PACRA Maintains Entity Ratings of Zahir Khan & Brothers

The ratings reflect the financial and business strength of Zahir Khan & Brothers (ZKB or the Firm). As one of Pakistan's leading contractors, ZKB is renowned for executing large-scale infrastructure projects both independently and in collaboration with various joint venture (JV) partners. The Firm is spearheaded by Zahir Khan and his family, a prominent name in the construction sector. ZKB has an extensive track record of working with international donor agencies, which fund the majority of its projects. This funding serves as a safeguard against challenges such as delays in fund disbursement and political uncertainties while demanding high-quality standards and rigorous reporting. The Firm's anticipated financial growth depends on easing overall economic stress and the timely commencement of projects already awarded, including several significant Public-Private Partnership (PPP) initiatives. The current portfolio of ongoing projects, along with those in the bidding and prequalification stages, is substantial. This is reflected in the FY24 financials, where the topline reached PKR 20,851mln, a significant increase compared to PKR 11,207mln in FY23. However, the higher topline did not translate into a proportional improvement in the bottom line, with the firm reporting a profit of PKR 8,796mln. This figure also includes a revaluation gain of PKR 5,653mln, which contrasts with the FY23 profit of PKR 10,360mln. Being an integral part of business model, the Firm meets its business funding needs by non-funded lines of banks and suppliers’ credit mostly, however, it has also started procuring short-term borrowings recently to support its working capital requirements. With the expanding project portfolio, non-funded exposure is expected to grow; however, this is mitigated by the Firm's strong equity base and substantial investment property portfolio, which provide financial stability and reassurance. Additionally, ZKB is in the process of raising funds by exploring the debt market to support its working capital needs, diversifying its funding sources.
The ratings are dependent on the upcoming big projects undertaken by management for sustainability of the business and financial structure of ZKB. Governance and corporate structure must evolve to align with best practices and enhance financial transparency. The management has demonstrated its commitment to this transformation by initiating steps to corporatize the Firm's legal structure. A significant milestone in this journey is the establishment of a corporate entity, ZKB Construction private limited, owned by the Firm, reflecting its vision to fully corporatize and modernize its operations. Financial metrics need to be upheld as well.

About the Entity
Established in 1970, Zahir Khan & Brothers (ZKB) is a prominent player in Pakistan’s construction sector, undertaking projects across diverse segments of the industry. With a portfolio encompassing hundreds of projects, ZKB has delivered a wide range of construction work across the country. Registered as a partnership firm, ZKB is owned by four partners. The key founder and CEO, Mr. Zahir Khan, holds a 51% stake and brings nearly four decades of extensive experience and in-depth knowledge of the construction industry. Mr. Mohabbat Khan owns 41%, while Mr. Suleman and Mr. Samiullah each hold a 4% share.