Arshad Textile Mills Maintains Ratings Amid Market Challenges

Karachi: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Arshad Textile Mills Limited at ‘BBB-/A2’, indicating adequate credit quality and a good likelihood of timely short-term repayment. The stable outlook reflects the company’s position despite facing ongoing challenges in Pakistan’s textile sector. The previous rating was announced on March 6, 2024.

Established in 1984, Arshad Textile Mills Limited is a public unlisted company based in Lahore, primarily involved in manufacturing and selling cotton-blended yarn and fabric. The ratings consider the business risks associated with the textile spinning sector in Pakistan, which has been affected by demand fluctuations, regulatory changes, and energy cost sensitivity.

The sector faces a persistent shortfall in cotton supply partly due to environmental factors and a shift by farmers to alternative crops. Political uncertainties and changes in global procurement preferences have also impacted exports, redirecting orders to regional competitors. The withdrawal of the Export Facilitation Scheme has increased reliance on duty-free imported yarn, affecting local demand.

Financially, Arshad Textile Mills has experienced declining revenues and profitability due to lower yarn sales and rising production costs. Although toll manufacturing for an associate company has led to some margin improvement, overall demand remains weak. The company’s capitalization metrics have remained stable, aided by loans from directors classified as equity. However, liquidity and coverage constraints persist due to insufficient cash generation.

Going forward, the ratings will be sensitive to Arshad Textile Mills’ ability to improve liquidity, coverage, and capitalization metrics. Continued financial support from sponsors and the conversion of sponsor loans into equity will be crucial for maintaining the current ratings.