PACRA Maintains Entity Ratings of Fazal Weaving Mills Limited with Rating Watch "Developing"

The ratings of Fazal Weaving Mills Limited (Fazal Weaving) primarily reflect irrevocable and unconditional guarantee on all financial obligations by Fazal Cloth Mills Limited (Fazal Cloth) - the parent company. Over the years, the Company sustained its profitability despite challenging environment. Lately, textile industry suffered from low international commodity prices due to global economic slowdown. However, the impact was largely mitigated by rupee devaluation in FY19 and higher domestic prices of yarn. The Company managed to sustain its export volumes which has yielded notable exchange gains in FY19 supporting margins and profitability. The Company has a stretched financial profile, characterized by significantly leveraged capital structure, high working capital cycle and modest coverages. Support from Fazal Cloth in the form of subordinated loans and guarantees provides comfort to the assigned ratings. Meanwhile, the Company is in final stages of merger with and into Fazal Cloth. Post-merger, all assets and liabilities of the Company will be transferred to Fazal Cloth. The merger is expected to conclude by end-Dec 2019. The rating watch "Developing" signifies ongoing merger activities.
The ratings are dependent upon continuation of irrevocable and unconditional guarantee on financial obligation by the parent company till completion of its merger. Meanwhile, improvement in margins, in turns, sufficient cash generation to fulfill its financial obligations amid high interest rates will remain critical.

About the Entity
Fazal Weaving was incorporated in April, 2014 as a public unlisted company. The Company’s installed capacity is 39,600 spindles. Fazal Weaving is wholly owned by Fazal Cloth. Fazal Cloth is owned by Fazal Group and Fatima Group (~45% each). Fazal Cloth is the Flagship Company of Fazal Group. The Group is involved in manufacturing of yarn and greige fabric. Herein "Group means members of family without reference to any law of Pakistan".

The Company’s board of directors comprises seven members, including the Chief Executive Officer (CEO). The board has four representatives from Fazal Group and three representatives from Fatima Group. Mr. Rehman Naseem – the Chairman – primarily manages the Company operations. He is a Columbia University graduate and carries over two decades of experience in the textile industry.