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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Mar-20

Analyst
Muhammad Hassan
muhammad.hassan@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Places Entity Ratings of Salfi Textile Mills Limited on Rating Watch, Outlook ''Negative''

Rating Type Entity
Current
(28-Mar-20)
Previous
(28-Sep-19)
Action Maintain Maintain
Long Term BBB BBB
Short Term A3 A3
Outlook Negative Stable
Rating Watch Yes -

Salfi Textile Mills Limited – a public listed company – is primarily engaged in the manufacturing and sale of different varieties of yarn. The Company is part of Tata group that currently owns three textile mills, Island Textile, Tata Textile and Salfi Textile Mills Limited. The group has also diversified into power and food sectors. Spinning industry was suffering from lower demand for cotton yarn from China owing to trade war with USA. The recent outbreak of COVID-19 pandemic has impacted the entire textile chain, as demand has gone down globally. The impact on yarn sales has been visible in both local and export markets. Salfi Textile's margins and, in turn, profitability suffered as the Company incurred losses in 1HFY20 due to relatively high raw material costs. The ratings reflect stretched financial risk profile of the Company characterized by moderate leveraging, weak coverages and mismatch at trade level. Cashflows are expected to remain under pressure in the short-term. Long association of experienced and professional management team and proven track record of sponsors add comfort. Going forward, management is planning to merge all three textile entities in order to benefit from economies of scale.

The Rating Watch signifies prevailing uncertain business dynamics due to COVID-19 outbreak and still evolving situation. The Company’s production facilities, like other industrial units, have been shut down in line with the provincial Government’s directive of lockdown. PACRA is closely monitoring the situation and will take rating action accordingly.
The ratings are dependent on improving business margins and outcome of current scenario. A prolonged downturn or halt in production leading to significantly lower revenues will impact the ratings. Prudent management of short-term liquidity and sustaining adequate coverages is critical. Elimination of trade level mismatch in assets and liabilities remains crucial.

About the Entity
Salfi Textile Mills limited, incorporated in 1968 and a public listed company, is engaged in the manufacturing and sale of different varieties of yarn. In 1984, Tata family acquired the company and took charge of its management. The corporate office of the Company is located at Textile Plaza, M.A. Jinnah Road, Karachi, whereas, vicinity of the plants is in Landhi Industrial Estate in the Province of Sindh. The Company is operating 2 manufacturing units with a combined capacity of 36,708 spindles.

The CEO, along with other family members and associated company (Island Textile) collectively own majority (~91%) shares of the Company. The remaining shareholding is held by mutual funds (~3%) and general public (~6%). The overall control of the Company vests with seven members board (board of directors), including the CEO – Mr. Adeel Shahid Tata. Currently, the board comprises two executive directors, four non-executive directors and one independent director. Mr. Anwar Ahmed Tata is the Chairman of the board. He has diverse experience in the field of textile sector, bringing specialized and comprehensive experience and knowledge to the board.

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.