The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Upgrades Entity Ratings of Fazal Rehman Fabrics Limited

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

The rating reflects company’s improved business profile which is characterized by sizable revenue base and adequate profitability. The top line grew by ~43% in FY18, facet of recently completed expansion. The company’s exports also increased in line with textile industry, followed by improved operating margins on the back of efficiency gains. Overall industry’s margins improved, supported by tax rebate packages by government and rupee devaluation. Moreover, recent 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. The company's financial profile strengthened from efficient working capital management and healthy liquidity position. Improved profitability and cashflows lead to stronger debt service coverages. The leveraging remains relatively high but is expected to improve with no further accumulation of debt in near future and repayment of existing debt. The assigned ratings derive comfort from Fazal Rehman’s association with Fazal Group.

The ratings are dependent on the management’s ability to uphold the entity’s strong business performance. Meanwhile, prudent management of cash flows to fulfill its financial obligations and maintain strong coverages remain critical for the ratings.

About the Entity
Fazal Rehman Fabrics Limited (Fazal Rehman Ltd.), incorporated in 2004, started operations in 2007. It is engaged in manufacturing and marketing of greige fabric. The company operates with 360 air-jet looms. Fazal Rehman Ltd. is a wholly owned subsidiary of Ahmed Fine Textile Mills Limited. Ahmed Fine is jointly owned by Fazal Group and Hussain Group (50% each). 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 including the CEO, Mr. Hussain Ahmed Fazal. Management control vests with Fazal Group with Mr. Rehman Naseem (representative of Fazal Group) having operational control.

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.