PACRA Maintains Entity Ratings of Khas Textile Mills (Private) Limited

Lahore, August 31, 2020 (PPI-OT): The ratings reflect the small yet adequate business profile of Khas Textile Mills (Pvt.) Limited emanating from a relatively small revenue base, thin margins, and profitability. The Company is associated with Khas Group of Industries. The Company manufactures various types of the cotton ring and open-end yarn. Despite challenging textile industry dynamics, Khas Textile managed to maintain its volumes. Subsidized gas rates for the textile industry have made the local textile industry cost-competitive, though the withdrawal of zero-rating status will affect the liquidity of the industry.

On a standalone basis, the Company’s sales volume increased due to capacity enhancement from last year’s completed BMR and better yarn prices. Increased cotton prices have put pressure on margins and, in turn, profitability. The Company has a highly leveraged capital structure and weak coverages. The Company has stretched its working capital cycle, though in line with the industry average. Limited cash flows from operations and higher finance cost led to stretched coverages. These are expected to improve due to the repayment of long term loans in the near future. The debt structure is skewed towards short-term borrowings, which led to an asset-liability mismatch. The overall governance framework needs strengthening.

COVID-19 has impacted the entire textile chain as demand contracts due to shutdown in domestic and global markets and tough economic conditions. Recent SBP measures will provide some respite in this regard. The Company’s production facilities were shut down in line with the provincial Government’s directive of lockdown and now the situation is becoming normal day by day.

The ratings are dependent upon the management’s ability to improve margins, profitability, and financial profile of the Company. Improving asset-liability will be critical. Meanwhile, strengthening of governance practices will have a positive impact on the ratings. Any deterioration in debt coverages leading to higher financial risk or substantial losses will have a negative impact on ratings. Khas Group of industries has a presence in diverse sectors; including textile, aluminium, poultry, socks, and knitwear and import of building hardware.

For more information, contact:

Analyst

The Pakistan Credit Rating Agency Limited (PACRA)

Awami Complex, FB1, Usman Block New Garden Town,

Lahore – Pakistan

Tel: +9242 586 9504 -6

Fax: +9242 583 0425

Email: hammad.rashid@pacra.com

Web: www.pacra.com