PACRA Maintains Entity Ratings of Nishat Chunian Limited

The ratings reflect Nishat Chunian Limited’s (Nishat Chunian) established business profile emanating from strong presence in textile sector. The company’s revenues have grown by ~9.7% in 9MFY19 mainly augmented by operational efficiency and currency devaluation as ~56% of its revenues comprises exports. The company has significant presence in spinning sector, as it’s the largest contributor to its revenue base. Prudent procurement of cotton in FY18 led to inventory gains which supplemented profitability. The company has a highly leveraged structure with borrowing utilized for working capital and capex. Working capital cycle is stretched, though in line with peers; any improvement will bring efficiency. Recent hike in interest rate may stretch the coverages though remaining at adequate level. Ratings take comfort from Nishat Chunian’s dividend stream from its subsidiary – Nishat Chunian Power Limited – an Independent Power Producer. Dividend stream supports company’s cashflows, strengthening its overall financial profile. The dividend income is expected to remain low due to prevailing liquidity situation in power sector.
The ratings are dependent on the management's ability to sustain its margins while improving growth in revenue. Sustainability of non-core income and prudent management of the working capital are important. Maintaining coverages amidst rising interest rates would remain critical.

About the Entity
Nishat Chunian Limited - listed on Pakistan Stock Exchange, commenced operations in 1991. Nishat Chunian is a vertically integrated composite textile unit, manufacturing cotton yarn, fabric and bed wear. The company operates with 222,708 spindles and 363 looms. The company has made separate business units for its business which includes (i) Spinning, (ii) Weaving, (iii) Dyeing and (iv) Stitching; each being a separate profit center. Nishat Chunian is majorly owned by Saleem Family (~32%) and Nishat Group (~27.3%) through individuals and corporates. Rest is well spread among corporates, financial institutions and general public.

Overall control vests with eight-member BoD, dominated by the Saleem family: three Saleem family members, including Chairman and CEO. The board comprises five Non-Executive, one Executive and two independent Director. The CEO, Mr. Shahzad Saleem, LUMS alumni, is associated with the company since inception. He is assisted by an able and experienced team of professionals.