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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Sep-19

Analyst
Muhammad Hassan
muhammad.hassan@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 Ellcot Spinning Mills Limited

Rating Type Entity
Current
(28-Sep-19)
Previous
(30-Mar-19)
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Ellcot Spinning Mills Limited's (Ellcot) improving business profile. The Company largely caters to the needs of local market and it has developed a reputable clientele over the years. Textile industry in general and spinning industry in particular has suffered from low international commodity prices. Moreover, lower demand for cotton yarn from China owing to trade war with USA has suppressed the demand in international market. Similarly, imposition of sales tax in local market may slowdown sales. However, rupee devaluation and subsidized rates for gas and electricity has provided a breather to local textile industry. The Company has sustained its business profile on the back of higher product quality and volumetric growth, a factor of recent BMR. The Company's financial risk profile is constrained by significant leveraging, in turn, higher finance cost resulting in declined adequate coverages. Ellcot intends to gradually build a sizable investment portfolio. This exposes the Company to market risk as exhibited by historic volatility in stock exchange. Any significant decline in investments leading to losses, and eventually equity erosion, will impact the financial profile of the Company. The assigned ratings derive comfort from Ellcot’s association with Nagina Group.
The ratings are dependent on the Company’s ability to generate sufficient cash flows to fulfill its financial obligations, while sustaining business margins. Maintaining sales volume is crucial. Any significant deterioration in the Company's coverages may impact the ratings. At the same time, prudent management of investment portfolio is critical.

About the Entity
Ellcot is majorly (~58%) owned by Nagina Group, through group companies and sponsoring individuals. The remaining stake rests with financial institutions and general public. Nagina Group is one of the oldest medium-sized textile houses in Pakistan, operating under Ellahi’s for over five decades.

Ellcot's board comprises seven members out of which five members are non-executive and one occupies an executive role, the CEO while one director is independent. Five directors are Nagina Group nominees. Mr. Shahzada Ellahi Shaikh – the Chairman – holds a bachelor’s degree in Economics and International Relations. The board members carry vast knowledge and extensive experience in textile industry, eventually benefiting the board in efficient decision making.

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.