PACRA Maintains Entity Ratings of Basfa Textile (Pvt.) Limited

The Basfa Textile (Pvt.) Limited (“the Company” or “BTPL”) rating emanates from the adequate profile of the Company in the spinning industry of Pakistan. The BTPL is engaged in the manufacturing and sale of Viscose Yarn and different varieties of cotton yarn with an average yarn count of 20s and an operating capacity of ~60,156 spindles. The Company has inherent exchange risk and supply chain as the majority portion of its raw material is imported (Viscose). The board of the Company is dominated by sponsors and in more of an execution role. The management of the BTPL has an adequate delegation of authority matrix that needs improvement. The implementation of ERP system remains critical for the sustainability of the control environment. The BTPL is the sponsor's single line of business that reflects business concentration risk and adequate financial strength. The Top line of the Company has shown a growth of 18.7% and stood at PKR 5.5bln as of FY23. The under-stress macroeconomic indicators resulted in a slight dip in margins and the profitability matrix reflects current industry trends. The Company plans to execute a CAPEX for the installation of new spindles to augment capacity and the installation of the solar power plant to manage the risk of elevated energy costs. The Financial risk profile of the Company is considered adequate with an aptly managed working capital cycle, moderately leveraged capital structure and working capital requirements met through an optimal mix of short-term borrowings and internally generated cashflows. The cashflows and coverages of the Company are maintained at an adequate level. The spinning industry is highly fragmented and consists of ~368 dedicated spinning units with an estimated size of PKR 775bln and 13.4mln number of spindles installed as of FY23 according to an economic survey of Pakistan. The projected cotton production estimate is revised and projected to be 11.5mln bales and currently, production reached up to ~8.26mln bales surpassing FY23 total production of 4.91mln bales. During FY24 better local raw cotton yield is expected to supplement the Companies for import substitution. Pakistan's requirement for imported cotton stands at 3.5 million bales to 4 million bales this year. The recent elevation of energy tariffs and the availability of locally procured raw cotton are the prime challenges specific to the industry
The ratings are dependent upon the management's ability to sustain their capacity utilization, generate sufficient cashflows and maintain coverages at an optimal level. The corporate governance framework needs improvement. Adherence to the debt matrix at an adequate level is a prerequisite for the assigned rating.

About the Entity
Basfa Textile (Pvt.) Ltd, incorporated and operational since 2006, is engaged in the manufacturing and sale of Cotton and Viscos Yarn. Viscose yarn is sold under the brand name “Super-Diamond” and Cotton yarn under the brand name “Super-Gold”. The corporate office of the Company and plant are located at 20-KM and 36-KM Ferozepur Road, Lahore respectively. The second plant is located at Feroz Watwan Road, Chandi Kot Stop, Sheikhupura. The Company's total power requirement is 5.90MW which is being provided by LESCO. The CEO/Chairman, along with other family members collectively own (100%) shares of the Company. Board comprises three members including CEO/Chairman and Managing Director. The CEO/Chairman of the Company – Mr. Babar Jahangir has been with the Company since 2008. His innovative technological skills in the field of the textile sector bring specialized and comprehensive knowledge to the board.