PACRA Maintains the Entity Ratings of Fazal Cloth Mills Limited

The ratings reflect the appreciable presence of Fazal Cloth Mills Limited (“FCML” or “the Company”) in the competitive textile landscape. FCML is the flagship Company of the Fazal Group - one of the oldest textile conglomerates in Pakistan. The Company has a vision to establish a vertically integrated textile business producing value-added products. FCML specializes in producing greige fabric and a variety of yarns which include; multi-count/multi-twist, double, zero-twist, Organic, Supima, Lycra, Giza and USA cotton yarns. The Company is equipped with state-of-the-art machinery in its spinning and weaving units, ensuring high-quality production and efficiency. During 9MFY24, the Company maintained its growth trajectory, and the topline reached PKR 72.09bln (9MFY23: PKR 56.60bln); 80.8% of the contribution was driven by local sales, while ~19.2% was parked in the export segment. China is FCML's prime export destination in terms of business volumes along with the USA, Portugal and others. In terms of segment-wise business contribution, spinning is the foremost segment contributing PKR 61.16bln in revenue generation and PKR 1.06bln in profitability followed by the weaving segment contributing PKR 10.92bln in sales during 9MFY24. The continuous BMR activities and capital investments for additional capacities in preceding years have enabled the Company to expand its business volumes and strengthen its market presence. The slight dilution in margins is primarily due to expensive raw material procurement to maintain the premium quality of the product. The availability of low energy tariffs from associate companies and installed ~10 Mega Watt solar as an alternate energy source has created a buffer in the cost of production. Further, the installation of a ~5.639 Mega Watt solar is in the process which would be financed through the conventional borrowings. The Company’s top clients and suppliers are well-established entities which strengthen the sustainability profile. The Company’s financial risk profile is considered moderate with stretched working capital management depicting the industry norm. The Company’s working capital requirements are met through short-term borrowings and internally generated cashflows. The management of FCML is mindful to optimize its leveraging and working capital cycle by devising a strategy specific to the timing of the cotton procurement. The Company has maintained a leveraged capital structure along with stable cashflows.
The ratings are dependent upon the sustainability of the profitability matrix while expanding business volumes. The improvement in coverages and stable generation of cashflows from core business remains critical. Adherence to the debt matrix at an optimal level is a prerequisite for assigned ratings.

About the Entity
Fazal Cloth Mills Limited, a listed concern incorporated in 1966, is engaged in the manufacturing of yarn and fabric. The Company operates with eight spinning units (274,524 spindles, 8,820 open-end rotors, 1,752 MVS spindles/rotors, and 119 doubling machines) and a weaving unit (224 air jet looms). The Company’s major stake is owned by the Fazal Group and Fatima Group (44.6% each). The remaining shareholding rests with financial institutions (6.8%) and the general public (4%). Herein “Group means members of the family without reference to any law of Pakistan”. The Company’s board comprises nine members with an equal representation (three each) of Fazal Group and Fatima Group. The management control vests with the Fazal Group. The CEO, Mr. Rehman Naseem is supported by a team of highly qualified and seasoned professionals.