PACRA Maintains Entity Ratings of Allawasaya Textile and Finishing Mills Limited – Assigns Rating Watch

Lahore, March 06, 2023 (PPI-OT): Allawasaya Textile and Finishing Mills are engaged in the manufacturing and sale of PC Yarn, PV Yarn which is man-made fiber and CVC Yarn. In FY22, due to better yarn prices in the local market, the Company’s topline grew by 36% and stood at PKR 4.8bln (FY21: PKR 3.5bln). Similarly, due to high expenses, the company’s net profitability reflects a slight attrition in FY22. However, in the medium term, the Company’s performance witnessed 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 debt structure is skewed towards short-term borrowings. 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 the Company’s margins to improve.

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 sponsor’s support and management’s ability to improve margins, and net profitability in upcoming quarters. This includes keeping the debt levels manageable. Any further deterioration in margins or coverages will have a negative impact on 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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