PACRA Maintains Entity Ratings of Allawasaya Spinning Mills (Pvt.) Limited

The rating reflects the adequate presence of Allawasaya Spinning Mills (Pvt.) Limited (“the Company” or “ASML”) in the textile industry of Pakistan. The principal activity of the Company is the manufacturing and sale of yarn with an operating capacity of 26,608 spindles. The three companies primarily operate under the umbrella of the Allawasaya group which includes Allawasaya Spinning Mills (Pvt) Limited, Allawasaya Textile and Finishing Mills Limited and Shah Shams Cotton Industries (Pvt) Limited reflects adequate financial strength. The product slate of the Company primarily divests into cotton rings and open-end yarn with an average yarn count of 20s. During FY23, the Company’s profitability matrix and fundamentals are under stress due to a dip in local and international yarn demand coupled with a hike in energy tariffs. This resulted in net losses incurred in FY23. However, slight improvement is observed in the company’s performance during 1HFY24 owing to raw material procurement efficiency mainly supplemented by the recovery in local cotton yield coupled with optimization of energy cost through the installation of the solar power plant. The financial risk profile of the Company is adequate considering the leveraged capital structure and slightly stretched working capital management depicting industry norms. The cashflows and coverages of the Company are considered adequate and need 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. 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 depend upon the Company’s ability to improve its performance in terms of business fundamentals sustainability and a devise 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. Adherence to the debt matrix at an adequate level is a prerequisite for an assigned rating.

About the Entity
Allawasaya Spinning Mills Limited started operations in 2004 as a Spinning Mill with an installed capacity of 26,602 spindles. The Company’s head office and production facility are located in Multan. The Company is owned by Jamil Family, which also has a major share in Allawasaya Textile and Finishing Mills Limited. The Company has a two-member board, which is entirely composed of the sponsor's family members. Mian Alamgir Jamil Khan the Company’s CEO, carries extensive experience in the textile sector and is supported by an experienced management team.