The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Maintains Entity Ratings of Rustam Towel (Pvt.) Limited

Rating Type Entity
(30-Oct-18 )
(29-Mar-18 )
Action Maintain Initial
Long Term BB+ BB+
Short Term A3 A3
Outlook Stable Stable
Rating Watch - -

Rustam Towel (Pvt.) Limited (Rustam Towel) is a small scale export oriented towel manufacturer, a family run business concern. Textile industry overall is witnessing improved margins due to recent rupee devaluation. Furthermore, towel industry continues to surge forward on the back of Pakistan’s cotton which is more suitable for coarse counts yarn; resulting into better margins, which is also reflected in Rustam Towel's profitability. On standalone basis, the company’s concentration levels – both customer and geographical – are well managed with company having policy of capping revenue from single customer to 20%. The ratings reflect relatively stretched financial risk profile due to higher working capital requirements as compared to industry due to lengthy net cash cycle. Short term borrowings exceed working capital requirement resulting in asset-liability mismatch. Going forward, in absence of any further debt-driven expansion in the medium-term and better working capital management, financial profile is expected to become better despite higher interest costs.

The ratings are dependent on sustaining margins while improving business volumes. Meanwhile, prudent working capital management and eliminating mismatch would remain critical. Strengthening of governance framework for better oversight of strategic affairs, and appointment of enlisted auditor with SBP, is considered essential.

About the Entity
Rustam Towel (Rustam Towel), incorporated in 1995, is engaged in manufacturing and marketing of different varieties of towel. It has installed vertically integrated manufacturing facilities at Lahore which include 7,680 spindles, 73 looms, dyeing and stitching facilities. Rustam Towel is a private company owned by Dogar Family, belonging to Gujranwala based in Lahore. Mr. Sanaullah along with his son and three brothers own the company.

Rustam Towel's board include four members; representing Dogar Family. Mr. Sanaullah Dogar, the Chairman, carries with him over three decades of experience in textile sector. He is supported by his brothers, while, Mr. Waseem Dogar – youngest brother being the director, largely manages overall day to day affairs 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.