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The Pakistan Credit Rating Agency Limited
Press Release

Date
11-Jan-19

Analyst
Muhammad Hassan
muhammad.hassan@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Liberty Mills Limited

Rating Type Entity
Current
(11-Jan-19)
Previous
(09-Apr-18)
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Liberty Mills ratings reflect diversity in revenue stream emanating from textile business topped up with non-core recurring income from investments. The holding company structure of the entity strengthens its profile; investment book constitutes ~53% of the equity base and related income provides a significant buffer to bottomline (28%). Strategic holding in IPP – Liberty Powertech is reaping strong dividends, though declined in FY18 due to ongoing liquidity problems of the power sector. Liberty Mills, a family-owned textile company, operates in value-added segment - processing of fabric and made-ups. While this insulates it against volatility in cotton prices, the company's resilient business profile from core operations featured by business margins which, though reduced in recent years, remain in comfortable range. With an export market orientation, the company focuses on its established niche of quality-conscious institutional buyers. Although this has led to customer concentrations, longevity of relationship with big-name clients in addition to sustained quality helps manage the risk. Liberty witnessed growth in its revenues primarily due to currency devaluation. Liberty's strong financial risk profile is characterized by limited long-term debt, healthy cash flows, and, in turn, strong debt-servicing ability. Working capital cycle is stretched, mainly due to increased inventory procurement foreseeing currency devaluation. Long association of experienced management team adds comfort. However, governance framework needs improvement.

Going forward, Liberty Group - the sponsors - intends to expand its industrial footing with a diversification philosophy. A number of medium and long term projects are underway at group-level including (i) Pakistan Aluminum Beverage Cans Limited (PABC) (ii) Liberty Wind Power One (Pvt.) Limited (iii) Engro PowerGen Thar (Pvt.) Limited (iv) Steel Plant (v) Hydro Power projects.

The ratings are dependent on the management's ability to sustain its margins while improving growth in revenue. Meanwhile, utilization of beefed-up capacities is considered important. Going forward, increase in business size, continuation of dividend/other income stream vis-à-vis solidification of governance framework will have positive implications on ratings.

About the Entity
Liberty, established in 1964, is in the business of manufacturing and processing of textile fabrics (capacity: 90mln meters) and made ups (stitching machines: 716 machines). The company is owned by Mukaty family mainly through individuals. Liberty Group holds ~90% stake in Liberty Power Tech Limited (a 200MW thermal IPP) including ~29% through Liberty.

Liberty has an eight member board. The CEO, Mr. Muhammad Salim Mukaty, also holds the office of the Chairman. The board comprises four directors from the sponsoring family and four executive directors. Executive Director Mr. Muhammad Ashraf S. Mukaty - son of Mr. Salim Mukaty - oversees daily operations. Mr. Ashraf 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.