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The Pakistan Credit Rating Agency Limited

Date
25-Nov-2016
Analysts
Saira Rizwan
saira.rizwan@pacra.com

Rida Zahoor
rida.zahoor@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 Upgrades Entity Ratings of Kohinoor Textile
 Rating Type Entity
Current
(25-Nov-2016)
Previous
(25-Nov-2016)
 Action  Upgrade
 Long Term  A+
 Short Term  A1
 Outlook  Stable
 Rating Watch - -

The ratings reflect KTML’s established business profile emanating from strong presence in the broader value-chain; enabling the company to manage volatility in textile business. The entity has achieved a sizable revenue base. The company’s business strategy to operate in its niche market has helped to maintain healthy margins. Managements plan, albeit slow, to replace and modernize existing machinery should bring efficacies to maintain relative positioning. Lean inventory management system and related efficiencies continued to remain the competitive edge. This has resulted in a strong financial risk profile which is also supported by healthy coverages and capital structure.

KTML, besides owning Maple Leaf Cement, has been focusing to strengthen its 66% owned Maple Leaf Capital – a company formed to manage a diversified portfolio of investments – as further equity injection is planned. Recent buildup of dividend stream from these investments has started supporting KTML’s performance; sustainability is important to ensure. Besides, the company maintains a trading portfolio of stock market investments. While it provides comfort to liquidity profile of the company, related market risk needs to be managed carefully.

The ratings are dependent on the company's ability to sustain its business profile. At the same time prudent management of short term liquidity is considered important.
About the Entity
Kohinoor Textile Mills Limited - a Kohinoor Maple Leaf Group (KMLG) company - listed on all bourses of the country, commenced operations in 1958. The company, operating from three geographical locations, is engaged in manufacturing of yarn, fabric and home textile products. The management control lies with Saigol family who, along with associates, holds majority stake in KTML. KTML owns 55% stake (end-Jun16) in Maple Leaf Cement [end-Jun16; Book Value: PKR ~3bln; Market Value: PKR ~31bln). KTML has divested some proportion of its stake in Maple Leaf in the recent periods. The amount was used to capitalize Maple Leaf Capital Limited, a 66% owned subsidiary established to trade in stocks and explore other investment opportunities. KMLG is one of the oldest business groups having interests mainly in textile, cement, and trading.

The overall control of KTML vests with eight members BoD including the CEO. Five board members belong to Saigol family, out of which three are in executive roles including the CEO, two are group affiliates, and one member is independent director. The CEO, Mr. Taufique Sayeed Saigol, oversees the company affairs through a management team with relevant experience in the textile industry.
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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