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The Pakistan Credit Rating Agency Limited

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

Aman Zafar
aman.zafar@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 Reliance Weaving Mills Limited
 Rating Type Entity
Current
(30-Jun-2017)
Previous
(11-Nov-2016)
 Action Upgrade Initial
 Long Term BBB BBB-
 Short Term A3 A3
 Outlook Stable Stable
 Rating Watch - -

The ratings reflect RWML's adequate business profile. Volumetric growth in local sales, on the back of recent capacity expansion, has provided support to revenues despite lower product prices. Overall gross margins further squeezed mainly due to spinning segment – a phenomenon largely observed industry wide. However, the management expects gradual improvement in margins in future beneficiary from, (i) better cotton crop expectation for upcoming season and rebound in international prices, and (ii) continuous energy supply at cheaper rates. The ratings are constrained by stretched financial profile. This is reflected in mismatch in short-term debt vis-à-vis self-liquidating current assets. Limited cashflows – a factor of lower profitability – constrained the coverages. Lately, decline in finance cost has provided respite to debt service coverages. Cognizant of these issues, the management is in process of re-profiling its balance sheet – converting short-term debt into long-term at lower rates, financial risk profile lately. RWML's association with Fatima Group, a growing conglomerate, is a key rating factor.

The ratings are dependent on the management's ability to prudently mange the liquidity and debt profile of the company, particularly working capital, while sustaining business margins. Significant deterioration in coverages will have negative implication for the ratings. Meanwhile, strengthening of governance framework for better oversight of strategic affairs is considered essential.
About the Entity
Reliance Weaving Mills Limited, a part of Fatima Group (FG), commenced operations in 1990, and is listed on Pakistan Stock Exchange. The company, with total operating capacity of ~62,000 spindles and 336 air-jet looms, is engaged in manufacturing of yarn and fabric. FG, a leading corporate group in Pakistan, owns majority stake (81%) in RWML. The group has diversified interests in sugar, textile, fertilizer, packaging, and foreign trade.

The overall control of the company vests in seven-member board, including the Chairmain - Mr. Fawad Ahmed Mukhtar and the CEO - Mr. Fazal Ahmed Sheikh. Six directors are Fatima Group's family members, while one director is independent. Apart from non-executive Chairman, three of the family directors are in executive roles, while two are directors' spouses. Faisal Ahmed Mukhtar spearheads all functional matters while Mr. Fahd Mukhtar, the other Executive Director, is mainly engaged in marketing. The top management is supported by a team with ample 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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