PACRA Maintains Entity Ratings of Liberty Mills Limited

July 12, 2019 (PPI-OT): Liberty Mills’ ratings reflect diversity in revenue
stream emanating from textile business topped up with non-core recurring income
from investments. The holding company structure of the entity strengthens its
profile; investment book constitutes ~53% of the equity base and related income
has historically provided a significant buffer to the bottomline. Strategic
holding in IPP – Liberty Power Tech – has reaped strong dividends, though
showing recent decline due to ongoing liquidity issues in the power sector
resulting from stuck up receivables from GoP.

Over the
years, the Company has built a sizeable trading portfolio which exposes it to
market risk exhibited by recent volatility in the stock market. Liberty Mills,
a family-owned textile company, operates in the value-added textile segment –
processing of fabric and manufacturing of madeups – which insulates it against
volatility in cotton prices. The Company focuses on its established niche of
quality-conscious institutional buyers.

this has led to customer concentrations, longevity of relationship with
big-name clients in addition to sustained quality helps manage the risk. The
currency devaluation has benefited the Company’s export-oriented revenues while
business margins have recently shown improvement.

the Company’s financial risk profile remains strong, characterized by moderate
leveraging, healthy cash flows, and, in turn, strong debt-servicing ability.
Working capital cycle remains stretched, mainly due to increased raw material
procurement foreseeing currency devaluation, the positive impact of which is
visible in the bottomline. Long association of experienced management team adds
comfort. Governance framework needs improvement.

forward, Liberty Group – the sponsor – intends to expand its industrial footing
with a diversification philosophy. A number of medium and long term projects
are underway at group-level including (i) Pakistan Aluminium Beverage Cans
Limited (PABC) (ii) Liberty Wind Power One (Pvt.) Limited (iii) Engro PowerGen
Thar (Pvt.) Limited (iv) Pharmaceutical projects and (v) Hydro Power projects.

ratings are dependent on the management’s ability to sustain its margins while
improving growth in revenue. Meanwhile, continued utilization of beefed-up
capacities is considered important. Going forward, increase in business size, continuation
of dividend/other income stream vis-à-vis solidification of governance
framework will have positive implications on ratings.

For more information, contact:


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