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The Pakistan Credit Rating Agency Limited
Press Release

Date
22-Feb-23

Analyst
Sehar Fatima
sehar.fatima@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Alhamd Corporation (Pvt.) Limited

Rating Type Entity
Current
(22-Feb-23 )
Previous
(22-Feb-22 )
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The assigned ratings of Alhamd Corporation (Pvt) Limited reflect the good positioning of the Company in the textile spinning industry. The Company was incorporated in 1983 as a Public Limited Company, under the previous name: Alhamd Textile Mills Limited. It was Quoted on Karachi Stock Exchange and Lahore Stock Exchange, in 1988. Afterwards, the Company was voluntarily delisted from the Stock Exchanges in 2004 and converted to a private limited company in 2005. Alhamd Corporation (Pvt) Limited is a family-owned business engaged in manufacturing and selling of cotton/blended yarn. The Company’s board of directors comprise of four members. Sheikh Afzaal Ahmed has presence as CEO and Chairman of the board. The presence of family members on board along with its limited size indicates room for improvement within the governance framework of the Company. The Company has 126,696 spindles installed, manufacturing facility located in Dera Ghazi Khan. The planned capacity expansion of 43,776 spindles is deemed to be added to the profile post FY23. The sales mix is dominated by local market and are on a growing trajectory. Profitability sizably improved, the Company’s topline has reflected sizable growth (1QFY23: PKR 3.3bln, 1QFY22: PKR 2.6bln). However, the net profitability declined (1QFY23: PKR 55mln, 1QFY22: PKR 384mln) attributable to increased operational expenses and finance costs. Margins also deteriorated along with the net profitability. Coverage declined sizably; should improve in the upcoming quarters. Meanwhile, leveraging increased to ~50% - half of which pertains to short-term borrowing.
During 7MFY23, the textile exports were valued at $10.08bln compared to $10.93bln, reflecting an 8% decline YoY – the declining trend has been recorded in the last few months. The decline in exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand for yarn in international markets is also a challenge. The analysis of 5MFY23 reveals that among value-added items, bedwear has witnessed the largest decline of 19 (on an MoM basis), down to $217 million. Knitwear remained on the downward path in October 2022 and declined by 10% to $392 million. Among non-value-added items, cotton yarn has shown the largest decline of 35%. Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries. The demand pattern is expected to improve post-Jun-23.

About the Entity
The ratings are dependent upon the management's ability to keep the business profile intact along with combating demand pattern challenges faced by the spinning industry. Going forward, trend of margins, net profitability and coverage remains vital for the ratings. Excessive borrowing, leading to higher leverage and/or deterioration in coverages, can impact the ratings. Going forward, timely commencement of additional capacity to finance repayments will remain important.

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.