Muhammad Fahad Iqbal
PACRA Places Entity Ratings of AL Textile Textile (Pvt.) Limited on Rating Watch, Outlook "Negative"
The assigned ratings of AL Textile (Pvt.) Limited (AL Textile) reflect strong financial profile of Sponsors and their support to the entity in the form of guarantee and subordinated loan. The Company mainly caters to the need of local market and has developed brand based clientele over the years. The Company's revenue has witnessed growth in harmonization with textile industry in the past. However, the top line remained stagnant during FY19. The relatively smaller capacity of AL Textile has limited its margins. Recently, the Company's margins and profitability have come under pressure on the back of higher input and finance costs, leading to net loss in FY19. The imposition of sales tax on local sales had a negative effect on local demand. Furthermore, due to COVID-19 outbreak, the Company's operations have been shut down and demand has diminished significantly impacting the Company's performance. The Company has a moderately leveraged capital structure characterized by adequate coverages and moderate inventory days. The management intends to implement further financial discipline by limiting leveraging. The ratings take comfort from the explicit commitment of sponsors to provide support to the Company.
The Rating Watch signifies the prevailing uncertainty due to the outbreak of COVID-19 pandemic. This has impacted the entire textile chain as demand contracts due to shutdown in domestic and global markets and tough economic conditions. Recent SBP measures will provide some respite in this regard. The Company’s production facilities were shut down but since May 11 operations have partially resumed as the Government has eased down lockdown, though demand remains subdued. PACRA is closely monitoring the situation and will take rating action accordingly.
The ratings are dependent on the Company’s ability to resume operations and generate adequate operating cashflows. Meanwhile, prudent working capital and cashflows management remains critical in prevailing circumstances. Prolonged slowdown in demand resulting in significant reduction in revenues and profitability for a long period will impact the ratings. Going forward, sponsors support to the Company would remain critical for the ratings.
AL Textile commenced its operations in 2003 as a private limited company. The Company has one spinning unit with 25,200 spindles. Their production facility is located on Main Multan road (43 km), Lahore. AL Textile is a family owned business, with majority stake owned by Mr. Omer Latif (~61%) and the remaining shareholding is distributed equally (~19% each) among his brother and sister.
The Company’s board of directors comprises two members, with Mr. Omer Latif as Chairman of the board. He is also the CEO of the Company, and is supported by a team of seasoned professionals.