PACRA Maintains Entity Ratings of H.A.R Fibres (Pvt.) Limited

Pakistan’s spinning sector comprises ~368 spinning units consisting of ~13.4mln spindles. Cotton production increased by ~70.9% YoY in FY24, recorded at ~8.4mln bales (FY23: ~4.9mln bales) owing to an increase in the area under cultivation, a better quality of pest-resilient seeds, favorable weather conditions, and attractive fixation of the intervention price of cotton. As a result, cotton imports drop significantly to ~1.2mln bales (FY23: ~4mln bales). The spinning sector in Pakistan is likely to face challenges in FY25 due to rising costs, high energy tariffs, and limited competitiveness. Despite economic recovery, profitability margins are under pressure, and reliance on imports is expected to grow.
The ratings of H.A.R Fibres (Pvt) Limited ('H.A.R Fibres' or 'the Company') incorporate the Company's adequate position within the spinning segment of the textile industry. With a spindle count of ~20,000, the Company produces carded yarn in three blends - Cotton, Polyester cotton, and Viscose (Coarse: 4s – 30s). The Company sources ~80% of its raw material, including polyester, viscose, and lyocell, from China, Thailand, and Indonesia, while the remaining is procured locally from Sindh and Punjab. During FY24, the Company posted a value-driven uptick of ~34% in revenue. However, the Company faces risks due to its reliance on a single segment and higher customer concentration. On a comparative basis, business margins remain on the lower side. However, regular BMR to improve efficiency would improve margins going forward. On the financial risk front, the liquidity profile benefits from moderate coverage. Additionally, the Company's capital structure is moderately leveraged, with Sponsors injecting ~PKR 90mln as equity during the period, increasing shareholders equity to ~PKR 585mln. However, the borrowing cushion has been reduced. Moreover, the Sponsor's acumen to manage through challenging times bodes well for the ratings. Going forward, the Company's ability to diversify its customer base, enhance margins through efficiency improvements, and maintain a stable financial risk profile will be critical for sustained growth. This, along with streamlining the Company's governance framework, would benefit the decision-making process and, in turn, the overall performance of H.A.R Fibres.
The ratings depend upon the management’s ability to improve margins, profitability, and the Company's financial profile. This includes keeping the debt levels manageable and improving the Company's business profile. Improvement in the governance framework remains important for the ratings.

About the Entity
H.A.R Fibres (Pvt) Limited ('H.A.R Fibres' or 'the Company') was established in 2018. The Company is engaged in the manufacture and sale of yarn and operates a single spinning unit with ~20,000 spindles. Mr. Shahid Mehmood Sheikh owns a ~40% shares of the Company. While the remaining stake is equally divided among his sons: Mr. Haroon Shahid, Mr. Faizan Shahid & Mr. Adan Shahid. The Board is chaired by Mr. Shahid Mehmood Sheikh. Mr. Shahid is also the Chief Executive Officer (CEO) of the Company and is assisted by an experienced team.