The Pakistan Credit Rating Agency Limited
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Muhammad Noor Ul Haq

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PACRA Maintains Entity Ratings of Zahidjee Textile Mills Limited

Rating Type Entity
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Positive Positive
Rating Watch - -

The assigned ratings incorporate Zahidjee Textile’s moderate business risk profile, adequate and improving financial risk profile and good corporate governance framework. Business risk profile is supported by the Company's established track record of operating in spinning and weaving segments. Continuous BMR activities have led to significant growth in operations in recent years. During 3QFY20, the operating performance was impacted due to the economic slowdown following lockdown to curb the spread of the Covid-19 pandemic. Subdued domestic demand and declining exports due to lockdowns in global markets being shut came as a double blow for textile companies. While export demand started recovering in 1QFY21, domestic demand is benefiting from the gradual recoup of the Country's economy. Moreover, the Company has ramped up the capacity utilization significantly from June 2020 and the capacity utilizations as on date, reaching above 93% and 81% in spinning and weaving segments respectively, give a comfortable picture, ahead. The Company's financial risk profile remains strong, characterized by sufficient cash flows and, in turn, strong coverages, driven by augmented profitability. Borrowing at concessionary SBP rates has also provided some respite in peaked interest rate environment. Going forward, the Company aims to undertake further expansion into spinning, financed through a mix of internal and external sources.
Ratings are also underpinned by a moderately low leveraged capital structure and growth in the equity base. Zahidjee Textile has stable and experienced senior management team which is supported by clear reporting lines as per a formalized organogram and satisfactory monitoring process.
The ratings are dependent on sustaining business margins as well as strong coverages and financial profile. Meanwhile, management of debt levels during upcoming capacity expansion is considered important. Going forward, buildup of a non-core income stream will have positive implications on ratings.

About the Entity
Zahidjee Textile Mills Limited, incorporated in 1990, is a family-owned business primarily engaged in the production and sale of cotton yarns, blended yarns, greige fabric and textile made-ups. The Company operates with 93,024 spindles and 280 looms. It is listed on Pakistan Stock Exchange. The Zahid family - sponsors - cumulatively holds majority (~96%) stake via family members. The family also has interests in real estate.

Overall control of the Company vests with a seven-member Board of Directors, comprising four family members, including CEO, and three independent directors. Management control vests with Mr. Muhammad Zahid – CEO and co-founder of Zahidjee Textile – while his father, Mr. Muhammad Sharif, is the Chairman. Both have several decades of textile experience. The CEO is supported by a seasoned 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.