The Pakistan Credit Rating Agency Limited
09-Aug-19
Analyst
Muhammad Hassan
muhammad.hassan@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
- Methodology | Corporate Ratings | Jun-19
- Methodology | Correlation Between Long-Term And Short-Term Rating Scale | Jun-19
- Criteria | Rating Modifier | Jun-19
Related Research
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PACRA Maintains Entity Ratings of Ibrahim Fibres Limited
| Rating Type | Entity | |
|
Current (09-Aug-19 ) |
Previous (08-Feb-19 ) |
|
| Action | Maintain | Maintain |
| Long Term | AA- | AA- |
| Short Term | A1+ | A1+ |
| Outlook | Stable | Stable |
| Rating Watch | - | - |
The ratings reflect Ibrahim Fibres’ leading position in the local polyester staple fibre (PSF) industry and very strong financial profile accentuated by low leveraging and strong coverages. Imposition of anti-dumping duty on PSF imported from China since Feb-16 has supported volumetric growth and margins. Meanwhile, local demand also witnessed increasing trend. Unfavorable movements in crude oil prices impacted the entire petrochemical chain during 9MFY19, resulting in decreased PSF prices and inventory losses, deteriorating the Company’s core margins and profitability. Given strong domestic demand and efficient production, performance is expected to recover, with a recovery in oil prices, while currency devaluation is likely to support domestic PSF prices. The Company's spinning segment continues to support its overall profitability. Keeping this in view, the Company is in the process of expanding its spinning capacity. The expansion is being undertaken with a mixture of debt and internally generated cash flows and is expected to come online in 4QFY20. The ratings further incorporate the Company's association with the Ibrahim Group, which has demonstrated strong support.
The ratings are dependent on the Company’s ability to sustain its margins and profitability. Optimal utilization of upcoming capacity enhancement and improvement in margins is considered important. Excessive borrowings and/or prolonged downturn in margins would impact the ratings.
About
the Entity
Ibrahim Fibres Limited, incorporated in 1986 and listed on Pakistan Stock Exchange, is engaged in the production & marketing of PSF and yarn. Its production facilities are located at Shahkot near Faisalabad; these facilities include current annual production capacity of 390,600 tons for PSF and 139,872 spindles for Yarn. Going forward, the Company plans to expand its spinning segment with addition of 100,320 spindles. Ibrahim Group holds majority stake (88%) in Ibrahim Fibres through Group holding company, Ibrahim Holdings (Private) Limited.
The Company’s Board of Directors comprises seven members, including the Chairman, Mr. Sheikh Mukhtar Ahmed and CEO, Mr. Mohammad Naeem Mukhtar. Remaining members comprise three Ibrahim Group affiliates and two independent members. All Board members have significant industry related experience.