Analyst
Muhammad Hassan
muhammad.hassan@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of Zahidjee Textile Mills Limited, Assigns Positive Outlook
Rating Type | Entity | |
Current (30-Oct-19 ) |
Previous (30-Apr-19 ) |
|
Action | Maintain | Maintain |
Long Term | A- | A- |
Short Term | A2 | A2 |
Outlook | Positive | Stable |
Rating Watch | - | - |
The ratings reflect the growing business profile of Zahidjee Textile. The Company mainly operates in the spinning segment, followed by a weaving unit. Continuous expansion and BMR activities have led to significant growth in operations in recent years. Meanwhile, full operations of recently completed spinning unit, complimented by the currency devaluation, have benefited the Company’s topline while margins remain in line with industry peers. The Company's financial risk profile remains strong, characterized by rising cash flows and, in turn, strong coverages, driven by augmented profitability. Excess cash has been utilized for partial retirement of debt, keeping leveraging at modest levels. Borrowing at concessionary SBP rates has also provided some respite in rising interest rate environment. Going forward, the Company aims to undertake further expansion into spinning, financed through a mix of internal and external sources. Recent induction of independent directors on the Board has improved governance structure.
The ratings are dependent on sustaining business margins as well as strong coverages and financial profile. Meanwhile, management of debt levels during upcoming capacity expansion is considered important. Going forward, buildup of a non-core income stream will have positive implications on ratings along with better governance framework.
About
the Entity
Zahidjee Textile Mills Limited, incorporated in 1990, is a family-owned business primarily engaged in the production and sale of cotton yarns, blended yarns, greige fabric and textile madeups. The Company operates with 93,024 spindles and 280 looms. It is listed on Pakistan Stock Exchange. The Zahid family - sponsors - cumulatively holds majority (~96%) stake via family members. The family also has interests in real estate.
Overall control of the Company vests with a seven-member Board of Directors, comprising four family members, including CEO, and three independent directors. Management control vests with Mr. Muhammad Zahid – CEO and co-founder of Zahidjee Textile – while his father, Mr. Muhammad Sharif, is the Chairman. Both have several decades of textile experience. The CEO is supported by a seasoned management team.