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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 Fazal Rehman Fabrics
 Rating Type Entity
Current
(26-Jan-2017)
 Action Initial
 Long Term BBB+
 Short Term A2
 Outlook Stable
 Rating Watch -

Fazal Rehman Fabrics – a wholly owned subsidiary of Ahmed Fine Textile Mills – which, in turn, is equally owned by Fazal and Hussain Group – has been in weaving business since 2007. The company’s business risk profile is characterized by sizeable revenue base, adequate profitability, and healthy return on equity. However, business concentrations are relatively high. The strength of financial profile emanates from efficient working capital management and healthy liquidity position. On standalone basis, debt service coverages are adequate. Going forward, Fazal Rehman Fabrics is eyeing to strengthen its weaving capacities; 96 air jet looms are planned to be added in two phases. First phase of expansion of 66 looms, with an estimated cost of PRK 1.1bln (debt: equity - 70:30), is expected to start commercial operations by end-Jul17. Therefore, further accumulation of debt is expected this year, adding to standalone financial risk. Nevertheless, financial support and corporate guarantee against financial obligations from parent company provides comfort.

The ratings are dependent on the management’s ability to uphold the entity’s risk profile. Meanwhile, prudent management of expansion-related debt, post-expansion cashflows, and parent company’s support will be important to support the financial profile of the company.
About the Entity
Fazal Rehman Fabrics Limited incorporated in 2004, started operations in 2007. It is engaged in manufacturing and marketing of greige fabric. The company operates with 240 air-jet looms. Fazal Rehman is a wholly owned subsidiary of Ahmed Fine Textile Mills Limited. Ahmed Fine is jointly owned by Fazal Group and Hussain Group (50% each). 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 including CEO. Management control vests with Fazal Group. Mr. Hussain Ahmed Fazal is the CEO. However, operational control vests with Mr. Rehman Naseem (representative of Fazal Group). Mr. Rehman Naseem, 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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