PACRA – PPI News Agency

PACRA Maintains Entity Ratings of Sargodha Jute Mills Limited

Lahore, March 30, 2023 (PPI-OT): The ratings reflect Sargodha Jute Mills Limited’s (“the Company” or “SJML”) prominent business profile in the jute industry of Pakistan emanating from considerable market share and wide-ranging final product utility. The core strength of the Company lies in two segments (i) Usage of Jute bags for the storage of essential food items at a large scale and (ii) Predominately exports of Jute value-added products. Pakistan’s jute industry imports 100% of its raw jute from Bangladesh.

The prices of raw jute fluctuate in the international market and have been observing a downward sloping trend mainly on the back of demand squeeze in European markets as the global recession triggers. This price benefit is offset by the following factors (i)massive PKR devaluation over the year, (ii) a hike in the policy rate, (iii) a higher tax burden and (iv) consistent escalation in oil, gas and electricity prices have impacted the cost of production and exerted pressures on the margins.

However, the Company was able to pass on a major portion of these costs to its customers. The rating takes comfort as despite these obstructive macroeconomic indicators the Company expects to sustain its top-line growth due to the nature of its product. The SJML have faced import restriction at a moderate level as ~40.0% of local sales are attributed to government departments and their final product utility classify under SBP circular No. 20 essential items- Imports related to essential sectors.

The top line of the Company has observed a growth of 42% YoY basis mainly supplemented by 17% volumetric growth and remaining supply side inflation impact. The SJML export segment has shown an impressive growth of 53.3% YoY basis by exploring new export avenues and dispensing some hedge with respect to PKR devaluation. Going forward, the Company is focusing to induce further growth in its export segment. The ownership and the board structure are comprised of sponsoring family members.

All members possess extensive industry-specific exposure and expertise. The financial risk profile of the Company is considered adequate with comfortable coverages, cashflows and a slightly stretched working capital cycle.

Capital structure is leveraged, where borrowings are comprised of only short term to meet their working capital requirements. The Company’s topline performance is aligned with SJML management’s earlier shared financial projections which provides comfort to the rating sustainability. The ratings are dependent on sustainable profits and market share while retaining sufficient cashflows and coverages. However, adherence to maintaining its debt metrics at an adequate level is a prerequisite.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com

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PACRA Maintains Entity Ratings of Masood Fabrics Limited

Lahore, March 30, 2023 (PPI-OT): Masood Fabric Limited (‘Masood Fabric’ or ‘The Company’) is a public unlisted limited company. The Company is principally engaged in the manufacture of yarn and greige fabric, primarily catering to the home textile market. The Company maintains two separate units, Unit-I consists of 32,640 spindles and Unit-II consists of weaving operations with installed 244 air-jet looms. During FY22, the company’s top line displayed an enormous increase recorded at PKR 24.1bln (FY21: PKR 14.7bln).

The sales mix tilted towards the export market attributable to a higher demand pattern for textile products during FY22. The exports comprise the sale of fabric (51.5%) and yarn (48.5%). The margins and coverages demonstrated an improvement on account of operational efficiencies. The company’s financial risk profile has reflected a comfortable position.

During 1HFY23, the company’s bottom line stood at PKR 619mln (1HFY22: PKR 1.2bln) on the back of higher expenses and finance costs which is in line with the industry trend. The company’s financial risk profile witnessed a slight attrition primarily attributable to a decline in coverages.

During 7MFY23, the textile exports were valued at $10.08bln compared to $10.93bln, reflecting an 8% decline YoY – the declining trend has been recorded in the last few months. The decline in exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand for yarn in international markets is also a challenge.

Among non-value-added items, cotton yarn has shown the largest decline of 35%. Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries. The demand pattern is expected to improve post-Jun-23. The ratings are dependent on the Company’s ability to prudently manage the working capital cycle, sustaining margins, and generating sustainable cash flows from core operations. Significant deterioration in business profile leading to deterioration in coverages and/or margins may impact the ratings.

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PACRA Maintains Stability Rating of Alfalah GHP Cash Fund

Lahore, March 29, 2023 (PPI-OT): The rating reflects strong risk profile of the Alfalah GHP Cash Fund’s (or the “Fund”). The Fund’s good credit quality and sound liquidity profile emanate primarily from its mandate to invest in Government Securities and in bank deposits. At end Dec’22, ~50.8% of Funds assets were allocated to T Bills, ~38.4% in Banks, ~3.6% in CPs whereas the remaining was invested in Others. As per the investment policy, the weighted average maturity of the Fund did not exceed 90 days during the period ending on 31st Dec’22.

While at end Dec’22, the WAM and Duration of Fund stood at 19 days, limiting the exposure to credit risk and interest rate risk. The unit holding pattern of the Fund was ~77.68% representing top ten investor concentration; exposing the Fund to a moderate level of redemption pressure. Going forward, the Fund intends to maintain the current allocation strategy. Material changes in the Fund’s asset allocation strategy, impacting its credit quality and/or exposure to interest rate risk, would affect the rating.

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PACRA Maintains Entity Ratings of Sindh Microfinance Bank Limited

Lahore, March 29, 2023 (PPI-OT): The ratings reflect the parentage and association of the bank with a financial institution and ultimately with a sub-sovereign. The bank has a conservative risk appetite. With the changing market conditions, the asset infection ratio stood at 3% as of end-Dec’22.

The net profitability of the bank exhibited growth to PKR 41mln in CY22 (CY21: PKR 27mln) owing to a rise in markup earned from advances. Moreover, a rise in GLP as micro-credit loans were recorded at (CY22: PKR 1,253mln; CY21: PKR 920mln), which is reflective of the growth in the last year.

The lending portfolio concentration is dominated by the flagship product “Sujag Aurat” (Visionary Women), focused on women’s entrepreneurship and financial inclusion. A major share of the funding has been obtained from the State Bank of Pakistan while a small chunk is through financial institutions.

Recently, funding from SBP has reflected a reduction attributable to controlling the finance costs by the management. Deposits surged to PKR 600mln (CY21: PKR 271mln) mainly driven by an increase in the savings account. During CY22, the equity of SMFB was recorded at PKR 1bln (CY21: PKR 969mln), the Bank has plans to apply for a National Level License in CY23.

The ratings draw comfort from the Bank’s association with the Government of Sindh. The financial risk profile is reflected by sanguine liquidity, adequate profitability, and low investment in non-earning assets. Going forward, the sustainability of profits and asset quality shall remain key essentials.

Pakistan Microfinance Industry (MFI) comprises 50 microfinance providers including 30 microfinance institutions (MFIs). Active Borrowers continued the increasing trend as 8.5 million borrowers were achieved during CY22, an increase of 5.6% compared to CY21.

Similarly, the GLP surpassed PKR 448bln during CY22, an increase of 26.1% compared to the GLP in CY21. The further analysis explains the major contribution to the growth of active borrowers and GLP was contributed by the MFB peer group where Mobilink MFB was at the top of the list due to the significant adoption of digital credit and greater outreach to the customer base.

NBMFCs peer group also contributed to the increase by adding 94,000 active borrowers and PKR 2.6bln in GLP. In the case of MFBs, PAR less than 30 days slightly increased to 5.3% (CY21: 5.2%). However, the PAR less than 30 days of MFIs recovered to report at 4.1% in CY22 (CY21: 5.5%).

The ratings are dependent upon the bank’s ability to aptly combat the emerging risks under the current scenario in order to keep its business and financial risk profile intact. Given the strong financial muscle of the sponsor, the Bank’s propensity to protect its performance indicators is imperative.

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PACRA Maintains Entity Ratings of Gharibwal Cement Limited

Lahore, March 29, 2023 (PPI-OT): Gharibwal Cement (the Company) has annual production capacity of 2.1mln tons. The Company has been conducting its business by selling cement to the localities located in close vicinity to the plant located in Ismail Wal District Chakwal. Gujranwala division remained the Company’s key market. The cement sector latest period 1HFY23 reported a reduction of 17% in cement production reflecting on economic downturn.

Increase in prices of all the construction materials has impacted demand for cement as well. Going forward, the same trend is expected to continue throughout the remaining fiscal year owing to economic constraints and political uncertainty. The company recorded a decrease of 5.2% in total dispatches for FY22.

Though the Company observed volumetric decrease in cement dispatches during FY22 but its topline has improved to PKR 16.193bln owning to incremental selling prices (FY21: 12.17bln). Therefore, showing a significant increase (33%). Similar trend was noticed in the first quarter ended Sept 2022 (1QFY23: PKR 3.82bln, 1QFY22: PKR 3.18bln).

The Company has equity base of PKR 16.8bln whereas it’s leveraging stands at 6.7%. The overall margins of the company also improved as compared to FY21 owing to better retention prices. In order to curtail the increasing energy prices, the Company has completed the construction and operations of Waste Heat Recovery (WHR) plant that generates electricity up to 12MW from waste hot gases of the process and 8MW from coal fired system.

Keeping the current phase of expansion in view, Gharibwal is working on its line II expansion project to expand its current capacity by 10,000 TPD in order to maintain their market presence in the industry. The financial profile remains adequate as long-term leveraging expected to increase if expansion would be financed with debt mix. The ratings draw comfort from sponsor families, having prime focus of the company.

Industry’s dynamics encompassing infrastructure development hence rising local demand is seen as an opportunity for the cement manufacturers. The ratings are dependent on upholding the company’s business vis-à-vis financial risk profile in the current economic scenario.

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PACRA Assigns Entity Ratings to H.A.R Fibres (Private) Limited

Lahore, March 29, 2023 (PPI-OT): H.A.R Fibres (Pvt) Limited reflects the adequate positioning of the company in the textile spinning industry. The company deals in the manufacturing of carded yarn of three blends: Cotton, Polyester cotton and Viscose (Coarse (1s –20s). The Company imports 70% of its cotton from the United States, Brazil, and Africa, with the remaining 30% coming from Punjab and Sindh. The efficiency parameters reflect room for improvement. The ratings incorporate the Company’s moderate yet improving business profile where revenue emanates from a single segment. Further improvement in the control environment remains vital.

Management meetings are held regularly with follow-up points to resolve or proactively address operational issues, eventually ensuring a smooth flow of operations. The liquidity profile is underpinned by adequate cash flow coverages in relation to outstanding obligations. The ratings also incorporate a low-leveraged capital structure. The Company’s capital needs emanate from financing inventories and trade receivables for which the Company relies on short-term borrowings (STBs). Going Forward, the Company is planning to start a BMR, which will add 1,000 rotors to the existing capacity which will enhance the total capacity to 30,232 spindles. The total cost of CAPEX is estimated to be PKR 100mln, which will entirely be funded from equity. BMR is expected to bring in efficiency gains, lowering cost per spindle, and will consequently improve margins.

The analysis of 5MFY23 reveals that among value-added items, bedwear has witnessed the largest decline of 19% (on an MoM basis), down to $217 million. Knitwear remained on the downward path in October 2022 and declined by 10% to $392 million. Among non-value-added items, cotton yarn has shown the largest decline of 35%. Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries. The demand pattern is expected to improve post-Jun-23.

The ratings are dependent upon the management’s ability to improve margins, profitability, and financial profile of the Company. This includes keeping the debt levels manageable and improving the business profile of the company in upcoming quarters. Sponsor’s support and business acumen remain important for the ratings.

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PACRA Maintains Stability Rating of UBL Cash Fund

Lahore, March 29, 2023 (PPI-OT): UBL Cash Fund (or the Fund) is a low risk profile Fund. The assigned rating reflects the strength of the Fund’s credit and interest rate risk profile. The Fund had allocated ~57.6% in T-Bills, ~17.9% in bank majority in AAA rated bank. Whereas ~1.8% in commercial papers rated AA and ~22.6% in other receivables at the end Dec’22.

The duration of the Fund stood at 1 day at the end Dec’22, limiting the exposure to interest rate risk. The WAM of the Fund stood at 29 days at the end Dec’22, limiting exposure to credit risk. The unit holding pattern of the Fund was ~49.79% representing top ten investor concentration. Going forward, any Material changes in the investment policy or the devised rating criteria for the assigned rating would have an impact on the ratings.

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