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The Pakistan Credit Rating Agency Limited

Date
26-Jan-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 Assigns Entity Ratings to Ahmed Fine Textile Mills
 Rating Type Entity
Current
(26-Jan-2017)
 Action Initial
 Long Term BBB+
 Short Term A2
 Outlook Stable
 Rating Watch -

The ratings reflect adequate business profile of Ahmed Fine Textile Mills – jointly owned by Fazal Group and Hussain Group. The company, primarily in spinning business, has presence in weaving segment through a wholly owned subsidiary – Fazal Rehman Fabrics Limited. Ahmed Fine has achieved optimal capacity utilization levels at given size; thus volumetric growth would remain limited in the medium-term. Consequently, performance volatility, featured by cotton price fluctuations, is considered high on standalone basis. In this regard, besides expansion plans over the long-term, overall size of the group (Ahmed Fine plus its wholly-owned subsidiary Fazal Rehman Fabrics), and business diversification on a consolidated level provides cushion. However, concentration levels – both customer and geographical – are significantly high. Nevertheless, financial risk is strong reflected by (i) relatively efficient working capital cycle, (ii) healthy coverages, and (iii) moderately leveraged capital structure. Going forward, in absence of any debt-driven expansion in the medium-term, financial risk is expected to remain strong. The ratings also incorporate the experienced management team and the entity’s association with Fazal Group. This should bring improvement in overall governance structure of the Group in future.

The ratings are dependent on sustaining business margins while maintaining financial risk at low level. Any shift from current business strategy, impacting the risk profile of the entity, may negatively affect the ratings.
About the Entity
Ahmed Fine Textile Mills Limited (Ahmed Fine), incorporated in 1989, is engaged in manufacturing and marketing of different varieties of yarn. The company operates with one spinning unit having 45,888 spindles - manufactures coarser count yarn. Initially, Fazal Group, Fatima Group, and Hussain Group - had joint ownership of the company. Post-demerger, Fazal Group and Hussain Group has acquired 50% stake (each) in the company. Fazal Group has interests in Textile, Fertilizer, Energy, and Real Estate sectors while Hussain Group has key interest in Textile sector.

Overall control vests with seven members BoD. Four directors represent Fazal Group while three are representatives of Hussain Group. Management control vests with Fazal Group. Mr. Rehman Naseem, the CEO, carries with him over two decades of experience in textile sector. He is supported by seasoned 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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