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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Aug-20

Analyst
Muhammad Adil Kaleem
adil.kaleem@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 Fazal Rehman Fabrics Limited

Rating Type Entity
Current
(28-Aug-20)
Previous
(29-Aug-19)
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Fazal Rehman Fabrics Limited’s (Fazal Rehman Fabrics) favorable business profile characterized by sizable revenue base and healthy margins. Despite the lockdowns around the world, including Pakistan, the Company's topline grew by ~5%. Fazal Rehman Fabrics possess a strong financial profile, emanating from robust working capital cycle and exceptional coverages. Whereas, reduction in relatively-high leverage during FY20, also bodes well. The leverage is expected to increase on account of the capacity expansion planned in the next financial year. Moreover, the operations of the Company came to a halt during the last quarter (April-June) of FY20, on account of the COVID-19 outbreak. The entire textile chain suffered due to lockdowns in Pakistan and internationally. Production resumed after a week-long closure; since the Government allowed export-oriented sector to recommence operations, which included Fazal Rehman Fabrics. Nevertheless, Lower demand due to the pandemic, made the last quarter challenging for the Company. However, the demand is recovering of late, as economies around the world reopen. In order to relieve pressure on cashflows caused by the pandemic and economic slowdown, the Company availed SBP's moratorium relief and deferred principal repayments for one year. Reduction of 625bps in interest rates by SBP shall also provide respite in this regard. The Company has a sizable investment portfolio. Despite the conservative investment approach, the Company is exposed to the stock market volatility. The assigned ratings derive comfort from the Company's association with Fazal Group.
The ratings are dependent on the management’s ability to uphold the entity’s strong business performance. Meanwhile, prudent management of cash flows and maintaining strong coverage to fulfill financial obligations arising from increased leveraging will be critical, going forward.

About the Entity
Fazal Rehman Fabrics Limited (Fazal Rehman Ltd.), incorporated in 2004, started operations in 2007. It is engaged in manufacturing and marketing of greige fabric. The Company operates with 358 air-jet looms. Fazal Rehman Ltd. is a wholly owned subsidiary of Ahmed Fine Textile Mills Limited. Fazal Group has interests in Textile, Fertilizer, Energy, and Real Estate sectors.

The board of directors contain seven members in total. Management control vests with Fazal Group with Mr. Rehman Naseem (representative of Fazal Group) having operational control.

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.