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The Pakistan Credit Rating Agency Limited

Date
12-Jun-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Haider Imran
haider.imran@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]

Related Research

  • Sector Study | Textile (Sep 16) [View]
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PACRA Maintains Entity Ratings of Liberty Mills
 Rating Type Entity
Current
(12-Jun-2017)
Previous
(14-Jun-2016)
 Action Maintain Initial
 Long Term A+ A+
 Short Term A1 A1
 Outlook Stable Stable
 Rating Watch - -

Liberty, a family-owned textile company, operates in value-added segment - processing of fabric and made-ups. While this insulates it against volatility in cotton prices, the company's resilient business profile emanates from core operations featured by business margins which, though reduced recently, remain strong despite weak local textile sector fundamentals. With an export market orientation, the company focuses on its established niche of quality-conscious institutional buyers, garnering healthy margins. Although this has led to customer concentrations, longevity of relationship with big-name clients in addition to sustained quality helps manage the risk. However, revenue growth has recently been affected on the back of increased international competition. Meanwhile, despite the announcement of export incentives by the state, materialization of the same is low. The company's bottomline is augmented by a recurring dividend stream from investment in an IPP - Liberty Power Tech. Liberty's strong financial risk profile is characterized by limited long-term debt, healthy cash flows, and, in turn, strong debt-servicing ability. Working capital cycle is stretched, though in line with peers; any improvement will bring efficiency. Long association of experienced management team adds comfort. However, governance framework needs improvement.

Going forward, Liberty Group - the sponsors - intends to expand its industrial footing with a diversification philosophy. As part of the strategy, the group has recently ventured into the food beverage market partnering with an international investment group. Furthermore, increased outlay of investments in energy and other infrastructural sectors is on the cards.

The ratings are dependent on the management's ability to sustain its overall profile. Meanwhile, utilization of lately beefed-up capacities is considered important. Going forward, increase in business size, continuation and further build-up of dividend/other income stream vis-a-vis strengthening of governance framework will have positive implications on ratings.
About the Entity
Liberty, established in 1964, is in the business of manufacturing and processing of textile fabrics (capacity: 78mln meters) and made ups (stitching machines: 716 machines). The company is majority (~100%) owned by Mukaty family mainly through individuals. Liberty Group holds ~90% stake in Liberty Power Tech Limited (a 200MW thermal IPP) including ~29% through Liberty.

Liberty has an eight member board. The CEO, Mr. Muhammad Salim Mukaty, also holds the office of the Chairman. The board comprises four directors from sponsoring family, three executive members, and a non-executive director (NED). Executive Director Mr. Muhammad Ashraf S. Mukaty - son of Mr. Salim Mukaty - oversees daily operations. Mr. Ashraf is supported by an experienced management team.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.
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