Allawasaya Textile & Finishing Mills Limited

CREDIT RATING REPORT | Feb-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
28-Feb-25 BBB- A2 Stable Downgrade YES
01-Mar-24 BBB A2 Stable Maintain YES
03-Mar-23 BBB A2 Stable Maintain YES
03-Mar-22 BBB A2 Stable Upgrade -
26-Apr-21 BBB- A3 Stable Maintain YES
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

Rating Rationale

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.

Key Rating Drivers

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.

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

Allawasaya Textile & Finishing Mills Limited

rating analysis

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Profile
Legal Structure

Allawasaya Textile & Finishing Mills Limited (‘The Company’ or ‘AWTX’) is a public listed company incorporated in 1958. 


Background

The Company was incorporated in 1958 as a private limited Company. It was converted into a public limited Company in 1965. The Company is engaged in the production and sale of cotton yarn and manmade fibers and has since expanded both its operations and clientele.


Operations

The Company is principally engaged in the manufacturing and sale of Yarn. Functioning with one manufacturing unit, the total number of spindles installed is 46,488 (FY23: 46,488 spindles). The current energy requirement of the Company stands at 5MV, primarily met through MEPCO. The registered office and the manufacturing facility of the Company are situated at Allawasaya Square, Mumtazabad Industrial Area, Vehari Road, Multan. 


Ownership
Ownership Structure

The business is primarily owned by three families which are all related.   Mian Idrees Ahmed Sheikh, who was previously associated with the Maqbool group. He along with his family collectively holds 24.9% of the shareholding. Mian Jamil is the head of the Jamil Family collectively owns 29.30% of the total shareholding. Lastly, Mian Tauqir is the head of the Tauqir family, which owns 7.20% of the total shareholding in the Company. Remainig 2% shareholding is held by independent directors. While the remaining 35.6% is vested in the other relatives.


Stability

The sponsor families are all related and the third generation of the Jamil and Tauqir families has already joined the Company. However, a documented succession plan will augment the ownership matrix of the Company. 


Business Acumen

Besides AWTX, the sponsors possess shareholdings in Allawasaya Spinning Mills and Shah Shams Cotton Industries (Pvt.) Ltd. Mian Idrees Ahmed Sheikh previously associated with Maqbool group is well known textile industrialist in Multan. Mr. Alamgir Jamil, the CEO, also holds extensive experience in the textile industry.


Financial Strength

Out of the three sponsor families, i) the Maqbool Family has investments in other textile companies and the hospitality sector, ii) the Tauqir family has a diverse portfolio of investments in a number of other textile companies and iii) the Jamil family has a 100% stake in Allawasaya Spinning Mills Pvt Ltd. The family is committed to providing financial support to the Company in times of arcticacy.


Governance
Board Structure

Eleven-member board is comprised of representatives from sponsor families and two independent directors. Despite a good mix of executive and nonexecutive members, sponsor domination on the board undermines the governance structure. Mrs. Nusrat Jamil, a member of the Jamil family is the Chairman of the board. The presence of independent oversight has strengthened the governance framework of the Company. 


Members’ Profile

Mrs. Nusrat Jamil replaced her husband Mian Muhammad Jamil as the Chairman of the Company during FY19. She has been affiliated with the board of the Company for almost two years now. Mian Muhammad Jamil (Jamil Family) is a graduate of textile engineering from the National College of Textile Engineering, Faisalabad. He has been associated with the Company for the last 46 years. Mian Idrees Ahmad Sheikh has an overall experience of over 30 years. Mian Tauqir Ahmed Sheikh (Tauqir Family) is also an MBA and acts as a non-executive director on the board.


Board Effectiveness

The board is supported by two specialized committees; (i) Audit Committee, and (ii) HR and Remuneration Committee, which provide assistance on relevant governance matters. To ensure effective oversight and decision making, board meetings are held regularly, with formal documentation of meeting minutes maintained.


Financial Transparency

M/s M. Yousaf Adil & Co. Chartered Accountants are the external auditors of the Company. The auditors have issued an unqualified opinion on the company’s financial statements for the period ending 30th June 2024.


Management
Organizational Structure

The organizational structure of the Company is divided into four main departments namely, i) Finance Admin & Procurement, ii) Audit & Planning, iii) Sales & Marketing, and iv) Production. The CEO oversees the finance, admin & procurement departments, the Chairman looks after the production while other departments are headed by other executive directors.


Management Team

AWTX places high importance on experience and all members of the management have extensive experience.   Mian Alamgir Jamil Khan is the current CEO of the Company. He is also an executive member of the Multan Chamber of Commerce & Industry, Multan since 2004 and has extensive experience in the textile industry. 


Effectiveness

The Company has no management committees. All department heads have access to the MIS to generate relevant reports according to their departments. Some of the reports related to production are manual but are kept updated in an accurate manner.


MIS

The Company’s operating environment depends upon an IT Infrastructure supported by an in-house programmed ERP. The implementation is deemed to be successful as per the CFO and IT head of the Company. The IT system is fully integrated in all major departments and ensures proper financial and operational control.  The system for reporting has been designed as per the requirements of the board of directors.


Control Environment

The senior management including the CEO and Chairman monitor the business performance through certain key MIS reports. Daily reports include cash and bank position, stock consumption, per spindle cost, receivables, and inventory status while monthly production accounts are also maintained.


Business Risk
Industry Dynamics

The 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. During 5MFY25, the textile exports stood at USD 7.6bln. In FY25, the transition from the final tax regime to the normal tax regime is set to impact the profitability matrix of export-oriented units, with a 29% tax on profits and a 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 has been operating since 1958. However, as a group and on a standalone basis, their market share in the spinning sector is adequate. The Company has installed a capacity of 46,488 spindles in its production facility. Considering the capacity, the Company is considered low tier player in the overall textile landscape. 


Revenues

During FY24, the Company’s revenue witnessed an incline in their turnover and stood at PKR 6,118mln (FY23: 3,776mln) owing to the improved demand for yarn and the positive pricing.  However, during 1QFY25, the revenue base of the company sizeably declined and stood at PKR 728mln (1QFY24: PKR 1,670mln) due to a drop in local yarn demand, as imports served as the substitute, coupled with unfavourable pricing dynamics. The main products of the company are Polyester Viscose (PV), Pure Viscose (Staple Yarn), Polyester Cotton (PC), and Polyester Propolene (PP) yarn. 


Margins

During FY24, the gross profit witnessed an incline and stood at PKR 280mln (FY23: PKR 145mln) on the back of high turnover. Due to higher interest rates, the finance cost is inclined to stand at PKR 272mln (FY23: PKR 245mln). Consequently, the company recorded a net loss of PKR 245ln (FY23: loss of PKR 165mln). The company’s gross margin inclined to 4.6% during FY24 (FY23: 3.8%) while the operating margin was recorded at 2.4% (FY23: 0.8%). The net profit margin was recorded at -4.4% (FY23: -4.0%). During 1QFY25, the Company’s gross margin and net margin clocked at -0.8% and -12.4% respectively. The net loss during the period stood at 97mln.


Sustainability

Going forward, the Company is strategically reducing its energy cost by transitioning from WAPDA to solar power as energy costs constitute the primary risk factor for the sustainability of the Company's cost structure. 


Financial Risk
Working capital

During FY24, the Company’s working capital requirement has improved which is evident from the decline in net working capital days (FY24: 43 days, FY23: 95days, 1QFY25: 46days). The reason behind this was the decrease in inventory days to 44 days (FY23: PKR 75 days). The Company’s trade assets witnessed a sizable decline and stood at PKR 1,172mln (FY23: PKR 1,506mln, 1QFY25: PKR 1,083mln). Consequently, the Company’s short-term trade leverage sizably declined to -7.6% (FY23: -0.5% , 1QFY25: -4.8% ). The current ratio during the period stood at 1.5x (FY23: 2.1x)


Coverages

The company’s free cash flows from operations – a factor of its profitability witnessed incline (FY24: PKR 174mln, FY23: PKR 33mln). This impact was also reflected on the coverages, with the interest coverage ratio during FY24 inclining to 0.7x (FY23: 0.1x) and the debt coverage ratio at 0.3x (FY23: 0.1x). Although improvement is observed, the coverages indicate stress.


Capitalization

The Company’s capital structure remains moderately leveraged as the debt-to-equity ratio at FY24 stood at 46.6% (FY23: 48.6%, 1QFY25: 47.8%), Short-term borrowings, which make up 73% of the total borrowings (FY23: 80%) as the total borrowings witnessed a downward trend (FY24: PKR 995mln, FY23: PKR 1,380mln, 1QFY25: PKR 965mln). The Company’s equity base (FY24: PKR 1,323mln. FY23: PKR 1,568mln, 1QFY25: PKR 1,226mln) is under stress owing to the consistent net losses, depleting the Company’s margin.


 
 

Feb-25

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Allawasaya Textile & Finishing 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 2,230 2,249 2,304 2,142
2. Investments 15 15 15 0
3. Related Party Exposure 0 0 0 0
4. Current Assets 1,263 1,317 1,650 1,382
a. Inventories 524 545 935 568
b. Trade Receivables 222 282 406 553
5. Total Assets 3,508 3,580 3,969 3,523
6. Current Liabilities 955 900 786 480
a. Trade Payables 409 383 344 161
7. Borrowings 965 995 1,380 1,093
8. Related Party Exposure 158 158 105 0
9. Non-Current Liabilities 205 205 129 212
10. Net Assets 1,226 1,323 1,568 1,739
11. Shareholders' Equity 1,226 1,323 1,568 1,739
B. INCOME STATEMENT
1. Sales 782 6,118 3,776 4,827
a. Cost of Good Sold (788) (5,839) (3,631) (4,372)
2. Gross Profit (6) 280 145 455
a. Operating Expenses (33) (134) (115) (129)
3. Operating Profit (39) 145 29 327
a. Non Operating Income or (Expense) (10) (76) 19 (16)
4. Profit or (Loss) before Interest and Tax (49) 69 48 311
a. Total Finance Cost (48) (272) (249) (92)
b. Taxation 0 (42) 36 (75)
6. Net Income Or (Loss) (97) (245) (165) 144
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) (54) 174 33 274
b. Net Cash from Operating Activities before Working Capital Changes (108) (119) (166) 190
c. Changes in Working Capital 161 445 2 (444)
1. Net Cash provided by Operating Activities 53 326 (164) (254)
2. Net Cash (Used in) or Available From Investing Activities 0 (26) (227) (326)
3. Net Cash (Used in) or Available From Financing Activities (31) (217) 387 586
4. Net Cash generated or (Used) during the period 22 83 (4) 6
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -48.9% 62.0% -21.8% 36.1%
b. Gross Profit Margin -0.8% 4.6% 3.8% 9.4%
c. Net Profit Margin -12.4% -4.0% -4.4% 3.0%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 13.8% 10.1% 0.9% -3.5%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] -30.4% -17.0% -10.0% 9.6%
2. Working Capital Management
a. Gross Working Capital (Average Days) 92 65 119 85
b. Net Working Capital (Average Days) 46 43 95 77
c. Current Ratio (Current Assets / Current Liabilities) 1.3 1.5 2.1 2.9
3. Coverages
a. EBITDA / Finance Cost -0.3 1.0 0.5 4.8
b. FCFO / Finance Cost+CMLTB+Excess STB -0.4 0.3 0.1 1.8
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) -2.0 -8.7 -3.0 1.4
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 47.8% 46.6% 48.6% 38.6%
b. Interest or Markup Payable (Days) 84.4 69.2 109.2 88.8
c. Entity Average Borrowing Rate 14.3% 19.0% 16.5% 8.3%

Feb-25

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Allawasaya Textile & Finishing Mills Limited

rating scale

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Feb-25

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Allawasaya Textile & Finishing 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.
  2. Restrictions
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    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
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  6. Probability of Default
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