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The Pakistan Credit Rating Agency Limited

Date
29-Dec-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Hamza Ghalib
hamza.ghalib@pacra.com

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

  • Corporate Rating Methodology (Jul 17) [View]
  • Correlation between long-term and short-term rating scale (Jun 17) [View]

Related Research

  • Sector Study | Textile (Oct 17) [View]
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PACRA Initial Entity Ratings of Basfa Textile (Pvt.) Limited
 Rating Type Entity
Current
(29-Dec-2017)
 Action Initial
 Long Term BBB-
 Short Term A3
 Outlook Stable
 Rating Watch -

The ratings reflect adequate business profile of Basfa Textile (Pvt) Ltd. The company is engaged in the manufacturing and sale of Viscos Yarn – a premium quality yarn and different varieties of cotton yarn. Sponsor’s primary business interest is in car paint and chemical raisins. However, their most recent investment was in textile sector i.e. Basfa Textile. Textile industry in general and spinning industry in particular continues to suffer from low international commodity prices and high cost of doing business in Pakistan. Meanwhile, despite the announcement of export incentives by the state, materialization of the same is low. Consequently, performance volatility, featured by cotton price fluctuations, is considered high on standalone basis. Company has successfully created it niche market in viscose yarn, which provided stability to the margins, boded well with the overall profitability. Company has minimal long-term debt which keeps the financial risk profile at low level. Efficient working capital management and sustained cashflows, in turn healthy coverages keep the financial risk profile sound. However, governance framework and financial transparency needs improvement.

The ratings are dependent on sustaining business margins in viscose yarn while maintaining financial risk at low level. Uplifting of financial risk profile via improved core coverages would be ratings positive. At the same time, prudent management of short-term liquidity is considered important.
About the Entity
Basfa Textile (Pvt.) Ltd, incorporated in 2006, however, the commercial operations were started in 2006. The company is engaged in the manufacturing and sale of Viscos Yarn – a premium quality yarn and different varieties of cotton yarn. Viscos yarn is sold under the brand name of “Super-Diamond” and Cotton yarn – under the brand name of “Super-Gold”. The corporate office of the company is located at 20-KM Ferozepur Road, Lahore, whereas, vicinity of the plant is at 36-KM Ferozepur Road, Lahore. Basfa Textile’s total power requirement is ~3MW which is being provided by LESCO – with two dedicated lines.

The CEO/Chairman, along with other family members collectively own (100%) shares of the company. Board comprises of two members including CEO/Chairman and Managing director. The CEO/Chairman of the company – Mr. Jahangir Saleem is the founder of the group, having overall experience of ~40 years. He got diverse experience in the field of textile sector of ~10 years, bringing specialized and comprehensive experience and knowledge on the board. Mr. Babar Jahangir - who is acting as Managing director of the company, also serves the position on the board.
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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