The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Assigns Initial Entity Ratings to Kohat Textile Mills Limited

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

The ratings reflect the moderate business profile of Kohat Textile Mills Limited (Kohat Textile). In 9MFY19, growth in the Company's revenues remained in line with the industry. The Company caters to the needs of local industry and deals in specialized products i.e. polyester yarn, acrylic yarn and viscose yarn. Kohat Textile is a net importer that exposes the Company to exchange rate volatility and eventually diluting its profit margins. However, the impact was limited as the Company has adequately invested in technological up gradations and expansion projects, to remain cost competitive which is reflected in continuously improving margins. Nevertheless, the Company’s financial profile has remained under pressure due to significant hike in interest rates, reflected by modest coverages. The Company has significantly leveraged capital structure and it is skewed towards short-term borrowings. Going forward, improvement in cash flows is critical for meeting financial needs. The assigned ratings derive comfort from experienced management team, strong financial muscle of the Sponsors and their timely support to the Entity in the form of guarantee and subordinated loans.
The ratings are dependent on managing financial obligations while sustaining business margins, along with prudent management of working capital. Any deterioration in debt coverages leading to higher financial risk or subdued profitability will have a negative impact on the ratings. Saif Group's support to the Entity will remain critical.

About the Entity
Kohat Textile commenced operations in 1967 and was listed on PSX in 1970. Kohat Textile’s is a subsidiary of Saif Holdings, with majority stake (~77.98%). The remaining shareholding rests with financial institutions (10%), general public (10.12%) and directors (0.87%). Saif Group is one of the renowned corporate groups in Pakistan. The Company operates with a single spinning unit having a capacity of 35,280 spindles - manufacturing specialized yarn.

The board comprises seven members, all from the sponsoring group, with Osman Saifullah Khan as the Chairman of the BoD. Board members have diversified experience, and relatively long association with the Company. Management control vests with Saif Group. Assad Saifullah – the CEO – primarily manages the Company’s affairs, supported by a team of seasoned professionals.

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.