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The Pakistan Credit Rating Agency Limited

Date
11-Oct-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Aman Zafar
aman.zafar@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Corporate Rating Methodology (Jul 17) [View]
  • Correlation between long-term and short-term rating scale (Jun 17) [View]

Related Research

  • Sector Study | Textile (Oct 17) [View]
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PACRA Assigns Entity Ratings to Ahmed Fine Weaving Limited
 Rating Type Entity
Current
(11-Oct-2017)
 Action Initial
 Long Term BBB+
 Short Term A2
 Outlook Stable
 Rating Watch -

The ratings reflect adequate business profile of Ahmed Fine Weaving Limited – independently owned by a family stream belonging to erstwhile Fazal family of Multan. The company is engaged in the weaving business. The sponsor’s long association with the textile business is considered positive. The business risk is characterized by balanced revenue mix in terms of local and export sales. However, its margins need attention. These are keeping profitability limited. Relatively high effective tax cost is also a drag. The management is cognizant of this and intends to strengthen its performance by expanding volumes. For this, in addition to BMR (impacting around 30% of existing capacity), the company has already added 72 new looms (adding another 30% to capacity). New technology is expected to boost energy efficiency as well. The company currently enjoys good, financial risk profile reflected by (i) relatively efficient working capital cycle, (ii) healthy coverages, and (iii) moderately leveraged capital structure. The management plans to fund additional future expansion projects through a conservatively designed financial matrix. Longer tenure and competitive rates of underlying debt should help aligning the impact of these financial obligation with ensuing cashflows.

The ratings are dependent on nurturing business margins compliance with financial matrix. Enhancement of overall governance framework and careful management financial risk would remain important. Any shift in business strategy, impacting the risk profile of the entity, may negatively affect the ratings.
About the Entity
Ahmed Fine Weaving Limited was establish in Jul 2012. Its starting platoform emanated from the de-merger of Ahmed Fine Textile Mills Limited; wherein weaving business of erstwhile was transferred to AFWL. This was done through a scheme of arrangement whereby all the assets, liabilities, agreements, arrangements and other matters relating to the weaving business were transferred to AFWL. AFWL operates two weaving units with a total of 236 Air Jet looms.

The ownership of AFWL rests with one family. Two brothers Mr. Ashar Fazal and Mr. Imtiaz Fazal, hold the majority stake (~85%). The remaining shareholding rests with their sister.

The company’s board of directors comprises four members. Three members belong to the sponsoring family with one executive director. Sponsoring family dominance and absence of independent oversight indicates room for improvement in the governance framework of the company. Mr. Ashar Fazal the CEO of the company is also the Chairman of the board.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.
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