PACRA Maintains Entity Ratings of Gul Ahmed Textile Mills Limited

Pakistan Credit Rating Agency (PACRA), has maintained the entity ratings for Gul Ahmed Textile Mills Limited at “A” for long term and “A1” for short term, while a “stable” outlook is forecasted for the company.

PACRA had previously assigned Initial Entity Ratings to Gul Ahmed Textile Mills on March 5^th 2018.

PACRA’s rating of Gul Ahmed reflects the entity’s established business profile with strong presence in the broader textile value-chain; enabling the company to manage volatility in textile business.

According to the agency, presence in retail with renowned brand "Ideas" in local market added up to stronger business risk. The entity achieved a sizable revenue base, while focus on value added products brought higher gross margins. This emanated from export market orientation, targeting established niche of quality-conscious institutional buyers. “Nevertheless, it led to customer concentration, longevity of relationship with big-name clients in addition to sustained quality helping the entity manage its risk”, reported the agency.

As per the press release, government’s export textile package and recent devaluation of rupee boosted exports, thereby improving the overall performance of the textile sector. The devaluation is expected to benefit revenues in the future as well. However, net margins are currently squeezed on the back of hefty branding activities and cut throat competition in local market.

Gul Ahmed's financial risk profile is relatively strained amidst rising interest rates; characterized by higher long-term debt. However, it is supported by improving cash flows, and, in turn, adequate debt-servicing ability. Working capital cycle is stretched on the back of higher inventory needs.

The report suggests that the company revamped its production operations recently, replacing spinning and weaving facilities with latest technology. Moreover, retail strategy in local market was invariably updated to cater changing demands amidst rising competition. These initiatives are expected to result in easing net margins and hence improved cash flows.

The ratings are dependent on the company's ability to sustain its business profile. At the same time, prudent management of its working capital needs and meeting financial obligations will remain important. Improving revenue stream while its margins will provide breather to coverages.

Gul Ahmed Textile Mills Limited (Gul Ahmed) - listed on Pakistan Stock Exchange, commenced operations in 1953. The company, is engaged in the manufacturing of yarn, fabric, garments and home textile products. Management control lies with Bashir family, holding majority stake (70%) in GATML - through Gul Ahmed Holdings. GATML has strong presence in retail sector through one of Pakistan’s premier retail brand ‘Ideas’. It operates with 110 retail outlets all over Pakistan. Gul Ahmed exports 56% of its total revenue while rest is in local market including retail.