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The Pakistan Credit Rating Agency Limited

Date
22-Jan-2018
Analyst

Aman Zafar
aman.zafar@pacra.com

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

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

Related Research

  • Sector Study | Textile (Oct 17) [View]
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PACRA Maintains Ratings of Fazal Weaving Mills Limited
 Rating Type Entity
Current
(22-Jan-2018)
Previous
(29-Jun-2017)
 Action. Maintain Maintain
 Long Term A- A-
 Short Term A2 A2
 Outlook Stable Stable
 Rating Watch - -

The ratings of Fazal Weaving primarily reflect irrevocable and unconditional guarantee on all obligations from financial institutions by Fazal Cloth Mills Limited (Fazal Cloth) - the parent. Fazal Cloth is rated by PACRA (LT Rating: A-) Fazal Weaving, a wholly owned subsidiary of Fazal Cloth, runs a small sized spinning unit. The recent capacity enhancement helped in rationalization of fixed cost translating into improved margins; hence, generating profit for the company. Fazal Weaving's standalone risk profile is improving. However, it is still constrained by, (i) high business concentrations - customer as well as geographical (ii) debt driven expansion thus keeping pressure on coverages, and (iii) highly leveraged capital structure. However, regular financial support from Fazal Cloth cushions the risk profile. With better utilization level, nourishing margins, and utilization of free cashflows to settle debts, the management expects its standalone profile to improve.


The rating are dependent on continuation of irrevocable and unconditional guarantee on financial obligation by the parent company. Meanwhile, improvement in stand-alone performance of the entity is considered important.
About the Entity
Fazal Weaving - a wholly owned subsidiary of Fazal Cloth - is engaged in spinning business. Commercial production of yarn started in Apr-2014. The company operates with 39,600 spindles. Fazal Cloth - the Flagship Company of Fazal Group - is engaged in manufacturing of yarn and griege cloth. Fazal Cloth - a listed concern - is majority owned by Fazal Group and Fatima Group (~45% each).

Fazal Weaving has a seven member board of directors. The board has four representatives from Fazal Group and three representatives from Fatima Group. Representation of two families provides adequate challenge to management decision. Management control vests with Fazal Group. Involvement of Sheikh Naseem - the CEO, is limited as Mr. Rehman Naseem - the Chairman - primarily manages the company's affairs. Mr. Rehman is supported by an experienced management team.
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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