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The Pakistan Credit Rating Agency Limited
Press Release

Date
29-Apr-21

Analyst
Raniya Tanawar
raniya.tanawar@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 Upgrades Entity Ratings of Rustam Towel (Pvt.) Limited

Rating Type Entity
Current
(29-Apr-21)
Previous
(29-Apr-20)
Action Upgrade Maintain
Long Term BBB BBB-
Short Term A2 A3
Outlook Stable Stable
Rating Watch - YES

Rustam Towel (Pvt.) Limited ('Rustam Towel' or 'the business', a conventional family owned business concern, is operating for over two decades in the towel industry as an export oriented towel manufacturer. It holds a stable position among the top towel exporters of the country, with a strong customer foothold based in European countries. The rating incorporates the operational strength of the business as it is well integrated vertically. The revenues are expected to witness an uptick as there has been a surge in export of textile including towels in the wake of COVID-19 outbreak. Worldwide towel demand has increased especially in hotels and hospitality sector on account of improved hygiene practices. In view of the given opportunity and a vision of growth the entity is extending its existing capacity, additions of 48 looms. As a part of strategic diversification plan, the business has installed a denim production facility with capacity of ~120,000 pieces per month, which is now operational. Towel industry enjoys relatively better margins that are reflected in Rustam Towel’s profitability as well. On standalone basis, the business concentration levels – both customer and geographical – are well managed with having a policy of capping revenue through an intermediary. The business was able to achieve growth in revenue of ~13.5% during 1HFY21 due to volumetric increase of sales and enjoys reasonable margins and profitability. The business has improved its working capital management and mismatch at trade level has now resolved. Rustam Towel has a moderately leveraged capital structure, strong coverages and adequate working capital management. The expansion is majorly covered with internal cash and minimal portion of inexpensive financing. The ratings also draw comfort from strong financial strength of sponsors. Rustam Towel is a private limited hence, room for improvement in its governance structure continues to be essential.
The ratings are dependent upon the business ability to improve its volumes, margins and, in turn, profitability. Meanwhile, the ideology to dilute borrowing levels and adherence to sound financial discipline, gives comfort to the ratings. Strengthening of governance structure and financial transparency will lend support to the ratings

About the Entity
Rustam Towel (Rustam Towel) was incorporated in 1998. It is engaged in manufacturing and marketing of different varieties of towel. It has installed vertically integrated manufacturing facilities at Lahore which include 10,000 spindles, 78 looms, dyeing and stitching facilities. Rustam Towel new denim manufacturing facility is now operational, with an installed capacity of 120,000 pieces per month. . Rustam Towel is a private company owned by Dogar Family. Mr. Sanaullah, along with his son and three brothers, own the Company. Rustam Towel's board comprises five members representing Dogar Family. Mr. Sanaullah Dogar, the Chairman and CEO, carries with him over three decades of experience in textile sector. He is supported by his brothers. Mr. Waseem Dogar – youngest brother being the director - largely manages overall day to day affairs of the Company.

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.