The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Assigns Initial Entity Ratings to Shujabad Weaving Mills Limited

Rating Type Entity
Action Initial
Long Term BBB-
Short Term A3
Outlook Stable
Rating Watch -

The ratings reflect modest business profile of Shujabad Weaving Mills Limited (Shujabad Weaving). The company’s revenues have posted limited growth in recent years, with margins on lower end when compared to peers. The company caters to the needs of local clientele. Overtime, the company has made strong relationship with renowned local brands, which is considered positive for sustainable margins and competitive positioning. Moreover, re-imposition of custom duties and sales tax on cotton & yarn imports, coupled with increasing interest rates has stretched the textile industry. The ratings are constrained by the company's stretched financial profile characterized by highly leveraged capital structure, mainly for working capital requirements. The rising interest rate environment is expected to impact profitability as interest cost will increase. The management is cognizant of this and intends to repay its debt to create requisite room. The company's association with Shujabad Group provides comfort.

The ratings are dependent on the management’s ability to improve its margins, while effectively managing its financial profile. Any substantial reduction in margins, impacting profitability will negatively impact the ratings. Similarly, maintaining adequate cashflows and coverages is critical. Improvement in governance framework will be favorable for the ratings.

About the Entity
Shujabad Weaving Mills Limited, was incorporated on April 5th 2005, as a public unlisted company. Shujabad Weaving is a prominent business venture of Shujabad Group in textile concerns. The group has presence in the ginning industry through Shujabad Industries and Shabbir Cotton. The company’s current operational capacity comprises 250 Looms.

The company is collectively owned by three families. Among all families major stake rests with Wahid family (~39.7%), followed by Shabbir family (~35.4%) and Akram family (~25.0%). The company’s board of directors comprises four members, all of them are serving as executive directors, with Mr. Abdul Wahid as Chairman of board. Two directors represent Shabbir family, including the CEO. The remaining two families have one representative each. The presence of all sponsors on board provide constructive challenge, while absence of independent oversight indicates room for improvement in the governance framework of the company.

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.