Karachi: The entity rating of Towellers Limited, a key player in Pakistan’s textile sector, has been maintained at 'A/A1' (Single A/A One) by VIS Credit Rating Company Limited. The rating was announced in a press release dated March 28, 2025, and reflects a stable outlook amid the challenging economic conditions facing the textile industry.
Towellers Limited, established in 1973 and converted to a public limited company in 1994, operates vertically integrated mills in Karachi, specializing in the manufacture and export of home textiles and garments. The company's primary export markets include Europe and the USA, with operations based in the F.B. Area, North Karachi, and the Korangi Industrial Area.
The textile sector in Pakistan has been grappling with numerous challenges. The business risk profile of the sector is influenced by economic cyclicality and fierce competition, leading to sensitivity in demand. The fiscal year 2023 saw the sector impacted by flooding, which damaged cotton crops, along with inflation and import restrictions resulting from limited foreign exchange reserves. These factors contributed to a decline in yarn production. Despite a 79% increase in cotton production in FY24 compared to FY23, this was primarily due to a low base effect. As of October 2024, cotton production plummeted by 59.4% compared to the same period in 2023, with only 2.04 million bales produced. The USDA forecasts a production of 5.55 million bales for FY24/25, acknowledging a reduced cotton area of 2 million hectares. Additionally, the sector faces challenges such as rising energy costs, lack of subsidies, and climate-related disruptions.
Despite these adversities, textile exports saw growth in the first quarter of FY25, driven by more affordable imported cotton and a strategic focus on value-added products. This positive trend came amidst the sector's transition from the Final Tax Regime to the Normal Tax Regime, which has strained financial performance further. The profitability of textile exporters remains contingent on cotton market dynamics, inflation, and foreign exchange risks.
According to information available from the Pakistan Stock Exchange (PSX), Towellers Limited's financial profile demonstrated modest sales growth; however, profitability margins experienced a notable decline. This downturn was primarily attributed to increased costs in purchases, fuel, and power, compounded by a higher tax burden and the absence of rupee depreciation.
The company maintains a conservative capitalization structure, characterized by minimal short-term debt and strong cash balances that nearly cover outstanding debt obligations, ensuring a solid Debt Service Coverage Ratio. Looking forward, the company's focus will remain on maintaining a robust capital structure and enhancing profitability margins, which are crucial for sustaining its ratings.
These developments highlight the resilience of Towellers Limited as it navigates economic and sector-specific challenges, supported by its stable financial management and market presence.