Lahore, December 28, 2018 (PPI-OT): The ratings reflect stable business profile of Zahidjee Textile. The company mainly operates in spinning segment, followed by a weaving unit. Continuous expansion and BMR activities have led to significant growth in topline in recent years. While recent devaluation has benefitted the company, high input costs driven by rising cotton prices and power cost have kept gross margins relatively stagnant, though largely at par with peers. With currency devaluation and full operations of recently completed spinning unit, margins are expected to improve.
Recent expansion and rise in working capital needs has increased financing requirements. However, leveraging remains modest. The company has utilized fixed interest rate lines that provide some respite in rising interest rate environment. The financial risk profile remains strong. This is supported by improving free cash flows and, in turn, strong coverages. The company is in the process of restructuring its Board through induction of new independent directors, which is expected to improve governance structure.
The ratings are dependent on sustaining business margins as well as strong coverages and financial profile. Meanwhile, optimal utilization of recent capacity enhancement is considered important. Going forward, buildup of a non-core income stream will have positive implications on ratings along with better governance framework.
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Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
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Lahore – Pakistan
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Email: hammad.rashid@pacra.com
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