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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Dec-18

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 Ellcot Spinning Mills Limited

Rating Type Entity
Current
(28-Dec-18)
Previous
(30-Jun-18)
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflects Ellcot Spinning Mills Limited's (Ellcot) improving business profile in harmonization with textile industry dynamics in recent times. The company’s revenues have taken a hit in past few years mainly due to price decline in exports and local segments. Recently, revenues have started to pick up, benefiting from improved local industry dynamics. On standalone basis, the rupee devaluation has provided a requisite breather to the company to sustain its business margins, as the company’s exports have increased during the year. Moreover, re-imposition of custom duties and sales tax on cotton & yarn imports, coupled with increasing interest rates has made the local textile industry competitive. The management is cognizant of this and intends to strengthen its performance by improved efficiency and expanding volumes. For the purpose the company has recently incurred a BMR, in turn, the comapny's leveraging has increased. Ellcot intends to gradually build a sizable investment portfolio. This exposes the company to market risk as exhibited by recent volatility in stock exchange. Any significant decline in investments leading to losses, and eventually equity erosion, will impact the financial profile of the company. The management’s ability to manage this risk is critical. The assigned ratings derive comfort from Ellcot’s association with Nagina Group.

The rating is dependent on the company’s ability to uphold its financial profile, while strengthening business margins. The company’s ability to generate cash flows to fulfill its financial obligations is critical for the ratings. At the same time, prudent management of investment portfolio is important.

About the Entity
Ellcot incorporated in 1991 as a public limited company. The company is majorly (~58%) owned by Nagina Group, through group companies and sponsoring individuals. The remaining stake rests with financial institutions and general public. Nagina Group is one of the oldest medium-sized textile houses in Pakistan, operating under Ellahi’s for over five decades.

Ellcot's board comprises seven members out of which five members are non-executive and one occupies an executive role - the CEO, while one director is independent. Five directors are Nagina Group nominees. The board members carry vast knowledge and extensive experience in textile industry, eventually benefitting the board in efficient decision making.

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.