PACRA Maintains the Entity Ratings of Fazal Cloth Mills Limited

Fazal Cloth Mills Limited (“FCML” or “the Company”) is a renowned name in the spinning sector of Pakistan. It operates with a vision to establish vertical integration by offering a broad range of premium quality products at competitive prices, both in the local and international markets. It specializes in producing greige fabric and a variety of yarns, including multi-count/multi-twist, double, zero-twist, organic, Supima, Lycra, Giza, and USA cotton yarns. FCML enjoys a longstanding operational track record underpinned by sustained growth through continuous BMR activities, reflecting positively on the business profile. On the strategic side, the management is pursuing a volume-led growth model, emphasizing revenue expansion from the existing product mix rather than exploring new business ventures. Management is cognizant of energy cost pressures, an industry-wide issue. It is investing in an incremental ~29MW solar project, targeting a cumulative solar capacity of ~54MW by the end of FY26. Primarily funded through long-term conventional debt, this initiative is expected to hedge the Company’s exposure to rising energy tariffs while optimizing its overall cost structure.

During 9MFY25, the Company achieved topline of PKR 69.0bln (FY24: PKR 97.2bln, 9MFY24: PKR 72.0bln), slightly lower than the previous year. This was primarily due to a strategic shift in the revenue mix designed to capitalize on the surging local demand and favorable product pricing dynamics. In terms of segment-wise business contribution, Yarn continued to be the Company’s foremost product in terms of price and volumes, following a contribution of PKR 57.1bln in 9MFY25. The export volumes reflected a decline primarily driven by reduced offtake from China, the Company’s prime export destination, following the imposition of the US reciprocal tariffs. The other contributing factors include escalated energy tariffs and stable exchange rates, translating into further margin compression and intensified pricing competition from regional peers. The investments parked in the equity and debt instruments have supplemented the profitability matrix. Alongside, the rationalization of the interest rate amid extensive working capital requirements provided a cushion to the Company's bottom line.

The Company meets its working capital requirements through a mix of internally generated cash flows and short-term borrowings. The financial risk profile of the Company is considered adequate, with a stretched working capital cycle in line with the industry norm. The Company’s management remains optimistic. They anticipate a gradual improvement in the overall performance enabled by cost-efficient energy alternatives and the diminished debt service costs. However, the improvement in coverage metrics remains imperative for sustained ratings.
The ratings take comfort from the robust business profile of the sponsoring groups. The sustainability of the Company’s profitability matrix while expanding business volumes remains essential. Any deterioration in the Company’s financial risk profile will have a negative impact on the assigned ratings.

About the Entity
FCML is a listed concern, incorporated in 1966. The Company’s operational infrastructure comprises 274,524 spindles, 8,820 open-end rotors, 1,752 MVS spindles/rotors, 119 doubling machines, and 224 air-jet looms strategically divested across eleven manufacturing facilities in Multan and Muzaffargarh. The Company’s major stake is owned by the Fazal Group and Fatima Group (44.6% each). The remaining shareholding rests with financial institutions (6.8%) and the general public (4.0%). The Company’s board comprises nine members with equal representation (three each) from the Fazal Group and the Fatima Group. The CEO, Mr. Rehman Naseem, is supported by a team of highly qualified and seasoned professionals.