PACRA Maintains Entity Ratings of Ahmed Hassan Spinning Limited

The rating reflects the company's adequate profile in Pakistan's spinning industry. Ahmed Hassan Spinning Limited (“The Company” or “AHSL”) specializes in the manufacturing and export of yarn with an average count of 21/1 CDD with an installed capacity of 28,152 spindles. 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 ~6.0mln bales surpassing FY23 total production of 4.91mln bales. 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. During FY23, the company's business fundamentals are under stress coupled with the closure of manufacturing facilities for ~five months. The set forth factor behind this closure was a dip in local demand of yarn for indirect export. As per the AHSL management presentation, they resume operations in March ‘23 with capacity utilization gradually beefing up to 80%. Additionally, the impact of floods on crops led to a scarcity of locally produced raw cotton, and switching to imported cotton was not feasible for AHSL in terms of price competitiveness. These are the prime factors that caused a pile-up in inventory levels and triggered the risk of inventory obsolescence which was partially mitigated through trading of raw cotton and reduced intensity of loss to PKR 195.48mln in FY23. During 3MFY24, the company witnessed a slight recovery in the topline owing to the restart of the manufacturing facility and improvement in yarn demand pattern. The financial risk profile of the Company is considered adequate with a moderately leveraged capital structure and slightly stretched working capital management depicting the industry norm. The cashflows and coverages of the Company are considered adequate and needs improvement. The company’s performance will be observed in the upcoming quarters with a prime focus on converting operational efficiency into internally generated sufficient cashflows to supplement the core business operations. Furthermore, if the Company sustains and improves its performance in terms of topline and profitability and coalesces with the contribution in equity may result in appropriate action in ratings.
The ratings are dependent upon the Company’s ability to improve its performance in terms of business fundamentals sustainability and devise a strategy to manage inflated energy costs in the future. The maintenance of capacity utilization at an optimal level while generating sufficient cashflows and coverages remains critical for the ratings. The governance framework and financial transparency have room for improvement. The adherence to the debt matrix at an adequate level is prerequisite for the assigned rating.

About the Entity
The Company was incorporated on: 20th October 2016 under the Companies Ordinance 1984. The family-dominated business and the ownership vests with Mian Muhammad Parvaiz (Late) family: Mr. Muhammad Aurangzeb (31%), Mr. Muhammad Jahanzaib (31%), Mrs. Waheeda Parvaiz (28%), Mr. Ahmed Hassan (6%) and Miss Faiza Parvaiz (3%).