The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Assigns Initial Entity Ratings to Salfi Textile Mills Limited

Rating Type Entity
Action Initial
Long Term BBB
Short Term A3
Outlook Stable
Rating Watch -

Salfi Textile Mills Limited – a public listed company, primarily engaged in the manufacturing and sale of different varieties of yarn is majorly owned by Mr. Anwar Tata Family. Tata group currently owns three textile mills i.e. Island, Salfi and Tata Textile Mills Limited. The Group is also diversified into power and food sectors. Due to higher demand in local market recently the group has shifted its focus from export sales which led to increasing its footprints in the local market. Textile industry in general and spinning industry in particular has benefitted from recent devaluation of currency despite higher cotton prices. However, on standalone basis prudent cotton procurement lead to improvement in Salfi's margins and in turn profitablity. The ratings of Salfi incorporate its working capital cycle which remain stretched despite improvement in profitability. The financial risk profile of the company is characterized by well maintained leveraged capital structure, however coverages remain under pressure due to relatively small size of cashflows. Amidst rising interest rates coverages may stretch further. Long association of experienced and professional management team adds comfort. Going forward, management is planning to merge all three textile entities in order to benefit from the economies of scale.

The ratings are dependent on sustaining business margins while improving its financial risk via improved core coverages. Meanwhile, prudent management of short term liquidity would be rating essential. Going forward, materialization of successful merger of all three textile entities would be significant to rating.

About the Entity
Salfi Textile Mills limited, incorporated in 1968 - a public listed company is engaged in the manufacturing and sale of different varieties of yarn. In 1984, Tata family acquired the company and took charge of its management. The corporate office of the company is located at Textile Plaza, M.A. Jinnah Road, Karachi, whereas, vicinity of the plants is in Landhi Industrial Estate in the Province of Sindh. The company is operating with 2 manufacturing units with a combined capacity of 36,708 spindles. The group currently owns three textile mills i.e. Island, Salfi and Tata Textile Mills Limited.

The CEO, along with other family members and associated company (Island Textile) collectively own majority (~91%) shares of the company. The remaining shareholding of the company is held by mutual funds (~3%) and general public (~6%). The overall control of the company vests in seven members including the CEO – Mr. Adeel Shahid Tata. Currently the board comprises of two executive directors, four non-executive, and one independent member. Mr. Anwar Ahmed Tata is the chairman of the board who has diverse experience in the field of textile sector, bringing specialized and comprehensive experience and knowledge on the board.

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.