Analyst
Muhammad Harris Ghaffar
harris.ghaffar@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA maintains Entity Ratings of Gul Ahmed Textile Mills Limited
Rating Type | Entity | |
Current (07-Mar-24 ) |
Previous (07-Mar-23 ) |
|
Action | Maintain | Upgrade |
Long Term | AA- | AA- |
Short Term | A1 | A1 |
Outlook | Stable | Stable |
Rating Watch | - | - |
The rating reflects the appreciable presence of Gul Ahmed Textile Mills Limited (“the Company” or “GATM”) in the textile industry of Pakistan. The rating takes comfort from the consolidated financial strength of the Gul Ahmed group which primarily divest into Gul Ahmed Textile Mills Limited and Ideas (Pvt) Limited. Ideas (Pvt) Ltd. has built a strong forte in the retail space of the country and now has around 111 retail stores, offering a diverse range of products from home accessories to fashion clothing. In terms of topline contribution, mainly vest in home textile followed by spinning and apparel. During FY23, the Company generated a revenue of PKR 112bln, ~65.0% contributed by direct export sales. The Company optimally parks their revenue streams both in the local and export domains providing comfort to assigned ratings. The clientage base of the GATM is comprised of stable entities that exist in multiple export destinations including Germany, USA, other European countries and Singapore, providing a cushion to keep align performance with their financial projection has augmented the sustainability. However, the spinning segment is still the pinnacle in the Company's profitability generation. The expensive raw material procurement, inflated energy cost, operating expenses, and surge in finance cost have impacted the margins and profitability matrix of the Company. However, the execution of CAPEX for mega solar installation is under consideration to manage escalating energy cost risk. The Financial risk profile of the Company is considered moderate. The cash flows of the Company are viewed as sufficient as the working capital requirements are met through an optimal mix of internally generated cash and short-term borrowings. The coverage of the Company is considered adequate with a leveraged capital structure. The size of the textile industry in Pakistan is estimated to be PKR 2.62Trn ~3.0% of the total GDP as of FY23. The composite & garment segment in the textile sector has a contribution of ~ PKR 1.6Trn mainly dominated by knitwear, readymade garments, bedwear, and towels followed by PKR 775bln from spinning and PKR 637bln from weaving. The escalation in energy tariffs & finance costs, PKR devaluation, and ensuring the availability of optimum quality raw materials are prime challenges specific to the industry to assess the international market and stay price-wise competitive.
The ratings are dependent on the Company's ability to sustain its business profile while maintaining its profitability matrix at an optimal level. The sustainability of margins and improvement in coverages while expanding business volumes remain critical. The sufficient generation of cashflows to meet working capital requirements while retaining the debt matrix at a moderate level is a prerequisite. The sponsor’s commitment to providing support gives comfort to the ratings.
About
the Entity
GATM is listed on PSX and commenced operations in 1953. The Company has a remarkable history of operations in the textile value chain operating with a production capacity of 28,896 spindles, and 41,280 rotors to produce yarn having an average yarn count of 20s and 530 looms for weaving. The majority shareholding lies with Gul Ahmed Holdings (Pvt.) Limited (~55.86%). The Board comprises of seven directors including four members of the sponsor's family, one non-executive, and two independent directors. The Chairman, Mr. Mohammed Bashir, has over four decades of experience in the textile sector. The CEO, Mr. Zaki Bashir, oversees the Company's affairs.