Ahmad Saad Siddiqi
PACRA Maintains Entity Ratings of Roomi Fabrics Limited
The ratings reflect adequate business profile of Roomi Fabrics Limited (Roomi Fabrics’ or ‘The Company’) and its association with Mahmood Group. The Company is principally engaged in the manufacturing of yarn, greige fabric, terry towel and bed linen, primarily catering to the fashion market. Recently, the Company has gone through a change in ownership structure. Mr. Jalaluddin Roomi’s stake in the Company has enhanced with clear demarcation that the Company will be separated from Mahmood Group. Previously, all four brothers had equal shareholding in the Company. During 9MFY21, the Company’s revenue clocked in at PKR 11.6bln (FY20: PKR 13.3bln). Declined finance cost led to improved net profitability. However, margins witnessed attrition where only net profit margin recorded slight uptick. Moreover, the Company had to face a brief shutdown of 5 days of its operations, due to a fire incident in June-21. The Company has built a significant investment portfolio that is managed at the group level. Overall profitability of the Company remains a function of income from its sizable investment portfolio in shape of dividends and capital gains/losses. Although the Company is invested in blue-chip scrips, high market risk exposes the Company to volatile returns, this concern is magnified as the investments are partially financed through short-term borrowings. The financial matrix reveals high leveraged capital structure where coverage witnessed attrition despite increased profitability. The rating watch signifies limited borrowing capacity, change in shareholding structure and ramifications of fire incident yet to unfold. Textile industry dynamics are prone to challenges posed by the third wave of the COVID-19 pandemic. The country’s textile group exports, however, have witnessed 9.06% growth during the first nine months (July-March) 2020-21 and remained at $11.35bln compared to $10.4bln during the same period last year.
The ratings are dependent on the Company’s ability to sustain its operations, hence, the watch. The management is cognizant of these challenges and is working on this front. Meanwhile prudent working capital management and generating sustainable cashflows from core operations are important. Significant deterioration in business profile due to prolonged downturn leading to deterioration in coverages and/or margins will impact the ratings.
Roomi Fabrics Limited is a venture of Mahmood Group, which was originally established in 1935, by entering the tannery business. Roomi Fabrics is engaged in manufacture and sale of yarn, greige fabric, terry towel and bed linen with 36,000 spindles and 228 looms. Mahmood Group Sponsors cumulatively own Roomi Fabrics 64% directly via individuals and the remaining shareholding is owned through group companies. Overall control vest with eight board members, all of whom are from the sponsoring family. Mr. Jalaluddin Roomi is the CEO of the Company, who has more than 30 years of experience in the textile industry. He has vast experience in leading different government, semi-government and public limited companies. Currently, he also serves on the board of Arif Habib Corporation and Shakarganj Limited.