The Pakistan Credit Rating Agency Limited
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Muhammad Adil Kaleem

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PACRA Maintains Entity Ratings of Saif Textile Textile Mills Limited, Assigns 'Rating Watch'

Rating Type Entity
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes -

Saif textile mills limited (Saif Textile), a prominent textile venture of Saif Group, is involved in manufacturing and marketing of various varieties of cotton yarn including, melange yarn, dyed yarn, man-made yarn and raw white yarn. Saif Textile has managed to increase its capacity and revenues in recent years, achieving economies of scale. The Company's margins remain in line with its peer though net margins deteriorate due to high finance cost, a facet of high leveraging and increasing interest rates. Due to Covid-19 and subsequent lockdown, demand for yarn has been impacted significantly, consequently squeezing margins of the Company. The financial profile of the Company remains constrained by debt driven BMR activities, resulting in highly leveraged capital structure with stretched coverages. However, SBP's initiative of reducing interest rates (525bps cut) and deferral of principal repayments for one year will provide relief. The assigned ratings incorporate an experienced management team, strong financial muscle of the Sponsors and their willingness to support the entity as demonstrated historically.

The Rating Watch signifies the prevailing uncertainty due to the outbreak of COVID-19 pandemic and tough economic conditions. This has impacted the entire textile chain as demand contracts due to shutdown in domestic and global markets. Recent SBP measures will provide some respite in this regard. The Company’s production facilities were shut down but resumed after four days, though demand remains subdued. Demand has improved recently but will take time to reach pre-corona level. 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. Significant deterioration in business profile due to prolonged downturn leading to deterioration in coverages and/or margins will impact the ratings. Going forward, Saif group's support to the entity and prudent debt management would remain critical.

About the Entity
Saif Textile Mills Limited, incorporated in 1989, is engaged in manufacturing and marketing of yarn. The Company operates with three spinning units installed at Gadoon Industrial Estate KPK, having total capacity of 106,800 spindles. Saif Textile is also involved in dyeing of yarn, though at small scale. Saif Textile is majorly owned by Saif holdings (50%) followed by NIT (7%), State life (4%) and significant free float (39%). Saif Holdings – holding company of Saif group, has interests in Textile, Feeds, Energy, Health, Technology and Real Estate sectors. Saif Textile's board comprises seven members, including the Chairman - Mr. Osman Saifullah.

The board include four non-executive directors, one executive director, while two directors are independent. Mr. Osman Saifullah – Chairman – holds a post graduate degree in engineering from University of Oxford and post graduate degree in business administration from University of Stanford. The board members have vast knowledge and expertise of textile industry, though diversity in experiences exists as well, ensuring a requisite skill mix for strategic planning.

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.