PACRA Maintains Entity Ratings of Roomi Fabrics Limited, Assigns 'Rating Watch'

The ratings reflect adequate business profile of Roomi Fabrics Limited (Roomi Fabrics’ or ‘The Company’) and its association with Mahmood Group. The Company is principally engaged in the manufacturing of yarn and greige fabric, primarily catering to the fashion market. The Company has built a significant investment portfolio that is managed at the group level. The Company witnessed a limited growth in its topline, which did not translate into improved margins and profitability from core operations due to an increase in cost of production. Moreover, the Company had to face a brief shutdown of its operations in line with the provincial Government’s directive of lockdown. Impact of shutdown and general contraction in demand amid tough economic climate will become clearer in months to come. Overall profitability of the Company remains a function of income from its sizable investment portfolio in shape of dividends and capital gains/losses. Although the Company is invested in blue-chip scrips, high market risk exposes the Company to volatile returns. This concern is magnified as the investments are partially financed through short-term borrowings. The recent volatility in equity market enhances the element of risk in the Company’s investment portfolio as valuations may decrease. Cashflows have recently shown improvement, however, coverages dropped due to high finance cost, though deferral of principal repayments as per SBP initiative amidst Covid-19 will provide a breather. Overall, the financial profile of the Company remains stretched given highly leveraged capital structure and limited borrowing capacity. Board’s vast experience and association with Mahmood Group provides comfort to the ratings of the Company.

The Rating Watch signifies the prevailing uncertainty due to the outbreak of COVID-19 pandemic. This has impacted the entire textile chain due to the lockdown in Pakistan and major export destinations of the sector. Although lockdowns are being gradually lifted worldwide, the recovery in demand remains to be seen. The Company's operations and orders have suffered consequently as the Company has high reliance on exports in its sales mix. The Government and SBP have announced several initiatives to provide support. PACRA is closely monitoring the situation and will take rating action accordingly.
The ratings are dependent on the Company’s ability to sustain its operations in prevailing conditions. The management is cognizant of these challenges and is working on this front. Meanwhile prudent working capital management and generating sustainable cashflows from core operations are important. Significant deterioration in business profile due to prolonged downturn leading to deterioration in coverages and/or margins will impact the ratings.

About the Entity
Roomi Fabrics Limited is a venture of Mahmood Group, which was originally established in 1935, by entering the tannery business. Roomi Fabrics is engaged in manufacture of fabric and spindles with 32,640 spindles and 228 looms. Roomi fabrics has recently entered into the value-added segment by putting up 10 terry towel looms. Mahmood Group Sponsors cumulatively own Roomi Fabrics 64% directly via individuals and the remaining shareholding is owned through group companies. Overall control vest with eight board members, all of whom are from the sponsoring family. Mr. Jalaluddin Roomi is the CEO of the Company, who has more than 30 years of experience in the textile industry. He has vast experience in leading different government, semi-government and public limited companies. Currently, he also serves on the board of Arif Habib Corporation and Shakarganj Limited.