The Pakistan Credit Rating Agency Limited
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Muhammad Noor Ul Haq

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PACRA Maintains Entity Ratings of Gul Ahmed Textile Mills Limited

Rating Type Entity
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The assigned ratings incorporate Gul Ahmed Textile Mills Limited’s (Gul Ahmed) sound operating track record with strong presence in the broader textile value-chain; enabling the Company to manage volatility in textile business. Assigned ratings also reflect presence of seasoned senior management team which possesses considerable experience in the textile sector. Presence in retail with renowned brand "Ideas" in local market adds up to stronger business risk profile. The entity has achieved a sizable revenue base, while focus on value added products brings higher gross margins. This emanates from export market orientation, targeting established niche of quality-conscious institutional buyers. Nevertheless, this has led to customer concentration; longevity of relationship in addition to sustain quality would help manage the risk. During 3rd quarter of FY20, the revenues of all segments witnessed a decline due to the economic slowdown following lockdown to curb the spread of the Covid-19 pandemic. Subdued domestic demand and declining export demand due to lockdowns in global markets on account of Covid-19 come as a double blow for textile companies. While export demand revived in last two months of FY20. However, domestic demand would fairly depend on recoup of the Country's economy. Meanwhile, hefty branding activities and competition in the local market has kept net margins relatively strained. Liquidity profile of the Company is considered adequate with manageable working capital cycle and sufficient cash flows to meet outstanding obligations, while leveraging remains on the higher side.
The ratings are dependent on the Company's ability to sustain its business profile while maintaining its margins and strong. At the same time, prudent management of working capital needs and meeting financial obligations remain critical.

About the Entity
Gul Ahmed Textile Mills Limited (Gul Ahmed) - listed on Pakistan Stock Exchange, commenced operations in 1953. The Company is engaged in the manufacturing of yarn, fabric, garments and home textile products. Management control lies with Bashir family, holding majority stake in Gul Ahmed - Gul Ahmed Group through two corporates: Gul Ahmed Holdings (Pvt.) Limited (~67%) and Swisstex Chemicals (Pvt.) Limited (~3%). Gul Ahmed has strong presence in retail sector through one of Pakistan’s premier retail brand ‘Ideas’. It operates with over 107 retail outlets all over Pakistan. Gul Ahmed exports 63.5% of its total revenue while rest is in local market including retail.

Overall control of the Company vests with a seven-member Board of Directors comprising four members of the Bashir family, one non executive and two independent directors. The Chairman – Mr. Mohammed Bashir – has over 4 decades of experience in the textile sector. He is a founding member of Gul Ahmed Energy and Habib Metropolitan Bank Limited. For his services in textile, Mr. Bashir has been awarded Sitara e Imtiaz by the Government of Pakistan and he was awarded Grade d' Officier in the National Order of Merit by the President of French Republic in 2007. The CEO, Mr. Zaki Bashir, graduate of Regent's Business School UK, oversees the Company affairs with the help of an able management team. The Company has made separate business units for its business which includes (i) Spinning, (ii) Weaving (iii) Processing, Home Textile & Apparel and (iv) Retail; each is a full profit centre.

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.