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

Basfa Textile (Pvt.) Ltd (The Company) was incorporated in 2006. However, commercial operations started in 2008. The corporate office of the Company is located at 20-KM Ferozepur Road, Lahore. The Company is engaged in the manufacturing and sale of Viscose Yarn and different varieties of cotton yarn. Prior to the textile business, the sponsor’s primary business was car paints and chemical raisins that are used in the fiberglass industry and steel putty (a product of the auto industry). Being an importer of viscose, the Company remains exposed to exchange rate risk. The governance framework lacks independent oversight. The assigned ratings incorporate the Company’s good operating track record with an adequate business profile. The company has 60,156 spindles currently installed. The Company’s revenue base is dominated by local sales and has reflected growth over the years to stand at PKR 4.6bln in FY22 (FY21: PKR 3bln). Profitability exhibited a YoY growth of 39% (FY22: PKR 146mln, FY21: PKR 105mln). However, during 1HFY23, the Company’s performance was diluted and high finance costs impacted the net profitability. Interest coverage recorded a steep decline whilst leveraging remained largely the same. Rebounding of coverage and margins remains essential, going forward. 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, the 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.
The ratings are dependent upon the management's ability to operate at an optimal level and improve profitability, margins, and coverage, going forward. The governance framework and independent oversight need improvement. At the same time, prudent management of short-term liquidity remains vital.

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 two 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.