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The Pakistan Credit Rating Agency Limited
Press Release

Date
29-Apr-20

Analyst
Ateeb Riaz
ateeb.riaz@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 Rustam Towel (Pvt.) Limited, Assign 'Rating Watch'

Rating Type Entity
Current
(29-Apr-20)
Previous
(30-Oct-19)
Action Maintain Maintain
Long Term BBB- BBB-
Short Term A3 A3
Outlook Stable Stable
Rating Watch Yes -

Rustam Towel (Pvt.) Limited (Rustam Towel), a family run business concern, is a small scale export oriented towel manufacturer. The Company mainly derives its revenue from manufacturing and sale of towel. Recently, the Company has installed a denim production facility, capacity of ~120,000 pieces per month, to diversify its portfolio. Towel industry enjoys relatively better margins that are reflected in Rustam Towel’s profitability on the back of Pakistan's cotton, which is more suitable for manufacturing towels. On standalone basis, the Company’s concentration levels – both customer and geographical – are well managed with the Company having a policy of capping revenue from single customer to 20%. The Company was able to achieve strong growth in revenue of ~15% on the back of rupee depreciation and enjoys good margins and profitability. The Company has improved its working capital management. However, it continues to have slight mismatch at trade level. The Company’s has a moderately leveraged capital structure, strong coverages and adequate working capital management. The ratings also draw comfort from strong financial strength of sponsors. The Company remains partially operational as it is exempted from shutdown, being an export oriented unit
The 'Rating Watch' signifies COVID-19 outbreak and challenging economic environment. The entire textile chain is expected to be impacted due to the lockdown in Pakistan and major export destinations of the sector. The demand is expected to contract while eventual resumption of operations and recovery of the sector remains uncertain. The Government and SBP has announced several initiatives to provide support. PACRA will monitor the situation and accordingly take action.
The ratings are dependent on sustaining operations amidst prevailing tough conditions. Full resumption of operations, maintaining sales and margins is crucial. Meanwhile, prudent working capital management and eliminating mismatch would remain critical. Strengthening of governance framework and sponsor support, especially in the short-term, will be important.

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 has also installed a new denim manufacturing facility, with an installed capacity of 120,000 pieces per month. The new facility has started production in Aug-19. 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.