The Pakistan Credit Rating Agency Limited
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Muhammad Fahad Iqbal

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PACRA Maintains Entity Ratings of Allawasaya Spinning Mills (Pvt.) Limited, Assigns "Rating watch"

Rating Type Entity
Action Maintain Maintain
Long Term BB+ BB+
Short Term A3 A3
Outlook Stable Stable
Rating Watch Yes -

The ratings reflect adequate business profile of Allawasaya Spinning Mills (Pvt.) Limited. The Company is engaged in the manufacturing and sale of cotton yarn.The Company has a relatively small size, low margins and limited profitability. The Company’s net margins were lower than other similar companies in the spinning sector, mainly due to lower capacity resulting in less production. In the long term, the planned BMR is expected to bring in efficiency gains and improve margins. The financial profile of the Company is characterized by low leveraging and coverages. Long-term debt comprises majority share of total debt, while short term borrowings vary with seasons, increasing during the cotton procurement season. The Company’s association with an established business family in spinning sector of the textile industry provides comfort to the ratings.

The 'Rating Watch' signifies COVID-19 outbreak and a 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 have announced several initiatives to provide support. PACRA will monitor the situation and accordingly take action.
The ratings are dependent upon the management’s ability to improve margins, profitability and financial profile of the Company. This includes keeping the debt levels manageable and improve the Company’s competitive position in the industry. Sponsor’s support and business acumen remain important for the ratings. Any significant deterioration in margins amid prolonged lockdown during COVID 19 will have a negative impact on the rating.

About the Entity
Allawasaya Spinning Mills Limited started operations in 2004 as a Spinning Mill with an installed capacity of 17,500 spindles. The Company’s head office and production facility are located in Multan. The Company is owned by Jamil Family, which also has a major share in Allawasaya Textile and Finishing Mills Limited. Mr. Mian Muhammad Jamil owns, (7%) shareholding in the Company directly and (36%) indirectly through his daughters. Mr. Mian Alamgir Jamil, son of Mr. Mian Jamil owns, (43%) shareholding in the Company directly and (14%) indirectly through his spouse.

The Company has a two-member board, which is entirely comprised of the sponsor family members. Mr. Mian Muhammad Jamil is the Chairman of the board and Mr. Mian Alamgir is the other Executive Director and the CEO of the Company. Both the Chairman and the CEO have vast industry experience and hold directorships in other textile businesses.

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.