logo
The Pakistan Credit Rating Agency Limited
Press Release

Date
08-Aug-19

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

Applicable Criteria

Related Research

Disclaimer
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 Eastern Garments (Pvt.) Limited

Rating Type Entity
Current
(08-Aug-19)
Previous
(06-Feb-19)
Action Maintain Initial
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect the adequate business profile of Eastern Garments (Pvt.) Limited, an export-oriented knitwear and woven garments unit. In the past, the Company’s sales mix predominantly comprised knitwear. However, given the volatility in Pakistan’s knitwear industry in recent years, the Company has recently expanded into woven denim garments. This has enabled it to diversify its sales while increasing revenues and margins which were further complimented by the currency devaluation. Margins recently showed improvement, led by a high value-added product mix, synergies achieved in denim operations and cost savings on the back of recent BMR. Business risk remains high owing to the global knitwear industry’s reliance on few key players as well as competitive international denim market. On standalone basis, the Company’s customer concentration remains high. However, comfort is drawn given its relationships with established international brands. Ratings account for the stable financial profile characterized by modest leveraging and strong coverages. The Company has utilized the State Bank’s concessionary lending rates, which have provided respite in rising interest rate environment. Ratings further reflect professional management team as well as sponsors ability to provide support when required, as demonstrated in the past. Meanwhile, corporate governance framework needs improvement.
The ratings are dependent upon the management's ability to capitalize on growth opportunities in a competitive landscape and sustainability of profitability and margins. Excessive borrowing, leading to higher leverage and deterioration in coverages, can impact the ratings negatively. Meanwhile, improvement in governance framework remains important.

About the Entity
Eastern Garments (Pvt.) Limited, incorporated in 1980, is engaged in the production and sale of knitwear and woven garments. Its operations comprise knitting, dyeing, finishing, printing, embroidery and stitching. The Company’s production facilities are divided into six units, all located in Sindh Industrial Trading Estate, Karachi. The Company’s shareholding rests equally with Mr. Noor Mohammed and his son, Mr. Nizar Noor.

Overall control of the Company vests in a two-member Board of Directors comprising the sponsors. Mr. Noor Mohammed is the Chairman and CEO of Eastern Garments with background in banking and over four decades of experience in the textile industry while Mr. Nizar Noor has been the Managing Director of the Company since 1997. The management team comprises experienced and professional individuals with significant autonomy to execute operational matters.

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.