PACRA Maintains Entity Ratings of Khas Textile Mills (Pvt.) Limited

The spinning industry is highly fragmented and consists of ~368 dedicated spinning units with an estimated size of PKR 775bln and 13.4mln number of spindles installed as of FY23, according to an economic survey of Pakistan. As of FY24 the projected cotton production estimate is revised and projected to be 12.8mln bales and currently, production reached up to ~10.2mln bales surpassing FY23's total production of 4.91mln bales. Pakistan's requirement for imported cotton stands at 2.5mln bales to 3mln bales this year. The recent elevation of energy tariffs and the availability of locally procured raw cotton are the prime challenges specific to the industry. Overall, the industry's cash flow and in turn liquidity remains stretched. This, along with high working capital requirements and related finance cost challenges led the industry's outlook to be placed on Watch.
Khas Textile Mills (Pvt.) Limited (“Khas Textile” or “the Company”) manufactures various types of cotton rings and open-end yarn. The Company is considered among the evolving players in the industry. The ratings reflect the Company’s adequate business profile. Holding an association with Khas Group which holds a presence in textile, energy, aluminum and hardware along with livestock farming, demonstrates stable financial strength. During FY24, the Company’s topline reflects an uptick of ~40%, driven by the revival of demand for textile products. Topline posts a tilt towards the local market (~70%) along with an evolving presence in the international markets. GP margins remain low due to increased raw yarn/fiber costs, followed by energy costs. On the net level, margins remain low as compared to peers. On the financial risk front, borrowings remain high reflecting high working capital requirements. Additionally, the Company holds related party exposure. Coverage remains insufficient, while leverage continues to be high. Efforts to strengthen the governance framework remain pivotal to ratings.
Ratings are dependent on the Company's ability to grow and sustain business profile, along with healthy margins. Any deterioration in debt coverages leading to higher financial risk or substantial losses will have a negative impact on ratings.

About the Entity
Khas Textile Mills (Pvt.) Limited (“Khas Textile” or “the Company”), incorporated in 2001 as a private limited company. The Company is into manufacturing various types of cotton rings and open-end yarn and operates 19,200 spindles and 864 rotors at a purpose-built facility in Nooriabad, Karachi.
The Company is wholly owned by the sponsoring family, with the ownership equally divided between the sons of Mr. Haji Ashfaq Ahmed: Mr. Khurram Ashfaq (50%) and Mr. Noman Ashfaq (50%). Mr. Ashfaq Ahmed is the Chairman of the Board, while Mr. Khurram Ashfaq, the Managing Director. He is supported by an experienced management team.