Lahore, The Pakistan Credit Rating Agency Limited (PACRA) has maintained the entity ratings of Glamour Textile Mills Limited (GLMT), reflecting its adequate market share in Pakistan's textile spinning industry. Despite challenges such as raw material availability and economic pressures, the company's position in the industry is being closely monitored by PACRA.
According to Pakistan Credit Rating Agency Limited, Glamour Textile Mills, with its 42,384 spindles, holds a significant position in an industry that boasts an installed capacity of approximately 13.4 million spindles. As of FY23, the industry's capacity utilization was around 69.3%. Glamour Textile Mills primarily manufactures carded yarn in various blends and counts, focusing on a single product line with dependence on raw cotton. This concentration poses potential supply chain risks, especially in light of recent disruptions like economic recession and catastrophic flooding in Pakistan. These factors have impacted cotton crops, leading to a likely increase in production costs and, subsequently, finished goods like yarn.
Pakistan’s yarn production in FY23 witnessed a significant volumetric dip, and the projected cotton production for FY24 is expected to be around 11.5 million bales. The company's financial performance has been affected by the sluggish yarn demand, expensive raw material procurement, and increased interest and tax burdens, resulting in a loss after tax and squeezed margins. However, there is an anticipation of better local raw cotton yield in FY24, which could help in import substitution. The country currently requires 3.5 to 4 million bales of imported cotton.
The financial risk profile of Glamour Textile Mills is considered adequate, with optimal inventory management and reduced short-term trade leverage. However, the company's cash flows are under stress, putting pressure on its coverages. The company's low-leveraged capital structure provides some support to its financial position.
PACRA's ratings for Glamour Textile Mills are contingent upon the company's ability to sustain operations and capacity utilization under current challenging conditions. Critical factors for the ratings include adhering to an optimal debt matrix, maintaining adequate cash flows and coverages, and managing the impact of elevated energy tariffs on profitability and margins.