The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Assigns Positive Outlook to Entity Ratings of Fazal Rehman Fabrics Limited

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

The ratings reflect Fazal Rehman Fabrics Limited’s (Fazal Rehman Fabrics) favorable business profile characterized by sizable revenue base and healthy margins. Positive Outlook on the entity ratings incorporates the Company's improving business profile plus its strong financial risk matrix reflected by reasonable working capital cycle; healthy coverages. During 9MFY21, the Company's topline witnessed double digit growth to stand at PKR 10.3bln. During the period, improved margins and reduced finance cost have strengthened the bottom-line to stand at PKR 664mln. However, leveraging has increased during the period on account of capacity enhancements financed through long-term borrowing. Consequently, the Company possess high-leveraged capital structure. Additionally, the Company is planning to establish towel unit with capacity of 10 tons production per day. 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 probability of little attrition in demand remains on the horizon attributable to the outbreak of COVID-19 variants.
The ratings are dependent on the management’s ability to uphold the entity’s strong business performance. The assigned ratings derive comfort from the Company's association with Fazal Group. Meanwhile, prudent management of cash flows and maintaining strong coverage to fulfill financial obligations arising from increased leveraging will be critical, going forward.

About the Entity
Fazal Rehman Fabrics Limited (Fazal Rehman Ltd.), incorporated in 2004, started operations in 2007. It is engaged in manufacturing and marketing of greige fabric. The Company operates with 475 air-jet looms. Fazal Rehman Ltd. is a wholly owned subsidiary of Ahmed Fine Textile Mills Limited. Fazal Group has interests in Textile, Fertilizer, Energy, and Real Estate sectors.
The board of directors contain seven members in total. Management control vests with Fazal Group with Mr. Rehman Naseem (representative of Fazal Group) having operational control.

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.