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The Pakistan Credit Rating Agency Limited

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

Muhammad Hassan
muhammad.hassan@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 Assigns Initial Entity Ratings to Saif Textile Mills Limited
 Rating Type Entity
Current
(29-Dec-2017)
 Action Initial
 Long Term A-
 Short Term A2
 Outlook Stable
 Rating Watch -

Saif textile mills limited (Saif Textile), biggest textile mill of Saif group, provides different kinds of yarn which include, Melange yarn, dyed yarn, man-made yarn and raw white yarn. The company, primarily in spinning business, has also small presence in yarn dyeing business. Despite challenging textile industry dynamics, Saif Textile managed to maintain its optimal capacity while constantly expanding its asset base with the help of leveraging. 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. Consequently, performance volatility, featured by cotton price fluctuations, is considered high on standalone basis. Saif Textile’s management enhanced and revamped its production capacities with the help of debt, which caused the gross margins to improve, exerted pressure on its financial risk profile. Nevertheless, financial risk is weak reflected by weak coverages, and high leveraged capital structure. Going forward, in absence of improved cashflows, meeting financial needs is expected to remain challenging. The ratings also incorporate the experienced management team and the entity’s association with Saif Group which has demonstrated support in the past.

The ratings are dependent on managing financial obligations while sustaining business margins. Any further debt with shift from current business strategy, impacting the risk profile of the entity, may negatively affect the ratings. Going forward, Saif group's support to the entity would remain important.
About the Entity
Saif Textile Mills Limited (STML), incorporated in 1989, is engaged in manufacturing and marketing of different varieties of yarn. The company operates with three spinning units installed at Gadoon Industrial Estate KPK, having total capacity of 100,993 spindles. STML is also involved in dyeing of yarn, though at small scale. STML is majorly owned by Saif holdings (49.58%) followed by NIT (7%), State life (4%) and significant free float (39%). Saif Holdings – holding company of Saif group, has interests in Textile, Feeds, Energy, Health, Technology and Real Estate sectors.

Overall control vests with eight members BoD. There are two executive, five non-executive and one independent director on the board. Seven board members represent Saif Group including the CEO, Mr. Zaheen Ud Din. Mr. Zaheen, carries with him over two decades of experience in textile sector. He 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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