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

Pakistan's spinning industry is highly fragmented and consists ~368 spinning units with ~13.4mln spindles installed as of FY23 according to an Economic Survey of Pakistan. The industry has an estimated size of ~PKR 775bln. The projected cotton production estimates have been revised upto ~11.5mln bales. Currently, the production has reached upto ~8.26mln bales, surpassing FY23 total production of ~4.91mln bales. During FY24, better local raw cotton yield is expected to supplement the industry for import substitution. Pakistan's requirement for imported cotton has increased from ~3.5mln bales to ~4mln bales for the ongoing year. The recent hike in energy tariffs further elevated the challenges for the industry. Overall, the industry's cashflow, thus liquidity remains stretched. Consequently, the industry's overall outlook is on the Watch.
The assigned ratings of AL Textile (Pvt.) Limited ('AL Textile' or 'the Company') reflects modest operating track record and presence in the textile sector. The Company's governance structure requires attention. The Company operates with one spinning unit, having ~25,200 spindles installed. The Company's posts diwindling performance due to several operational challenges. Despite growth in the revenue, it remains on the lower end when compared to industry peers. Going forward, the management aims to diversify its revenue stream by tapping into fine-count yarn market. For this, minor BMR is required. This along with a cautious approach to manage the energy cost remains imperative. Overall business margins of the Company are paltry. Though the Company has recovered from net losses; however, bottomline remains meagre. On the financial risk front, working capital has been adequatley managed primarily through short-term borrowings. Coverages and capital structure remains stretched. Overall, the Company exhibits a stressed business and financial risk profile; thus, has been assigned a Rating Watch. Going forward, the Company's governance framework along with creating operational efficiency remain crucial for the ratings.
The ratings are dependent upon the management's ability to operate at an optimal level leading to improved profitability and/or margins remains critical. Strict financial discipline is required so as to supprt the debt cover. Succesful and timely materialization of envisioned strategies along with cautious efforts to improve the governance framework remains crucial for the ratings.

About the Entity
AL Textile (Pvt.) Limited ('AL Textile' or 'the Company'), was incorporated in 2002, as a private limited company. The Company commercially operational in 2003 with the core operations to manufacture yarn products ranging between 6/1 to 30/1 counts. The Company has an installed capacity of ~25,200 spindles.
The Company's stake is divided among three siblings Mr. Omer Latif Ch. (~61%), Mr. Atif Latif Ch. (~21%) and Mrs. Neelofer Latif Ch.(~19%). Mr. Omer chairs the Company's BoD and also leads as the CEO. He is assisted by a team of seasoned professionals.