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The Pakistan Credit Rating Agency Limited

Date
30-Jun-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)
  • Correlation between Long-term and Short-term rating (Jun 16)
  • Corporate Rating (Jun 16)

Related Research

  • Sector Study | Textile (Sep 16)
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PACRA Maintains Entity Ratings of Kohinoor Textile Mills
 Rating Type Entity
Current
(30-Jun-2017)
Previous
(25-Nov-2016)
 Action Maintain Upgrade
 Long Term A+ A+
 Short Term A1 A1
 Outlook Stable Stable
 Rating Watch - -

The ratings reflect KTML’s established business profile emanating from strong presence in the broader value-chain; enabling the company to manage volatility in textile business. The entity has achieved a sizable revenue base. The company’s business strategy to operate in its niche market has helped to maintain healthy business margins over the years, though dipped recently. The management’s plan to replace and modernize existing machinery should bring efficacies to maintain relative positioning. Lean inventory management system and related efficiencies continued to remain the competitive edge. This has resulted in a strong financial risk profile which is also supported by healthy coverages and capital structure. At the same time, a continued feature of excess short-term borrowing, though with reduced quantum over the years, poses short-term liquidity risk.

KTML, besides owning Maple Leaf Cement Factory (MLCF), has been focusing to strengthen its subsidiary Maple Leaf Capital Limited (MLCL) – a company formed to manage a diversified portfolio of investments – wherein all direct investments of KTML in stocks have been transferred to this subsidiary. Build-up of dividend stream from these investments has supported KTML’s performance in recent years, contributing ~66% towards bottomline during 9MFY17; sustainability of the former is important.

The ratings are dependent on the company's ability to sustain its business profile. At the same time, prudent management of short-term liquidity is considered important.
About the Entity
Kohinoor Textile Mills Limited - a Kohinoor Maple Leaf Group (KMLG) company - listed on Pakistan Stock Exchange, commenced operations in 1958. The company, operating from three geographical locations, is engaged in the manufacturing of yarn, fabric, and home textile products. Management control lies with Saigol family which, along with associates, holds majority stake (~71%) in KTML. KTML owns 55% stake (end-Mar17) in Maple Leaf Cement Factory [end-Mar17; Book Value: PKR ~3bln; Market Value: PKR ~36bln). KTML divested some portion of its stake in MLCF in recent years, using the amount to capitalize MLCL, a now ~83% owned subsidiary (cost and book value: PKR ~3bln). KMLG is one of the oldest business groups having interests mainly in textile, cement, and trading.

The overall control of KTML vests with eight members BoD including the CEO. Five board members belong to Saigol family, out of which three are in executive roles including the CEO, two are group affiliates, and one member is independent director. The CEO, Mr. Taufique Sayeed Saigol, oversees the company affairs through a management team with 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.