PACRA Revises Short-Term Entity Rating of Ahmed Fine Textile Mills Limited

The ratings reflect Ahmed Fine Textile Mills Limited's (Ahmed Fine) association with a renowned business group in Pakistan. The Company was primarily engaged in the spinning business and now the company has also acquired the wholly owned subsidiary – Fazal Rehman Fabrics Limited – a weaving unit. This has further strengthened the positioning of the company on a standalone basis. Furthermore, the company has embarked upon a value-added segment by establishing a towel unit with an operational capacity of 25 terry looms. The entity ratings incorporate the Company's improving business profile plus its strong financial risk matrix reflected by a reasonable working capital cycle; healthy coverages; and moderately leveraged capital structure. The Company achieved commendable profitability in FY22. The momentum was maintained in the subsequent quarter. During 1QFY23, the Company's revenue grew to stand at PKR 8.9bln. Healthy margins have strengthened the net income to stand at PKR 479mln. The management is positive about sustaining the growth momentum, going forward. Furthermore, Ahmed Fine is planning on enhancing its spinning capacity by 18,000 spindles deemed to be operational in the medium term thereby improving its business profile to boost revenues. The import of raw materials has become a challenge to manage which is quite essential for continued operations. During 7MFY23, the textile exports were valued at $10.08bln compared to $10.93bln, reflecting an 8% decline YoY – the declining trend has been recorded in the last few months. The decline in exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand for yarn in international markets is also a challenge. The analysis of 5MFY23 reveals that among value-added items, bedwear has witnessed the largest decline of 19% (on an MoM basis), down to $217 million. Knitwear remained on the downward path in October 2022 and declined by 10% to $392 million. Among non-value-added items, the cotton yarn has shown the largest decline of 35%. Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries. The demand pattern is expected to improve post-Jun-23.
The ratings are dependent on the continuous strengthening of business operations under the current economic conditions; and a sound financial profile with good coverages and moderate leveraging. The Company’s ability to generate ensuing cash flows to fulfill its financial obligations will remain critical for the ratings.

About the Entity
Ahmed Fine Textile Mills Limited (Ahmed Fine), incorporated in 1989, is engaged in the manufacturing and marketing of different varieties of yarn, fabric, and towels. The company operates two spinning units having a total capacity of 78,960 spindles, and one weaving unit having a total capacity of 517 looms inclusive of 25 terry looms. The power requirement stands at 20MW; met through captive sources while having the WAPDA as a backup. The board of directors contains seven members in total. Mr. Rehman Naseem, the CEO, carries with him over two decades of experience in the textile sector. He is supported by a team of seasoned professionals, supplementing his capabilities.