PACRA Maintains the Entity Rating of Reliance Weaving Mills Limited

The assigned rating of Reliance Weaving Mills Limited (“RWML” or “the Company”) reflects its association with the Fatima group as a sponsoring entity. The group is among Pakistan's largest and most progressive business conglomerates operating in diversified sectors including Fertilizers, Textiles, Sugar, Energy, Packaging, Mining & Trading of commodities. RWML is the textile arm of the group and operates as a composite unit comprised of spinning and weaving segments. The Company owns a state-of-the-art production facility with weaving capacity is amongst the highest in the country on a standalone basis with 490 looms. The governance framework is considered strong as the Company adopts the essence of best corporate governance practices with eminent member profiles. The weaving segment generates the majority of the business, ~62% of sales value, and the remaining is contributed by spinning. The augmentation of spinning capacity resulted in a 91% increase in yarn sales as of FY24. Consequently, the total revenue base grew by ~27% in FY24, amounting to PKR 41,461mln (FY23: PKR 32,682mln; 1QFY25: PKR 10,723mln), primarily driven by volumetric growth in the spinning division, coupled with improved pricing dynamics which slightly increased the gross margin to 11.7% (FY23: 11.1%). Intensive working capital requirements increased the reliance on short-term borrowings, which amplified the finance costs, reducing net profitability to PKR 120mln in FY24 (FY23: PKR 203mln). The Company's management remains focused on enhancing profitability through cost transformations to optimize cost competitiveness. For that purpose, the Company has initiated a 4 MW energy project, currently under installation, along with a 10 MW solar energy project in finalization. The gradual positive impact of declining policy rates is expected to cushion the Company’s liquidity profile and improve the cash flow management. The financial risk profile depicts room for improvement due to a decline in credit quality metrics, alongside a squeeze in the buffer for short-term trade leverage, which impacted working capital management. Furthermore, the Company maintained a leveraged capital structure of 64.6%, reflecting the industry's propensity for increased short-term borrowings. The country's textile exports reached USD 16.7bln during FY24 compared to USD 16.5bln in the same period, indicating a modest growth of ~0.93% on a YoY basis. In FY25, the transition from the final tax regime to the normal tax regime will impact the profitability matrix of the export-oriented units. This includes imposing a 29% tax on profits and up to 10% of the super tax.
The ratings depend on the Company’s ability to improve profitability and coverage while prudently managing its working capital requirements. Generating sufficient cash flows from core operations remains critical. Adherence to the debt matrix at an optimal level is a prerequisite for the assigned ratings.

About the Entity
RWML, a publicly listed entity, commenced operations in 1990 and is primarily engaged in the manufacturing and sale of yarn and fabric. The Company is majority-owned by the Fatima Group, which holds an 80.8% stake through individual shareholders and associated undertakings. The board consists of eight members, including the CEO: five non-executive directors, one executive director, and two independent directors. It is chaired by Mr. Fawad Ahmed Mukhtar. Six members represent the Fatima Group. Mr. Faisal Ahmad, the CEO of the Company, has extensive experience across multiple industries and was recently elected as the Chairman of the Pakistan Sugar Mills Association.