The Pakistan Credit Rating Agency Limited
29-Aug-19
Analyst
Muhammad Hassan
muhammad.hassan@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
- Methodology | Corporate Ratings | Jun-19
- Methodology | Correlation Between Long-Term And Short-Term Rating Scale | Jun-19
- Criteria | Rating Modifier | Jun-19
Related Research
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PACRA Maintains Entity Ratings of Fazal Rehman Fabrics Limited
| Rating Type | Entity | |
|
Current (29-Aug-19 ) |
Previous (28-Feb-19 ) |
|
| Action | Maintain | Maintain |
| 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 characterized by sizable revenue base and strong profitability. The top line grew by ~41% in FY19 due to partial impact of last year’s expansion and attractive prices in the local market. The Company sales mix tilted toward local sales due to better pricing but it reaped the benefit of PKR depreciation in exports. Significant rupee devaluation and subsidized utilities have 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 strong debt coverages. The Company’s leveraging remains relatively high and is expected to further increase due to capacity expansion in near future. 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 and maintaining strong coverage to fulfill financial obligations arising from increased leveraging will be critical, going forward.
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.