Muhammad Fahad Iqbal
PACRA Upgrades Entity Ratings of Zahidjee Textile Mills Limited
The rating upgrade incorporates Zahidjee Textile’s improved business and financial risk profile with a good corporate governance framework. The business risk profile is supported by the Company's established track record of operating in spinning and weaving segments. Continuous BMR activities have led to significant growth in operations in recent years. The Company is adding 90,720 to its current capacity out of which 40,000 spindles CoD will be achieved in November 2021 while the loan approval of further 50,000 spindles is pending from the Bank. During FY21, the operating performance of the Company witnessed sizable improvement. Escalated domestic demand and rising exports resulted in improved revenues. The demand for exports has surged after Dec’20 and the Company capitalized on it. The exports increased by PKR 3.4bln YoY to clock in at PKR 6.2bln which primarily consists of Indirect exports – Yarn of PKR 4.1bln. Moreover, the Company has ramped up the capacity utilization significantly from June’20 and the capacity utilization as of date, reaching above 99% and 82% in spinning and weaving segments respectively, give a comfortable picture, ahead. The Company's financial risk profile remains strong, characterized by sufficient cash flows and, in turn, strong coverages, driven by augmented profitability. Borrowing at concessionary SBP rates has also provided some respite in the COVID-19 pandemic period. Going forward, the Company aims to undertake further expansion into spinning, financed through a mix of internal and external sources. Ratings are also underpinned by a moderately low leveraged capital structure and growth in the equity base. Zahidjee Textile has a stable and experienced senior management team which is supported by clear reporting lines as per a formalized organogram and satisfactory monitoring process.
The ratings are dependent on sustaining business margins as well as strong coverages and stability of financial matrix. Meanwhile, management of debt levels during upcoming capacity expansion is considered important.
Zahidjee Textile Mills Limited, incorporated in 1990, is a family-owned business primarily engaged in the production and sale of cotton yarns, blended yarns, greige fabric, and textile made-ups. The Company operates with 93,024 spindles and 280 looms. It is listed on Pakistan Stock Exchange. The Zahid family - sponsors - cumulatively hold the majority (~96%) stake via family members. The family also has interests in real estate. Overall control of the Company vests with a seven-member Board of Directors, comprising four family members, including the CEO, and three independent directors. Management control vests with Mr. Muhammad Zahid – CEO and co-founder of Zahidjee Textile. The CEO is supported by a seasoned management team. Mr. Muhammad Sharif – Ex-Chairman and founder of the Company who had over five decades of experience in yarn trading resigned from the Company in Jun-21. Board has appointed Mr. Ahmed Zahid as a new Chairman effective from July 06th, 2021.
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.