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The Pakistan Credit Rating Agency Limited
Press Release

Date
25-Jul-21

Analyst
Sehar Fatima
sehar.fatima@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Assigns Positive Outlook to Entity Ratings of Fazal Cloth Mills Limited

Rating Type Entity
Current
(25-Jul-21)
Previous
(25-Jul-20)
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Positive Stable
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 9MFY21 Fazal Cloth generated revenue of PKR 38bln along with bottom-line of PKR 3.1bln. The Company enjoys strong equity base of PKR 33bln as at Mar-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 is an ongoing challenge. Fourth wave of the pandemic has started to prevail globally, implications of which are yet to be witnessed. However, textile industry dynamics have rebounded with increased exports in many segments of the sector. This is expected to remain healthy in medium term.
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.

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.