Press Release

VIS Reaffirms Entity Ratings of Al-Karam Towel Industries (Private) Limited

Karachi, March 3, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Al-Karam Towel Industries (Private) Limited (AKTI) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 17, 2018.

Ratings assigned to AKTI incorporate the company’s strong market position (~10% market share in towel exports), healthy double-digit sales growth over time and improvement in profitability margins. Growth in recent years has largely been a function of significant rupee depreciation and higher volumes sold while over the time decrease in average selling prices (USD/Kg) in international market was offset by high dollar-rupee parity. Ratings also favorably take into account AKTI’s integrated operations from spinning (facility set-up in FY19) to weaving to finishing which results in operational efficiencies and timely servicing to clients. Moreover, in order to further reduce dependence of yarn procurement through local market, the company is undergoing a second phase of expansion in spinning segment. This project is expected to come online in March 2020 and will cater to two-third of AKTI’s yarn requirements.

Given high demand levels of towels in international market, management envisages 50% growth in its production capacity through a planned capex in weaving, dyeing and stitching segments in a phase wise manner over a one year period. Besides catering to additional demand from existing customers, this capacity enhancement project will enable the company to diversify its product mix in order tap high value-added product markets.

Business risk profile is supported by strong focus of government on enhancing exports for sustainable growth. Improving perception and law order situation of the country along with buyers focusing on Pakistan to reduce geographical diversification risk has increased interest from clients. However, cost competitiveness remains a challenge particularly vis-à-vis regional peers. Moreover, pricing power is limited as reflected by consistent decline in dollar pricing of products.

AKTI’s higher profitability during FY19 has resulted in healthier cash flow generation which provides comfort to overall liquidity profile. Trade debts and inventory levels have witnessed a significant increase in FY19 due to a shift product mix of select existing customers. Management expects the same to revert to normal levels over the rating horizon. Leverage indicators have trended upwards and are expected to remain elevated given capacity expansion and efficiency enhancement projects. Ratings are dependent upon successful execution of business strategy and maintaining leverage indicators within prudent levels.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 202) or the undersigned (Ext: 201) at (021) 35311861-66 or email at

Javed Callea

Applicable Criteria: Industrial Corporates (May 2016)

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