PACRA Maintains Entity Ratings of Al Rahim Textile Industries Limited
Al Rahim Textile Industries Limited (Al Rahim) is a family owned textile company that enjoys a strong position in towel manufacturing. Al Rahim’s primary business remains export oriented towel production. It also provides fabric and other processing facilities to its associated company – Al Rahim Retail Limited - and to other local manufacturers. Overall export volumes of the towel industry have stagnated mainly due to high cost of doing business and increasing competition in major export markets. Although the Company’s volumes remained stagnated, the top-line grew due to positive impact of rupee devaluation. Towel industry enjoys relatively better margins that are reflected in Al Rahim’s profitability. However, margins have come under pressure recently owing to increasing input costs, aggravated by inflationary pressure in the economy. Further, the rise in benchmark rates increased finance cost considerably, putting pressure on the Company’s bottom-line. The Company's financial risk profile is considered strong characterized by low leveraging and strong coverages. The Company's working capital management needs improvement. The working capital cycle is significantly higher than industry average, creating pressure on liquidity profile. Going forward, governance framework of the Company is expected to further strengthen. The assigned ratings incorporate recent corporatization of the group, experienced management team, strong financial muscle of sponsors and their willingness to support the entity as demonstrated historically.
The ratings are dependent on sustaining business margins while maintaining strong financial risk profile. Prudent management of working capital requirements, in-line with industry average, will remain critical. Strengthening of corporate structure, governance framework and timely completion of related activity are critical.
Al Rahim Textile Industries Limited (Al Rahim) traces its roots to Al Rahim Textile industries, which operated in the textile industry as a sole proprietorship since 1991. In order to strengthen the corporate structure, a public unlisted company was formed by the name of Al Rahim Textile Industries Limited in July 2019. As per the agreement, all the assets and liabilities of the sole proprietorship except land were purchased by Al Rahim Textile Industries Limited. Currently, the transition is in process. All assets, except a portion of land and working capital, have been transferred to Al Rahim Textile Industries Limited. Further, the Company is in negotiations with its banks regarding transfer of its borrowings to the new company. A portion of short-term borrowings have already been transferred, while other borrowings are expected to be transferred in the coming months. Certain export contracts are still carried out through the proprietorship. It is expected that all business will be shifted to Al Rahim Textile Industries Limited by the end of FY20.
There are three shareholders of the Company with majority of the shareholding lying with Mr. Faisal Rahim Saya. The board comprises three members of Saya Family. Mr. Abdul Rahim Saya is the Chairman of the board and is affiliated with the business since its inception. Mr. Faisal Rahim Saya (Son of Mr. Abdul Rahim) manages overall business affairs of Al Rahim as CEO.