Lahore: The Pakistan Credit Rating Agency Limited (PACRA) has maintained its ‘A’ long-term and ‘A1’ short-term ratings for Fazal Cloth Mills Limited, reflecting the company’s robust position in Pakistan’s textile sector and its ongoing expansion and modernization efforts.
According to The Pakistan Credit Rating Agency Limited, Fazal Cloth Mills Limited, a key player in the textile industry, continues to strengthen its market presence through strategic investments in technology and capacity. The company, which is part of the historic Fazal Group, specializes in a diverse range of yarns and greige fabric, utilizing state-of-the-art machinery in its spinning and weaving units to ensure high-quality production.
During the first nine months of the fiscal year 2024, Fazal Cloth Mills achieved a significant growth in revenue, reaching PKR 72.09 billion, up from PKR 56.60 billion in the same period the previous year. The revenue increase was largely driven by local sales, which accounted for approximately 80.8% of total sales, while exports, primarily to China, the USA, and Portugal, comprised about 19.2%. The spinning segment was the largest contributor to revenue, followed by the weaving segment.
The company’s ongoing balancing, modernization, and replacement (BMR) activities, along with investments in additional capacities, have enabled it to expand business volumes. However, margins have faced slight pressure due to the high costs of raw materials needed to maintain product quality. Despite these challenges, Fazal Cloth Mills has managed to mitigate production costs by securing low energy tariffs from associated companies and by investing in solar energy, with an installed capacity of approximately 10 Mega Watts and an additional 5.639 Mega Watts under installation.
Financially, the company maintains a moderate risk profile with stretched working capital management, typical of the industry. Its working capital needs are supported by short-term borrowings and internal cash flows, and management is actively optimizing leverage and the working capital cycle, particularly in the timing of cotton procurement.
The ratings’ stability depends on the company’s ability to sustain profitability and business volume expansion while managing its debt levels effectively. Continued improvement in coverage ratios and stable cash flow generation from core operations are crucial for maintaining these ratings.