The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Assigns Initial Entity Ratings to Shahzad Textile Mills Limited

Rating Type Entity
Action Initial
Long Term BBB+
Short Term A2
Outlook Stable
Rating Watch -

The ratings reflect modest business profile of Shahzad Textile Mills Limited accentuated by relatively lower margins when compared to its peers. The Company's financial profile is considered strong mainly on the back of low leveraged capital structure, efficient working capital and liquidity position. The sponsors of the company have followed a conservative approach. The Company has largely maintained its revenues over the years. Re-imposition of custom duties and sales tax on cotton & yarn imports, coupled with increased interest rates have made the local textile sector's situation more competitive. Meanwhile, the rupee devaluation and GoP initiative of subsidized gas prices has provided a requisite breather to the export oriented industry. However, on standalone basis, the company's revenues mainly tilt towards local sales.

Going forward, Shahzad Textile Mills intends to expand its business by vertical integration into socks business by setting up a manufacturing plant. The ratings are depended on improving business margins, especially post expansion into socks manufacturing. Meanwhile, prudent management of financial profile and maintaining financial discipline will remain critical.

About the Entity
Shahzad textile mills commenced its operations in 1981 as a public limited company. Mr. Imran Aslam (CEO) along with other family members collectively own majority (~73%) shares of the company. The remaining shareholding of the company is held by Corporates (~6%) and institutions (~21%). Shahzad Textile is in the business of manufacturing of ring spun cotton and synthetic blended yarns, with a total installed capacity of 79,800 spindles. Production is mainly sold locally directly to weavers, knitters and socks manufacturers as well as indirectly through traders and agents.

The board of the company consists of only seven members, out of which two are executive, four non-executive and one independent director. CEO of the company is Mr. Imran Aslam who is looking after the Company’s operations from more than two decades and he is supported by an experienced 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.