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The Pakistan Credit Rating Agency Limited
Press Release

Date
30-Oct-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 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.

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.