The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Shahzad Textile Mills Limited, maintains 'Rating Watch'

Rating Type Entity
(30-Apr-21 )
(30-Apr-20 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes Yes

Shahzad Textile Mills Limited - a public listed company - manufactures ring spun cotton yarn and synthetic blended yarns. Recently, the Company has also added Socks to its product profile. The ratings reflect the Company’s modest, albeit improving business profile. Recent rationalization of yarn capacity and addition of sock manufacturing unit are expected to bring efficiency and growth as the Company moves into value added segment. The revenue and margins of the Company inclined attributable to addition of sock unit, however remain submissive when compared to the peer universe. The Company maintains a low-leveraged capital structure and lean working capital cycles. Core coverage has room for improvement. Going forward, augmentation in margins along with business profile remains vital.
The Rating Watch signifies the prevailing uncertainty due to the third wave of the COVID-19 pandemic that is prevailing in the world including Pakistan. The impacts and potential implications of this third wave are yet to be seen.
The ratings depend on sustaining operations and expansion of revenue. Maintaining business margins is important. Meanwhile, prudent working capital management and maintaining financial discipline will remain critical.

About the Entity
Shahzad Textile Mills commenced its operations in 1981 as a public limited company. Mr. Imran Aslam (CEO) along with other family members collectively own majority (~73%) shares of the Company. The remaining shareholding of the Company is held by Corporates (~6%) and institutions (~21%). Shahzad Textile is in the business of manufacturing ring spun cotton and synthetic blended yarns, with a total installed capacity of ~63,648 spindles. Moreover, due to the recent expansion into socks manufacturing, the Company is now involved in the export of a variety of socks along with its yarn.

The board of the Company consists of seven members, out of which two are executive, four non-executive and one independent director. Mr. Imran Aslam is looking after the Company’s operations from more than two decades as CEO and is supported by an experienced management team.

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.