Analyst
Muhammad Hassan
muhammad.hassan@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
PACRA Maintains Entity Ratings of Shahzad Textile Mills Limited
Rating Type | Entity | |
Current (30-Oct-19 ) |
Previous (30-Apr-19 ) |
|
Action | Maintain | Maintain |
Long Term | BBB+ | BBB+ |
Short Term | A2 | A2 |
Outlook | Stable | Stable |
Rating Watch | - | - |
The ratings of Shahzad Textile Mills Limited (Shahzad Textile) reflect improving business profile emanating from better margins and revenue growth. The Company has down-scaled its spinning capacity by disposing obsolete machinery and replacing it with socks manufacturing unit. Lately, textile industry has suffered from low international commodity prices due to global economic slowdown. However, the impact was largely mitigated by notable rupee devaluation in FY19. On standalone basis, the Company's margins witnessed an improvement, driven by; i) prudent inventory procurement, ii) subsidized rates for gas and electricity, and iii) cost rationalization by phasing out lesser efficient spindles. Meanwhile, the Company have a strong financial profile, characterized by lean working capital cycle, strong coverages and low leveraged capital structure. Additionally, predominant portion of long term borrowing is availed at the State Bank's concessionary rates which has insulated the Company's interest rate exposure, amidst high interest rate environment. The ratings drive comfort from Sponsor's long association with textile business.
The ratings are dependent on the Company’s ability to uphold its profitability and strong coverages, given recent commencement of socks manufacturing unit. Meanwhile, prudent working capital management will remain critical.
About
the Entity
Shahzad Textile commenced its operations in 1981 as a public limited company. Shahzad Textile is a family owned business with Mr. Pervez Aslam's family members collectively owns majority (~97.7%) shareholding. The remaining stake rests with general public (~2.1%) and corporates (0.2%). Shahzad Textile manufactures ring spun cotton and synthetic blended yarns, with a capacity of 63,648 spindles. Recently, the Company has integrated into socks manufacturing business by installing 100 knitting machines.
The Company's board consists of seven members, out of which two are executive, three non-executive and two independent director. Mr. Pervez Aslam – the Chairman – carries with him 40 years of experience and has been associated with the board since its inception.