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The Pakistan Credit Rating Agency Limited
Press Release

Date
30-Apr-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 Sargodha Jute Mills Limited

Rating Type Entity
Current
(30-Apr-19)
Previous
(20-Dec-18)
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Sargodha Jute Mills Limited’s business profile in harmonization with jute industry dynamics in recent times. Pakistan’s jute industry depends 100% on raw jute imports from Bangladesh. Recent devaluation in currency has increased import cost of raw jute. The increase in cost has resulted in increased selling price of jute products, hence margins of the industry got affected. The Company’s revenues show steady growth in the last five years. In 1HFY19, however, sales revenue declined by ~30% due to the factor of seasonality and changes in industry dynamics. Consequently, the financial profile of Sargodha Jute Mills is under pressure due to deterioration of coverages and increased leveraging. Overall the Company has ~40% market share and enjoys a strong repute in the jute industry of Pakistan.
The rating is dependent on the Company’s ability to revive its business profile and margins, meanwhile, to hold its position in the jute industry. At the same time, diversification in revenues and products is critical. Substantial decrease of margins leading to lower profits and excessive leveraging will have its implications on the ratings.

About the Entity
Sargodha Jute Mills Limited was incorporated in 1981 as an unquoted public limited company in Pakistan. Mr. Parvez Aslam through his two sons Mr. Imran Aslam (28.3%) and Mr.Irfan Aslam (28.3%) own majority (~67.5%) shares of the company. The remaining shareholding of the company is held by an associate company, Shahzad Textile Mills Limited (~25%). The mill started operations with annual production of 5,000 metric tons in 1984 and over a period with expansion and improvement in operating systems, the mill has been able to achieve annual production of 28,000 metric tons. The Company is involved in manufacturing jute products like hessian cloth & bags, sacking cloth bags, twines and yarn that are sold locally and exported as well.

The board of the Company consists of only four board members, out of which three members are from the sponsoring family. CEO of the company is Mr. Irfan Aslam who is looking after the Company’s operations from more than two decades and is supported by an experienced management team.

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.