PACRA Maintains Entity Ratings of Ali Embroidery Mills (Private) Limited

The assigned ratings of Ali Embroidery Mills (Private) Limited (“AEML” or “the Company”) reflect its passable business profile in the textile landscape. The Company functions in the dedicated embroidery segment, which is considered a highly fragmented part of the textile value chain. According to their management presentation, AEML currently maintains 100% capacity utilization and operates with a production capacity of 122 multi-head embroidery machines and 33 Schiffli machines. The Company is a small-scale enterprise but has demonstrated consistent growth in its business volumes over the past three years. The top line of the Company stood at PKR 1,242mln in FY22, followed by PKR 1,580mln in FY23, and PKR 2,161mln in FY24. The majority of the company's business was generated from sales to related parties, indicating concentration risk. However, the Company’s management is mindful of managing this risk by prudently expanding its customer base, which will ultimately enable them to sustain their growth trajectory. During FY24, most of the Company's business risk fundamentals remained intact; however, the surge in raw material prices due to a change in the prime supplier resulted in a dilution of gross margins, reflecting an adequate price transferability matrix. The optimization of the operating expenses-to-sales ratio has mitigated this impact on net margins and overall cost structure. The Company intends to venture into the online retail business to diversify its revenue streams and enhance its existing production capacity. The Company's financial risk profile is considered adequate with a stretched net working capital cycle and optimal short-term trade leverage. The cashflows and coverages have shown slight improvement. The Company maintained a highly leveraged capital structure, dominated by loans from sponsors, to supplement its working capital requirements. The textile exports of the country reached USD 16.7bln in FY24, a slight increase from USD 16.5bln in the previous year, reflecting a growth of 0.93% YoY. The highest contribution came from the composite and garments segment at USD 9.1bln, followed by the weaving segment at USD 6.5bln and the spinning segment at USD 1.0bln. During 5MFY25, the textile exports stood at USD 7.6bln. In FY25, the transition from the final tax regime to the normal tax regime is set to impact the profitability matrix of export-oriented units, with a 29% tax on profits and a super tax of up to 10%. The consistent decline in policy rates over the last two quarters, along with the anticipation of further reductions, is expected to provide a cushion in the financial metrics of the industry.
The ratings are dependent on the Company's ability to improve its business volumes while maintaining the profitability matrix at an optimal level. The sufficient generation of cashflows from core operations remains imperative. Improvement in the governance framework is considered important.

About the Entity
Ali Embroidery Mills (Pvt.) Limited was incorporated in Pakistan in 1972 as a private limited Company. The Company is associated with the Sefam Group of Industries, and EastGate Industries (Pvt.) Ltd headquartered in Lahore. The Company has a three-member sponsoring family board. The board is chaired by Mr. Hamid Zaman, while the CEO, Mr. Tariq Zaman oversees the Company’s affairs.