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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Feb-18

Analyst
Aman Zafar
aman.zafar@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 Fazal Rehman Fabrics Limited

Rating Type Entity
Current
(28-Feb-18)
Previous
(26-Jan-17)
Action Maintain Initial
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The rating reflects company’s business risk profile which is characterized by sizeable revenue base, adequate profitability, and requisite return on equity. Depressed topline growth is the characteristic of decline in exports, an industry phenomenon. Strength of company's financial risk has provided requisite breather to the overall profile, emanating from efficient working capital management and healthy liquidity position. On standalone basis, debt service coverages are adequate. Fazal Rehman Fabrics has embarked upon expansion in its weaving capacities; adding 96 air jet looms - in two phases. First phase of expansion of 66 looms, with an estimated cost of PRK 1.1bln (debt: equity - 70:30) is expected soon. Therefore, further accumulation of debt has added to the standalone financial risk. Nevertheless, financial support and corporate guarantee against financial obligations from parent company provides comfort. Fazal Rehman has a leveraged capital structure and maintains short term lines which may be utilized in case the need arises.
The ratings are dependent on the management’s ability to uphold the entity’s risk profile. Meanwhile, prudent management of expansion-related debt, post-expansion cashflows, and parent company’s support will be important to support the financial profile of the company.

About the Entity
Fazal Rehman Fabrics Limited incorporated in 2004, started operations in 2007. It is engaged in manufacturing and marketing of greige fabric. The company operates with 341 air-jet looms. Fazal Rehman 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 has key interest in Textile sector.

Overall control vests with seven members BoD. Four directors represent Fazal Group while three are representatives of Hussain Group including CEO. Management control vests with Fazal Group. Mr. Hussain Ahmed Fazal is the CEO. However, operational control vests with Mr. Rehman Naseem (representative of Fazal Group). Mr. Rehman Naseem, CEO, carries with him over two decades of experience in textile sector. He is supported by seasoned 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.