Khas Textile Mills (Pvt.) Limited

CREDIT RATING REPORT | Aug-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
22-Aug-25 BBB- A2 Stable Maintain -
23-Aug-24 BBB- A2 Stable Maintain -
23-Aug-23 BBB- A2 Stable Maintain -
23-Aug-22 BBB- A2 Stable Upgrade -
23-Aug-21 BB+ A3 Stable Maintain -
About the Entity

Khas Textile Mills (Pvt.) Limited (“Khas Textile” or “the Company”), incorporated in 2001 as a private limited company. The Company is into manufacturing various types of cotton rings and open-end yarn and operates 19,200 spindles and 864 rotors at a purpose-built facility in Nooriabad, Karachi.
The Company is wholly owned by the sponsoring family, with Mr. Khurram Ashfaq and Mr. Noman Ashfaq holds ~33% of the shares each. The remaining ~34% is evenly split between Mrs. Saira Noman and Mr. Muhammad Muneeb Ashfaq, who each hold ~17%. Mr. Ashfaq Ahmed is the Chairman of the Board, while Mr. Khurram Ashfaq, the Managing Director. He is supported by an experienced management team.

Rating Rationale

Pakistan's yarn production grew by ~7.6% in FY25, recovering from a two-year decline, with modest growth expected to continue into FY26. However, the sector still faces significant challenges, as evidenced by a negative net profit margin of -0.8% in 9MFY25. A key risk is the increasing reliance on imported cotton, which accounts for ~35% of the supply and is more expensive than local cotton, leading to an increase in the raw material costs and impact on profit margins. While recent policy changes—like removing the GST exemption for exporters—may benefit local producers and a reduction in interest rates offers some relief, sustained recovery is contingent on managing raw material costs and increasing yarn offtake to manage fixed costs.
Khas Textile Mills (Pvt.) Limited ("Khas Textile" or "the Company") manufactures a range of cotton rings and open-end yarns. As an evolving player in the industry, the company maintains an adequate business profile, supported by its affiliation with the stable Khas Group, which has diversified interests in textile, energy, and other sectors. In FY25, the Company’s revenue fell by ~36.5% to PKR 3,937mln (FY24: PKR 6,199mln). Despite this, business margins improved to ~15% (FY24: ~10.4%) due to enhanced cost management and operational efficiency. However, net margins increased slightly to ~0.5% (FY24: ~0.4%), resulting in a net profit of PKR 19mln, primarily due to tax impacts. The Company's financial risk remains high, marked by substantial borrowings for working capital and significant related-party exposure, which has strained its overall financial health. Coverages remain stretched. Strengthening its governance framework is crucial for future ratings.

Key Rating Drivers

The ratings depend upon the management’s ability to improve margins, profitability, and the Company's financial profile. This includes keeping the debt levels manageable and improving the Company's business profile. Improvement in the governance framework remains important for the ratings.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Khas Textile Mills (Pvt.) Limited

rating analysis

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Profile
Legal Structure

Khas Textile Mills Private Limited (‘Khas Textile’ or ‘the Company’) was incorporated in 2001 as a private limited Company.


Background

The Company is engaged in the manufacturing of yarn. In 2006, the Company went through a major transformation and started manufacturing cotton rings and open-end yarn. Over the years, Khas Textile has increased its production capacity.


Operations

The Company currently operates 19,200 spindles and 864 rotors and has a purpose build manufacturing facility located in the industrial hub – Nooriabad. The Company has further land available for expansion. The Company has a captive generation capacity (3.5 MW) well above the required capacity (3.2MW) and further maintains a backup connection with HESCO.


Ownership
Ownership Structure

The Company is wholly owned by the Sponsoring family, out of which Mr. Khurram Ashfaq and Mr. Noman Ashfaq holds an equal stake of ~33% each. The remaining ~34% is evenly split between their Mrs. Saira Noman and Mr. Muhammad Muneeb Ashfaq, each holding ~17%.


Stability

The shareholding resides with the sponsoring family with clear distribution provides stability. However, no formal succession plan has been documented.


Business Acumen

The Sponsoring family has strong and diverse professional experience in diverse sectors including Spinning, Aluminum, Poultry, Socks and Knitwear, and Import of Building Hardware.


Financial Strength

Khas Group of Industries has five companies operating in different sectors. Apart from a presence in diverse sectors; sponsors also have a joint venture, with the KAI Almunium - the largest aluminum manufacturer, in Bangladesh. The sponsors have adequate net worth and have demonstrated their commitment to support the Company if needed.


Governance
Board Structure

The Company has a five-member Board. Three of the members are Executive Directors and the remaining two are Non-Executive Directors. All directors have been affiliated with the Company since its inception.


Members’ Profile

Mr. Ashfaq Ahmed, Chairman of the Board, has over 45 years of experience in diverse industries including Spinning.


Board Effectiveness

The engagement of the Directors in day to day running of the business bodes well with the effectiveness of strategic oversight. There are no committees formed by the Board.


Financial Transparency

SARWARS, Chartered Accountants, are the appointed external auditors of the Company. The firm is QCR-rated and have expressed an unmodified opinion on the Company's financial statements for FY24. 


Management
Organizational Structure

The Company has five main departments—Production, Power House, Finance, Factory Admin, and HR—with department heads reporting to the CFO. Group management oversees operations, ensuring clear reporting lines and segregation of duties.


Management Team

Mr. Khurram Ashfaq, Managing Director, has over 2 decades of experience, is responsible for overseeing all matters related to Khas Textile. He is supported by a team of seasoned professionals.


Effectiveness

There are no formal management committees; however, key management members meet on regular basis to resolve and proactively address operational issues, if any, eventually ensuring a smooth flow of operations.


MIS

The Company uses a customized SAP-B1-8.82 system by Abacus Consulting, covering key modules such as Payable, Receivable, Inventory, and more. Reports are regularly reviewed by top management.


Control Environment

The Company has an updated technological infrastructure in all its manufacturing and support functions, to ensure quality and cost-effectiveness. The Company has an internal audit department in place.


Business Risk
Industry Dynamics

Pakistan's yarn production grew by ~7.6% in FY25, recovering from a two-year decline, with modest growth expected to continue into FY26. However, the sector still faces significant challenges, as evidenced by a negative net profit margin of -0.8% in 9MFY25. A key risk is the increasing reliance on imported cotton, which accounts for ~35% of the supply and is more expensive than local cotton, leading to an increase in the raw material costs and impact on profit margins. While recent policy changes—like removing the GST exemption for exporters—may benefit local producers and a reduction in interest rates offers some relief, sustained recovery is contingent on managing raw material costs and increasing yarn offtake to manage fixed costs.


Relative Position

With 19,200 spindles and 864 rotors, the Company’s share in the spinning sector of the textile industry is minimal and is classified in the lower tier of the spinning sector.


Revenues

The Company’s main revenue stream comes from yarn sales, with ~98% contributed by the local market and the rest from direct exports. In FY25, revenues fell by ~36.5% to PKR 3,937mln (FY24: PKR 6,199mln), largely reflecting a significant drop in export sales alongside some weakening in overall demand. Going forward, the Company must jack up its volumetric sales for sustainability.


Margins

Despite lower sales in FY25, gross margins improved to ~15% (FY24: ~10.5%), supported by lower raw material consumption relative to sales and lower energy costs booked. The operating margins improved posted a rise from ~7.6% in FY24 to ~10.9% in FY25, largely attributable to reduced selling and marketing expenses, enhancing cost management and operational efficiency. Net profit margin observed a slight uptick, reporting at ~0.5% (FY24: ~0.4%), with a PAT of PKR 19mln (FY24: PKR 25mln). Going forward, sustainability in the margins remain imperative. 


Sustainability

The Company's strategy focuses on optimizing capacity utilization and managing risks by securing shorter-term purchase orders. To address high markup costs, management plans to leverage the Export Finance Scheme, which will help reduce financing expenses and enhance cash flow. Efficient utilization of additional capacity is crucial for long-term success.


Financial Risk
Working capital

The Company's working capital needs are driven by holding raw materials to mitigate price volatility, cyclicality, and supply shocks, as well as funding trade receivables. Short-term borrowings, used to meet these needs, increased to PKR 1,603mln in FY25 from PKR 1,594mln in FY24. Net working capital increased to 181 days (FY24: 121days), and short-term trade leverage reduced to ~21.2% in FY25 from 27.3% in FY24. Efficient working capital management along with stable borrowing cushion is important, going forward.


Coverages

The Company’s financial coverages dropped in FY25, with free cash flow from operations (FCFO) decreasing by ~15.7% to PKR 510mln from PKR 605mln in FY24, mainly due to decrease in the profit before tax. This reduction depleted the interest coverage ratio to 1.2x, down from 1.5x in FY24. Additionally, the debt coverage ratio declined to 1.1x, compared to 1.3x in FY24, indicating adequate financial stability. Interest cover needs to be streamlines, going forward.


Capitalization

The Company has a moderately leveraged capital structure. As of FY25, the leveraging reduced to ~63.9% (FY24: ~64.6%). As of FY25, the equity base of the Company observed an increase of ~1.1% and reported at PKR 1,731mln (FY24: 1,712mln). The increase in equity is attributed to the increase in the unappropriated profits. Going forward, leveraging must remain in control, along with enhancement in the core equity.
 
 

Aug-25

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Khas Textile Mills (Pvt.) Limited

financial summary

(PKR mln)

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Jun-25
12M		 Jun-24
12M		 Jun-23
12M
A. BALANCE SHEET
1. Non-Current Assets 2,623 2,492 2,486
2. Investments 89 107 57
3. Related Party Exposure 37 49 3
4. Current Assets 2,516 2,817 3,051
a. Inventories 780 666 1,480
b. Trade Receivables 1,193 1,633 1,038
5. Total Assets 5,265 5,465 5,596
6. Current Liabilities 328 496 663
a. Trade Payables 106 271 446
7. Borrowings 2,010 2,068 2,014
8. Related Party Exposure 1,052 1,050 1,105
9. Non-Current Liabilities 144 140 51
10. Net Assets 1,731 1,712 1,762
11. Shareholders' Equity 1,731 1,712 1,762
B. INCOME STATEMENT
1. Sales 3,937 6,199 4,244
a. Cost of Good Sold (3,347) (5,547) (3,772)
2. Gross Profit 590 652 473
a. Operating Expenses (162) (179) (211)
3. Operating Profit 428 473 261
a. Non Operating Income or (Expense) 51 71 69
4. Profit or (Loss) before Interest and Tax 479 544 330
a. Total Finance Cost (411) (419) (300)
b. Taxation (48) (100) 45
6. Net Income Or (Loss) 19 25 75
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 510 605 430
b. Net Cash from Operating Activities before Working Capital Changes 212 190 187
c. Changes in Working Capital 218 (124) (697)
1. Net Cash provided by Operating Activities 430 66 (510)
2. Net Cash (Used in) or Available From Investing Activities (229) (167) (125)
3. Net Cash (Used in) or Available From Financing Activities (55) (8) 679
4. Net Cash generated or (Used) during the period 146 (110) 44
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -36.5% 46.1% -15.0%
b. Gross Profit Margin 15.0% 10.5% 11.1%
c. Net Profit Margin 0.5% 0.4% 1.8%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 18.5% 7.7% -6.3%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 1.1% 1.4% 4.3%
2. Working Capital Management
a. Gross Working Capital (Average Days) 198 142 159
b. Net Working Capital (Average Days) 181 121 135
c. Current Ratio (Current Assets / Current Liabilities) 7.7 5.7 4.6
3. Coverages
a. EBITDA / Finance Cost 1.4 1.6 1.8
b. FCFO / Finance Cost+CMLTB+Excess STB 1.1 1.3 1.3
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 14.5 8.1 12.2
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 63.9% 64.6% 63.9%
b. Interest or Markup Payable (Days) 155.3 88.4 119.3
c. Entity Average Borrowing Rate 19.4% 13.6% 16.0%

Aug-25

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Khas Textile Mills (Pvt.) Limited

rating scale

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Aug-25

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Khas Textile Mills (Pvt.) Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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  3. Conduct of Business
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Aug-25

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