PACRA Maintains Entity Ratings of Allawasaya Spinning Mills (Private) Limited – Assigns Rating Watch

Lahore, March 06, 2023 (PPI-OT): Allawasaya Spinning Mills (Pvt.) Limited is a spinning mill engaged in the manufacturing and sale of yarn. The Company manufactures various types of cotton rings and open-end yarn and generates almost 100% of its sales through local customers (70% are from Karachi and 30% are from Faisalabad). Assigned ratings take into account double-digit revenue growth and stood at PKR 3.7bln (FY21: PKR 1.5bln). The profitability of the Company has grown over the years supported by the margins led by operating efficiencies. The company’s financial risk profile remains good. Following the improvement in cash flows, interest, and debt coverages along with consistently low leveraged capital structure. In 1HFY23, the Company’s performance observed significant dilution.

The company’s operating profit witnessed a dip YoY on the back of higher expenses. The finance cost increased manifold and the company recorded net losses. This was due to multiple factors, chief among them was the impact of a volumetric decline and cotton price adjustment amidst high inflation and significant depreciation of the Pak Rupee. Furthermore, floods’ impact on crops resulted in a shortage of raw materials locally produced. The rating watch has been incorporated attributable to incurred losses and the aforementioned parameters. Going forward, with better efficiency and a specialized product profile, the management expects Allawasaya Spinning’s margins to improve further.

During 7MFY23, the textile exports were valued at $10.08bln compared to $10.93bln, reflecting an 8% decline YoY – the declining trend has been recorded in the last few months. The decline in exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand for yarn in international markets is also a challenge.

The analysis of 5MFY23 reveals that among value-added items, bed wear has witnessed the largest decline of 19% (on an MoM basis), down to $217 million. Knitwear remained on the downward path in October 2022 and declined by 10% to $392 million. Among non-value-added items, cotton yarn has shown the largest decline of 35%. Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries. The demand pattern is expected to improve post-Jun-23.

The ratings are dependent upon the management’s ability to improve margins, profitability, and financial profile of the Company. This includes keeping the debt levels manageable and improving the business profile of the company in upcoming quarters. Sponsor’s support and business acumen remain important for the ratings.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com

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