Muhammad Adil Kaleem
PACRA Maintains Entity Ratings of Saif Textile Mills Limited
Saif textile mills limited (Saif Textile), a prominent textile venture of Saif Group, is involved in manufacturing and marketing of various varieties of cotton yarn including, melange yarn, dyed yarn, man-made yarn and raw white yarn. Despite challenging environment, Saif Textile has managed to maintain its optimal capacity utilization while upgrading its machinery in order to ensure operational efficiencies and eventually higher production volumes. The top line of the Company has shown a healthy growth that translated in to better margins in FY19. Moreover, the dollar-based subordinated loan was waived off in FY19, helping the Company to post a one-time gain. Higher interest rates and increased short term borrowing squeezed the net margin in 1QFY20 resulting in a net loss. The financial profile of the Company remains constrained by debt driven BMR thus resulting in highly leveraged capital structure with stretched coverages. Going forward, with better efficiency and specialized product profile, the management expects Saif Textile’s margins to improve and become comparable with peers. The assigned ratings incorporates experienced management team, strong financial muscle of the Sponsors and their willingness to support the entity as demonstrated historically.
The ratings are dependent on managing financial obligations effectively while improving business margins. Any further accumulation of debt and/or shift from current business strategy, impacting the risk profile of the entity, may negatively affect the ratings. Going forward, Saif group's support to the entity and prudent debt management would remain critical.
Saif Textile Mills Limited, incorporated in 1989, is engaged in manufacturing and marketing of yarn. The Company operates with three spinning units installed at Gadoon Industrial Estate KPK, having total capacity of 106,800 spindles. Saif Textile is also involved in dyeing of yarn, though at small scale. Saif Textile is majorly owned by Saif holdings (50%) followed by NIT (7%), State life (4%) and significant free float (39%). Saif Holdings – holding company of Saif group, has interests in Textile, Feeds, Energy, Health, Technology and Real Estate sectors. Saif Textile's board comprises seven members, including the Chairman - Mr. Osman Saifullah.
The board include four non-executive directors, one executive director, while two directors are independent. Mr. Osman Saifullah – Chairman – holds a post graduate degree in engineering from University of Oxford and post graduate degree in business administration from University of Stanford. The board members have vast knowledge and expertise of textile industry, though diversity in experiences exists as well, ensuring a requisite skill mix for strategic planning.