Kassim Textiles (Pvt.) Limited

CREDIT RATING REPORT | Dec-24

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
30-Dec-24 A- A2 Stable Maintain -
30-Dec-23 A- A2 Stable Maintain -
31-Dec-22 A- A2 Stable Maintain -
31-Dec-21 A- A2 Stable Maintain -
31-Dec-20 A- A2 Stable Initial -
About the Entity

Kassim Textiles (Private) Limited was incorporated on August 27, 1991, as a private limited company. It is a modern weaving unit that manufactures Denim fabric used for local and branded garment industry. The Company belongs to a prominent business venture of Machiyara Group. Apart from Kassim Textiles, the Group has a presence in textile, construction, real estate development, mobile phones, trading, etc. Kassim Textile’s Board comprises four members, all are sponsors. The position of Chairman and CEO vests with Mr. Muhammad Shabbir. He belongs to the sponsoring family, possesses textile expertise, and has a future-oriented region for the Company. He has been associated with the association for 3 decades. He is assisted by a professional and long-associated management team.

Rating Rationale

The assigned ratings of Kassim Textiles (Private) Limited (“the Company” or “KTL”) reflect its status as the flagship entity of the Machiyara Group. The Group has an enduring presence in the textile and allied industries, as well as in several other sectors. The Company operates with 30,624 spindles, 3,304 rotors, and 364 looms. Over the years, the Company's topline has shown consistent growth. The Company produces a variety of fabrics and yarns with multiple counts ranging from 6s to 16s, including dyed yarn, to augment its product slate and fulfil client requirements. In terms of segment-wise business contribution, fabric is KTL's top-performing segment, followed by spinning, while the direct export category is entirely led by fabric sales. The Company maintains a stable customer base both locally, with a presence in Karachi and Lahore, and internationally, including exports to Turkey, Bangladesh, Cambodia, Greece, and other locations. The Company owns a wholly-owned subsidiary named Kassim (Private) Limited, established to enhance business diversity by moving down the textile value chain into garment manufacturing, specifically jeans production. The company has gradually optimized energy costs by installing a solar power plant and utilizing other energy-efficient alternatives. However, no major CAPEX is anticipated in the coming year. An increase in volumetric sales to achieve economies of scale, coupled with gradual improvements in product pricing and measures to adopt efficient energy sources, has resulted in an improvement in margins. The SAP implementation is in process which expects to beef up the reporting framework and control environment of the Company. The financial risk profile of the company is considered adequate, with stretched working capital management reflecting industry norms. However, in some export destinations, improved trade conversion lead times are expected to provide a cushion for the company's cash flow management. 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.

Key Rating Drivers

The ratings depend on the company's ability to sustain its business profile by maintaining profitability and margins from core textile operations while expanding business volumes. Increase in business volume and growth in revenue and profits would have positive impact on ratings.

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

Kassim Textiles (Pvt.) Limited

rating analysis

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Profile
Legal Structure

Kassim Textiles (Private) Limited ('Kassim Textiles' or 'the Company') was incorporated on August 27, 1991 as a private limited Company. The register office is located on National Highway Landhi, Karachi.

Background

Kassim Textiles (Private) Limited is a prominent business venture of Machiyara Group. Apart from Kassim Textiles, the Group has presence in the textile, construction and real estate development, mobile phones and trading etc.

Operations

Kassim Textiles (Private) Limited is a modern weaving unit that manufactures Denim fabric used for local and branded garment industry. The Company operates with 30,624 spindles, 3,304 rotors, and 364 looms. Kassim Textile sells a variety of yarn from 6 counts to 16 counts. The Company has switched to road shipments for exports. This change has reduced lead times to almost half number of days as compared to shipments via seaport, improving operational efficiency.

Ownership
Ownership Structure

Kassim Textile is a venture of six members of Haji Kassim’s family. M. Ashraf owns 33.33%, Amanullah Kassim owns 33.33% directly and 0.01% indirectly through his wife. While M. Shabbir owns 32.14% directly and 0.01% indirectly through his wife. Arsal Shabbir has also the share of 1.18%.

Stability

The major shareholding of the Company is held by three individuals, who started the Company in 1991. The stability of ownership may be improved by documenting understanding between sponsors in the form of shareholding agreement.

Business Acumen

Kassim textile was setup by Machiyara Group, which has strong presence in several sector. This has helped the Company in expanding its operation’s despite challenging market dynamics. Eventually, benefiting the Company in effective decision making.

Financial Strength

The sponsoring family has two other textile companies; Kassim (Private) Limited which is the subsidiary of Kassim Textiles and Fashion Knit Industries (Pvt.) Limited. Machiyara group consists of various business entities, including construction and real estate development, mobile phones and trading etc. This indicates sponsors’ ability to provide support if the need arises.

Governance
Board Structure

Kassim Textile’s Board comprises four members, all are sponsors. The position of Chairman and CEO of the Company. Despite a private limited Company, Sponsor domination on the board undermines the board’s effectiveness.

Members’ Profile

The members of the board have 3 decades of knowledge and extensive experience in the textile industry. Currently, there are no independent directors on the board.

Board Effectiveness

BoD meetings are held regularly in which discussion on various aspect are recorded in minutes and decision or action is referred to Chairman/CEO, Mr Muhammad Shabbir.

Financial Transparency

Nasir Javaid Maqsood Imran (NJMI) Chartered Accountants, who are categorized in category B by the SBP panel of auditors. The audit for the year FY24 is in process and expected to be completed soon.

Management
Organizational Structure

The organizational structure of the Company is divided into various functional departments, namely: (i) Finance & Commercial (F&C), (ii) Marketing, (iii) Technical, (iv) Production, (v) Information Technology, and (vi) GM (F&C) is also looking after HR, Admin and procurement functions. All departments directly reports to the directors of the Company.

Management Team

Mr Muhammad Shabbir is the CEO of the Company. He carries twenty-nine years of professional experience and holds Master's in Chemical Engineering. He has been working with this group since the beginning. Mr. Saleem Jangda, CFO of the Company, has been associated since year 2000.

Effectiveness

The management meetings are held on periodic basis with follow-up points to resolve or pro-actively address operational issues, if any, eventually ensuring smooth flow of operations. The meeting is headed by the CEO.

MIS

The Company has built an in-house ERP to cater the business needs. The senior management monitors the business performance through certain Key MIS reports. The system tracks business resources like cash, raw materials, production capacity and the status of business commitments, orders, purchase orders, and payroll. The applications that make up the system share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data. Furthermore, SAP implementation has been ongoing for the past year and is expected to enhance operational efficiency and reporting.

Control Environment

Production is completely order-driven, there is a rigorous quality check done on the end product by the QC department. The Company has obtained ISO 9001 certification. The Company has an in-house internal audit department that reports directly to the CEO and board of directors.

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

The Company falls in the mid-tier category; currently operating 3,304 rotors, 364 looms and 30,624 spindles with an installed capacity of 39mln meters of fabric.

Revenues

Over the years, the company’s topline has demonstrated a consistent upward trajectory. As per the management presentation during FY24, the top line of the Company has shown significant growth. The Company maintains a stable customer base both locally, with a presence in Karachi and Lahore, and internationally, including exports to Turkey, Bangladesh, Cambodia, Greece, and other locations.

Margins

During FY24, according to the company's management presentation, an increase in volumetric sales to achieve economies of scale, combined with gradual improvements in product pricing and the adoption of efficient energy sources, resulted in improved margins.

Sustainability

Going forward, with better efficiency and a specialized product profile, the management expects Kassim Textile’s margins to improve further. The Company supplies to many downstream export-oriented units in Pakistan which are anticipating a strong rebound in global demand. Over the years, the company has undertaken various energy-efficient initiatives to enhance its profitability matrix. The Company owns a wholly-owned subsidiary named Kassim (Private) Limited, established to enhance business diversity by moving down the textile value chain into garment manufacturing, specifically jeans production.

Financial Risk
Working capital

The Company meets its working capital requirements through a mix of internal generation and short-term borrowings (STBs). Short-term borrowing of the Company was up by 27% in FY23 and recorded at PKR 6.4bln (FY22: PKR 5.01bln). During FY23, the Company’s net working capital cycle days increased to 111 days (FY22: 62 days) on account of an increase in inventory days to 71 days (FY22: 40 days) and average receivable days to 79 days (FY22: 54 days). The majority of the Company's export transactions are executed through letters of credit (LCs), thereby improving the quality of trade receivables. During FY24, according to the company's management presentation, trade assets have improved, resulting in increased room to borrow.

Coverages

In FY23, Free Cash Flows from Operations (FCFO) significantly decreased and were recorded at PKR 2.8bln (FY22: PKR 3.2bln). Consequently, Interest coverage inclined (FY23: 4.2x, FY22: 18.0x). Furthermore, the debt coverage ratio stood at 1.9x in FY23 (FY22: 3.6x). As per the Company management presentation in some export destinations, improved trade conversion lead times are expected to provide a cushion for cash flow management and rationalize the utilization of short-term borrowings limits. During FY24, the finance cost of the Company has witnessed an increase.

Capitalization

The capital structure of Kassim Textiles is moderately leveraged, with leverage at 56.4% during FY23. Total borrowings witnessed an increase to PKR 11.1bln (FY22: PKR 10.1bln) to finance capacity expansion and increased working capital needs. Kassim Textile’s borrowings comprise 57% short-term debt and 43% long-term borrowings during FY23. As per the Company's management presentation during FY24, the leveraging of the Company largely remains intact. The total borrowings of the Company are mainly comprised of subsidized borrowings from SBP.

 
 

Dec-24

www.pacra.com

Kassim Textiles (Pvt.) Limited

rating scale

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Dec-24

www.pacra.com

Kassim Textiles (Pvt.) 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.
  2. Restrictions
    1. No director, officer, or employee of PACRA communicates the information acquired by him for use for rating purposes to any other person, except where required under law to do so. (Chapter III; 10-(5))
    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
    3. PACRA prohibits its employees and analysts from soliciting money, gifts, or favors from anyone with whom PACRA conducts business. (Chapter III; 11-A-(q))
    4. PACRA ensures before the commencement of the rating process that an analyst or employee has not had a recent employment or other significant business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest. (Chapter III; 11-A-(r))
    5. PACRA maintains the principle of integrity in seeking rating business. (Chapter III; 11-A-(u))
    6. PACRA promptly investigates in the event of misconduct or a breach of the policies, procedures, and controls, and takes appropriate steps to rectify any weaknesses to prevent any recurrence, along with suitable punitive action against the responsible employee(s). (Chapter III; 11-B-(m))
  4. Independence & Conflict of Interest
    1. PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on PACRA’s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity, and independence of its ratings. Our relationship is governed by two distinct mandates: i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and ii) fee mandate - signed with the payer, which can be different from the entity.
    2. PACRA does not provide consultancy/advisory services or other services to any of its customers or their associated companies and associated undertakings that are being rated or have been rated by it during the preceding three years, unless it has an adequate mechanism in place ensuring that the provision of such services does not lead to a conflict of interest situation with its rating activities. (Chapter III; 12-2-(d))
    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
    4. PACRA ensures that the rating assigned to an entity or instrument is not affected by the existence of a business relationship between PACRA and the entity or any other party, or the non-existence of such a relationship. (Chapter III; 12-2-(i))
    5. PACRA ensures that the analysts or any of their family members shall not buy, sell, or engage in any transaction in any security which falls in the analyst’s area of primary analytical responsibility. This clause, however, does not apply to investments in securities through collective investment schemes. (Chapter III; 12-2-(l))
    6. PACRA has established policies and procedures governing investments and trading in securities by its employees and for monitoring the same to prevent insider trading, market manipulation, or any other market abuse. (Chapter III; 11-B-(g))
  5. Monitoring and Review
    1. PACRA monitors all the outstanding ratings continuously, and any potential change therein due to any event associated with the issuer, the security arrangement, the industry, etc., is disseminated to the market immediately and in an effective manner after appropriate consultation with the entity/issuer. (Chapter III; 17-(a))
    2. PACRA reviews all the outstanding ratings periodically on an annual basis. Provided that public dissemination of annual review and in an instance of change in rating will be made. (Chapter III; 17-(b))
    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
    4. PACRA engages with the issuer and the debt securities trustee to remain updated on all information pertaining to the rating of the entity/instrument. (Chapter III; 17-(d))
  6. Probability of Default
    1. PACRA’s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e., probability). PACRA’s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA’s Transition Study available at our website. (www.pacra.com) However, the actual transition of rating may not follow the pattern observed in the past. (Chapter III; 14-3(f)(vii))
  7. Proprietary Information
    1. All information contained herein is considered proprietary by PACRA. Hence, none of the information in this document can be copied or otherwise reproduced, stored, or disseminated in whole or in part in any form or by any means whatsoever by any person without PACRA’s prior written consent.

Dec-24

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