The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains the Entity Ratings of Kohat Textile Mills Limited

Rating Type Entity
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - Yes

The ratings reflect moderate business profile of Kohat Textile Mills Limited (Kohat Textile). The Company caters to the needs of local industry and deals in specialized products i.e. polyester yarn, acrylic yarn and viscose yarn. During 9MFY21, Company’s revenue improved to PKR 2.5bln (9MFY20: PKR1.9bln); Sales are done locally. Margins and net profitability enhanced recently where the Company recorded loss in FY20.In current year, lower finance cost supported profitability. Non-core expenses, emerged in 9MFY21, should be contained going forward. Current ratio remained comfortable. COVID-19 pandemic is an ongoing challenge. The proactive measures are taken by the regulators and other concerning bodies have mitigated the potential damages much anticipated from this pandemic. Vigilance is required as the loan repayment cycle remains amid variants of the pandemic continue to re-emerge. The financial risk matrix reveals moderate leveraging where there is room for improvement in coverage. Further augmentation in core coverage will provide comfort with approaching scheduled repayments. The assigned ratings derive comfort from an experienced management team, strong financial muscle of the Sponsors and their timely support to the Entity in the form of subordinated loans. Going forward, the Company is planning to acquire debt to finance CAPEX. Material improvement in cash flows in line with upcoming debt obligations remains imperative.
The ratings are dependent on the Company’s ability to sustain its operations in prevailing conditions. Significant deterioration in revenues and/or debt coverages due to the prolonged downturn leading to higher financial risk or subdued profitability will have a negative impact on the ratings. Saif Group's support to the Company will remain critical.

About the Entity
Kohat Textile commenced operations in 1967 and was listed on PSX in 1970. Kohat Textile’s is a subsidiary of Saif Holdings, with majority stake (~77.98%). The remaining shareholding rests with financial institutions (10%), general public (10.12%) and directors (0.87%). Saif Group is one of the renowned corporate groups in Pakistan. The Company operates with a single spinning unit having a capacity of 35,280 spindles - manufacturing specialized yarn.

The board comprises seven members, all from the sponsoring group, with Osman Saifullah Khan as the Chairman of the BoD. Board members have diversified experience, and relatively long association with the Company. Management control vests with Saif Group. Assad Saifullah – the CEO – primarily manages the Company’s affairs, supported by a team of seasoned professionals.

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.