The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Upgrades Entity Ratings of Fazal Cloth Mills Limited

Rating Type Entity
(05-Nov-21 )
(25-Jul-21 )
Action Upgrade Maintain
Long Term A A-
Short Term A2 A2
Outlook Stable Positive
Rating Watch - -

Fazal Cloth Mills Limited (Fazal Cloth) enjoys a strong business profile as a leading producer of yarn and cloth. The Company's large size yielding economies of scale, diverse customer base, and broad product portfolio in spinning & weaving segments provides a competitive advantage. In recent years, the Company has been able to capitalize on additional capacities thereby generating incremental volumes, mainly in spinning segment, eventually translating into improved margins and profitability. Moreover, Fazal Weaving Mills Limited (wholly owned subsidiary of Fazal Cloth) has been merged into its parent company Fazal Cloth Mills Limited, which has further strengthened the Company's positioning in the market. During FY21, Fazal Cloth generated revenue of PKR 52bln along with bottom-line of PKR 5.4bln. The Company enjoys strong equity base of PKR 34.7bln as at Jun-21. Meanwhile prices have also improved on both local and international fronts recently along with increased demand. The Company is expected to benefit from these improved industry dynamics. Fazal Cloth has a moderately leveraged capital structure and strong coverages. COVID-19 pandemic came with huge challenges and ramifications most of which have faded away with time and improved vaccination drives globally. Textile industry dynamics have rebounded with increased exports in many segments of the sector. This is expected to remain healthy in medium term. Textile exports of the country recorded a double-digit increase of ~23% for FY21 to stand at USD 15.4bln as compared to USD 12.5bln in FY20 due to an increase in demand for textile products internationally, led by good recovery around the globe post-pandemic. Going forward, the textile sector’s outlook is expected to stay stable in the medium term where the demand for textile products is expected to increase.
The ratings are dependent on the Company’s ability to maintain strong business profile amidst current circumstances. Sustainability of relative position along with improved margins and profitability remain vital.

About the Entity
Fazal Cloth, a listed concern incorporated in 1966, is engaged in the manufacturing and marketing of yarn and fabric. The Company operates with eight spinning units (252,564 spindles, 3,660 open-end rotors, 888 MVS spindles and 119 doubling machines) and a weaving unit (224 air jet looms). The Company’s majority stakes are owned by Fazal Group and Fatima Group (~45% each). The remaining shareholding rests with financial institutions (~6%) and the general public (~4.7%). Herein “Group means members of the family without reference to any law of Pakistan”. The Company’s board comprises of total nine members which includes equal representation (three each) of Fazal Group and Fatima Group, while the remaining three are independent directors. The management control vests with Fazal Group. Mr. Rehman Naseem, CEO, heads the management team; and he is supported by experienced team members. M/s. KPMG Taseer Hadi & Co., Chartered Accountants serves as external auditor for Fazal Cloth. They have expressed unqualified opinion and review report for FY21.

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.