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The Pakistan Credit Rating Agency Limited
Press Release

Date
07-Aug-20

Analyst
Bakhtawar Abid
bakhtawar.abid@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 Eastern Garments (Pvt.) Limited

Rating Type Entity
Current
(07-Aug-20)
Previous
(08-Aug-19)
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect imropving business profile of Eastern Garments (Pvt.) Limited, an export-oriented knitwear and woven garments unit. In the past, the Company’s sales mix predominantly comprised knitwear. However, given the volatility in Pakistan’s knitwear industry in recent years, the Company has recently expanded into woven denim garments. This has enabled it to diversify its sales while increasing revenues and margins, which were further complemented by the currency devaluation. However, due to COVID-19 and instability of market and demand, margins deteriorated though remained strong. The business risk remains high owing to the global knitwear industry’s reliance on few key players as well as competitive international denim market. On a standalone basis, the Company’s customer concentration remains high. However, comfort is drawn given its relationships with established international brands. Due to Covid-19 and subsequent lockdown, the Company had to shutdown its operations for some time. However, the Company managed to sustain its revenues, though unable to generate higher revenues as planned, and profitability. Ratings incorporate stable financial profile characterized by modest leveraging and strong coverages. Ratings further reflect the professional management team as well as sponsors ability to provide support when required, as demonstrated in the past. Meanwhile, the corporate governance framework needs improvement.
The ratings are dependent upon the management's ability to capitalize on growth opportunities in a competitive landscape, operate at optimal level and sustain margins amid COVID-19. Excessive borrowing, leading to higher leverage and/or deterioration in coverages, can impact the ratings negatively. Meanwhile, improvement in governance framework remains important.

About the Entity
Eastern Garments (Pvt.) Limited, incorporated in 1980, is engaged in the production and sale of knitwear and woven garments. Its operations comprise knitting, dyeing, finishing, printing, embroidery and stitching. The Company’s production facilities are divided into six units, all located in Sindh Industrial Trading Estate, Karachi. The Company’s shareholding rests equally with Mr. Noor Mohammed and his son, Mr. Nizar Noor.

Overall control of the Company vests in a two-member Board of Directors comprising the sponsors. Mr. Noor Mohammed is the Chairman and CEO of Eastern Garments with background in banking and over four decades of experience in the textile industry while Mr. Nizar Noor has been the Managing Director of the Company since 1997. The management team comprises experienced and professional individuals with significant autonomy to execute operational matters.

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.