The Pakistan Credit Rating Agency Limited
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Haris Umar

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PACRA Maintains Entity Ratings of Fazal Rehman Fabrics Limited

Rating Type Entity
Action Maintain Upgrade
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Fazal Rehman Fabrics Limited’s (Fazal Rehman Ltd.) improved business profile which is characterized by sizable revenue base and adequate profitability. The top line grew by ~37% in 1HFY19, facet of recently completed expansion. The lower demand prospects from international market has impacted the Company's exports, in turn, piled up inventory and lower margins. However, this is expected to normalize in near future. The subsidized utilities and relaxation in custom duties for textile sector has made the local textile industry cost competitive. The Company's financial profile strengthened from efficient working capital management and healthy liquidity position. Improved profitability, eventually translating into better cash flows, led to stronger debt coverages. The leveraging remains relatively high but is expected to improve with no plans of further accumulation of debt in near future and repayment of existing debt. The Company has a sizable investment portfolio. Despite the conservative investment approach, the Company is exposed to the stock market volatility. The assigned ratings derive comfort from the Company's association with Fazal Group.

The ratings are dependent on the management’s ability to uphold the entity’s strong business performance. Meanwhile, prudent management of cash flows to fulfill its financial obligations and maintain strong coverages remain critical for the ratings.

About the Entity
Fazal Rehman Fabrics Limited (Fazal Rehman Ltd.), incorporated in 2004, started operations in 2007. It is engaged in manufacturing and marketing of greige fabric. The Company operates with 358 air-jet looms. Fazal Rehman Ltd. is a wholly owned subsidiary of Ahmed Fine Textile Mills Limited. Ahmed Fine is jointly owned by Fazal Group and Hussain Group (50% each). Fazal Group has interests in Textile, Fertilizer, Energy, and Real Estate sectors while Hussain Group’s key interests lies in Textile sector.

Overall control vests with seven members BoD. Four directors represent Fazal Group while three are representatives of Hussain Group including the CEO, Mr. Hussain Ahmed Fazal. Management control vests with Fazal Group with Mr. Rehman Naseem (representative of Fazal Group) having operational control.

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.