PACRA Maintains Entity Ratings of Khas Textile Mills (Pvt.) Limited

The ratings reflect the small yet adequate business profile of Khas Textile Mills (Pvt.) Limited. The company manufactures various types of cotton rings and open-end yarn. The company’s association with the Khas Group exhibits the good financial muscle of the sponsoring family. The group has a forte in diverse sectors; including textile, aluminum, poultry, socks, knitwear, and import of building hardware. Over the last few years, the company’s topline portrayed an improving trend with sales mix largely from the local market. During FY22, the enhanced production capacity exacerbated sales volume attributable to higher demand for textile products. The repercussions were reflected in the form of a manifold increase in the bottom line (FY22: PKR 230mln; FY21: PKR 41mln). The margins posted a healthy increase owing to an incline in the revenue base. The free cash flows from operations were recorded as historically high. The borrowing book remained dominated by short-term borrowing. The financial risk profile improved due to an increase in coverage. During 1HFY23, the growth of the topline was in line with small spinning players. The operating expenses recorded an increase and net profitability declined sizably. Margins and coverage were affected while borrowings remained skewed towards the short-term borrowings reflecting high working capital requirements. The management is concerting efforts to prudently manage its cashflows. Further, the management is planning to overcome the challenge emanating from high markup by availing Export Finance Scheme. It shall assist in curtailing markup expenses as well as improve the flow of cashflows. The management is currently seeing good capacity utilization levels in July and August. The order book is tilted towards shorter tenure to manage any unforeseen challenges. During FY23, textile exports were valued at $16.5 billion compared to $19.33 billion, reflecting a dip of 15% YoY – the declining trend has been witnessed by the start of FY23. The exports tumbled attributable to high energy costs, shortage of cotton, and uncertainty in the foreign exchange rate. The suppressed demand pattern exhibited by export avenues was also a challenge. During FY23, value-added products such as knitwear, bedwear, towels, and ready-made garments witnessed a decline of 13% YoY. The basic textiles including raw cotton, cotton yarn, and cotton cloth posted a drop of 21% YoY. During the month of June 2023, cotton yarn exports increased by 7% MoM. The value-added exports reported a volumetric increase of 16% on a MoM basis.
Strengthening governance practices will have a positive impact on the ratings. Any deterioration in debt coverages leading to higher financial risk or substantial losses will have a negative impact on ratings.

About the Entity
Khas Textile Mills (Pvt.) Limited was incorporated in 2001 as a private limited company. The Company is engaged in manufacturing different types of cotton rings and open-end yarn. The Company currently operates 19,200 spindles and 864 rotors and has a purpose-built manufacturing facility located in the industrial hub -Nooriabad. The Company is entirely owned by the Ashfaq family, which includes Mr. Haji Ashfaq Ahmed and his wife (20%) and two sons (i) Mr. Khurram Ashfaq (40%) and (ii) Mr. Noman Ashfaq (40%) individually and through their respective families. The board comprises five directors. Mr. Ashfaq Ahmed is the Chairman of the Company. Mr. Khurram Ashfaq – Managing Director – has over 23 years of experience in the textile industry and is supported by an experienced management team. Rahman, Sarfaraz, Rahim, Iqbal, Rafiq & Co. Chartered Accountants are the auditors of the company.