PACRA Maintains Entity Ratings of Sargodha Jute Mills Limited

Lahore, October 30, 2019 (PPI-OT): The ratings reflect Sargodha Jute Mills Limited’s strong profile in jute industry emanating from robust market share and margins. Pakistan’s jute industry depends 100% on raw jute imports from Bangladesh. The prices of raw jute fluctuate in the international market and have been on a rising trend lately. This, coupled with devaluation of rupee in FY19, has increased the cost of raw material for the industry. The company was able to pass on these increased costs to consumers. The gross margins of the company improved in FY19 as management had purchased raw material earlier in anticipation of higher prices.

The higher jute product prices impacted demand as the top-line declined by ~20% in FY19. The top-line growth is expected to remain subdued in FY20 due to imposition of sales tax and condition of CNIC for purchasers, going forward. The margins of the company may come under pressure as the volumes contract and further increase in costs is passed to an extant.

The capital structure of the company is moderately leveraged comprising short-term borrowings only. The coverages of the company came under pressure due to significant increase in finance cost on the back of higher benchmark rate. The company manages its working capital adequately with cushion at trade level available. The ratings also incorporate strong financial strength of sponsoring family.

The ratings are dependent on the company’s ability to maintain its revenues and margins. At the same time, diversification in top-line and products is critical. Substantial decrease of margins leading to lower profitability and/or deterioration in coverages will have implications 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: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com