The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Upgrades Entity Ratings of Ahmed Fine Textile Mills Limited

Rating Type Entity
Action Upgrade Maintain
Long Term A- BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Ahmed Fine Textile Mills (Ahmed Fine) association with renowned business groups of Pakistan - jointly owned by Fazal Group and Hussain Group. The company, is engaged primarily in spinning business and also has presence in weaving segment through a wholly owned subsidiary – Fazal Rehman Fabrics Limited. The ratings incorporate improved business performance of the company - topline increased by ~23% - a factor of better pricing and increase in exports sale as proportion of total sales. Recent devaluation of currency and exports rebate packages announced by the government also supplemented growth in revenue. The company’s margins improved, a factor of operational efficiencies. However, re-imposition of custom duty and sale tax on cotton imports in FY19 budget, coupled with exclusion of tax rebate on yarn and greige fabric may put pressure on industry margins. Ahmed Fine's financial profile is strong reflected by (i) relatively efficient working capital cycle, (ii) strong coverages, and (iii) moderately leveraged capital structure. Going forward, the company intends to enhance its capacity if market conditions remain favorable. The expansion will be primarily financed through debt. The ratings also incorporate the experienced management team.

The ratings are dependent on sustaining business margins while maintaining a sound financial profile with strong coverages and manageable leveraging. The company’s ability to generate ensuing cash flows to fulfill its financial obligations, in case of debt driven expansion, remains critical for the ratings.

About the Entity
Ahmed Fine Textile Mills Limited (Ahmed Fine), incorporated in 1989, is engaged in manufacturing and marketing of different varieties of yarn. The company operates one spinning unit having 45,888 spindles, manufacturing coarser-count yarn. Power requirement stands at 6MW; met through captive sources. Initially, Fazal Group, Fatima Enterprise, and Hussain Group - had joint ownership of the company. Post-demerger, Fazal Group and Hussain Group has acquired 50% stake (each) in the company. Fazal Group has interests in Textile, Fertilizer, Energy, and Real Estate sectors while Hussain Group has key interest in Textile sector.

Overall control vests with seven members BoD. Four directors represent Fazal Group while three are representatives of Hussain Group. Management control vests with Fazal Group. Mr. Rehman Naseem, the CEO, carries with him over two decades of experience in textile sector. He is supported by seasoned management team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.