 1.6 1.6
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 37.0% 38.3% 27.1% 31.5%
b. Interest or Markup Payable (Days) 71.1 97.3 78.9 116.1
c. Entity Average Borrowing Rate 18.8% 13.7% 10.0% 6.5%

Dec-24

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Ahmad Hassan Textile Mills Limited

rating scale

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Dec-24

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Ahmad Hassan Textile Mills Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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