PACRA Maintains Entity Ratings of Kohat Textile Mills Limited

Lahore, December 27, 2019 (PPI-OT): The ratings reflect moderate business profile of Kohat Textile Mills Limited (Kohat Textile). The Company caters to the needs of local industry and deals in specialized products i.e. polyester yarn, acrylic yarn and viscose yarn. Kohat Textile is a net importer of raw material. This exposes the Company to exchange rate volatility and eventually dilutes its profit margins. However, the impact was limited as the Company has adequately invested in technological up gradations and expansion projects to remain cost competitive as reflected in improving margins.

In FY19, the Company’s revenues grew, posting a growth of 32% year-on-year. However, in 1QFY20, revenue dropped on the back of zero rated sales tax withdrawal by the Government, which lead to lower demand from the market. The Company’s Net Margin has been affected adversely due to significant hike in finance cost caused by 85% increase in policy rates, reflected by reduced coverages.

The Company’s financial profile is considered adequate on the back of adequate working capital cycle, coverages and moderate leverage. Going forward, improvement in cash flows is critical for meeting financial needs. The assigned ratings derive comfort from experienced management team, strong financial muscle of the Sponsors and their timely support to the Entity in the form of subordinated loans.

The ratings are dependent on managing financial obligations while sustaining business margins, along with prudent management of working capital. Any deterioration in revenues and/or debt coverages leading to higher financial risk or subdued profitability will have a negative impact on the ratings. Saif Group’s support to the Entity will remain critical.

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