US Apparel & Textiles (Pvt.) Limited

CREDIT RATING REPORT | Feb-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
22-Feb-25 A+ A1 Stable Maintain -
23-Feb-24 A+ A1 Stable Maintain -
04-Mar-23 A+ A1 Stable Maintain -
04-Mar-22 A+ A1 Stable Initial -
About the Entity

US Apparel & Textiles (Private) Limited was incorporated on February 18, 1987, as a private limited Company. It is principally engaged in the manufacturing and export of ready-made garments. Mr. Hafiz Mustanser is the CEO designate. He has over two decades of professional experience in the textile industry.

Rating Rationale

The assigned ratings of US Apparel & Textile (Private) Limited reflect its status as the flagship Company of US Group, one of Pakistan’s prominent textile conglomerates. The Group has established a firm footing in the international denim industry through its state-of-the-art production mechanisms and has built the capacity to produce top-notch quality products. It aims to grow by protecting its core business, moderately diversifying into attractive segments, and implementing good governance for the long-term sustainability of the organization. The group consciously avoids leveraging, a strategic decision overseen by sponsors who provide guidance and professional management to group companies. The company is primarily engaged in manufacturing high-quality ready-made garments that are exported to the USA, UK, and Europe. With experienced professionals in its management, the company operates autonomously with comprehensive reporting. The Company has a robust presence across the broader textile value chain, allowing it to scale business volumes despite macroeconomic challenges and industry-specific headwinds. This is evident by consistent growth in the Company’s topline over the last three years (FY24: PKR 61,159mln; FY23: PKR 51,916mln, FY22: PKR 44,660mln). The growth in sales during FY24 was primarily driven by higher sales volumes, with only a marginal contribution from price increases in USD terms. The removal of energy tariff subsidies, rising inflation, revision of the minimum wage rate, and stability in the USD exchange rate have been key factors impacting the Company's cost structure, leading to a dilution in profitability. Despite these challenges, the Company is still able to generate a reasonable profit after tax of PKR 4.67bln in FY24 (FY23: PKR 9.03bln). US Apparel maintains a favourable capital structure, efficient working capital management and strong coverages, indicating a resilient financial profile and sound credit quality metrics. The Company has no short-term borrowings and has secured an interest-free loan from its holding company to support its net working capital requirements. The textile exports of the country reached USD 16.7bln in FY24, a slight increase from USD 16.5bln in the previous year, reflecting a growth of 0.93% YoY. The highest contribution came from the composite and garments segment at USD 9.1bln, followed by the weaving segment at USD 6.5bln and the spinning segment at USD 1.0bln. During 5MFY25, the textile exports stood at USD 7.6bln. In FY25, the transition from the final tax regime to the normal tax regime is set to impact the profitability matrix of export-oriented units, with a 29% tax on profits and a super tax of up to 10%. The consistent decline in policy rates over the last two quarters, along with the anticipation of further reductions, is expected to provide a cushion in the financial metrics of the industry.

Key Rating Drivers

The ratings are dependent on the Company's ability to maintain a strong business profile amidst current circumstances. Preserving low-leveraged capital structure and sound coverages remain imperative.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

US Apparel & Textiles (Pvt.) Limited

rating analysis

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Profile
Legal Structure

US Apparel and Textiles (Private) Limited operates as a private limited Company. It was incorporated in Pakistan on February 18, 1987, under the Companies Ordinance, 1984 (now the Companies Act, 2017).


Background

US Apparel & Textiles (Private) Limited is the flagship business venture of the US (Umer-Siddique) Group. 


Operations

The Company is principally engaged in the manufacturing and export of ready-made denim garments. The registered office of the Company is situated at 3-KM, Off Defence I, Raiwind Road, Lahore. The Company's operational infrastructure includes five production units in Lahore.


Ownership
Ownership Structure

US Apparel is a wholly-owned subsidiary of AJ Holdings (Private) Limited; a prominent business venture of two sponsoring families (Mr. Mian Muhammad Ahsan & Mr. Javed Arshad Bhatti) of the US (Umer-Siddique) Group. The sponsors exercise their control over the Company’s board by virtue of its 100% stake in the Company.


Stability

The Group's ownership is divided between the two sponsoring families; Javed Arshad Bhatti and Mian Muhammad Ahsan. The Group’s holding Company, AJ Holdings (Private) Limited, primarily manages investments in subsidiaries and associated companies, which bodes well for the stability of the overall structure.


Business Acumen

US Group is one of the oldest business conglomerates in Pakistan with considerable interest in textiles. The group has developed quite good expertise in the textile garments sector, over the years, and enjoys long-term association with several customers abroad. The group’s presence has been limited to the textile sector but sustained volatility effectively over the years. Apart from the garment business, US Group also has a Denim weaving Mill namely, US Denim Mills Limited, involved in weaving. This has assisted the Company in expanding its operations despite challenging market dynamics.


Financial Strength

The Company’s affiliation with the US group demonstrates the strong financial muscle of the sponsors. According to the US Group Sustainability Report CY23, the group size is estimated at USD 356mln. The presence of the holding Company and the strong business profile of all group companies reflect the strong financial muscle of the sponsors. This indicates the sponsor's ability to support the flagship Company if needed.


Governance
Board Structure

The Company has a ten-member board with the presence of sponsors and their families. The inclusion of an independent director will strengthen the governance framework of the Company.


Members’ Profile

The board members possess significant business stature, with a proven track record of operations within the local textile industry. The sponsors bring a wealth of knowledge, backed by more than three decades of extensive experience, which has equipped them to navigate and thrive in a volatile market.


Board Effectiveness

Board meetings are held regularly, providing a platform for in-depth discussions on a wide range of critical aspects, including business strategy, operational performance, financial health, and market trends. These meetings are meticulously structured to ensure all relevant topics are thoroughly reviewed.


Financial Transparency

To maintain high standards of transparency, EY Ford Rhodes Chartered Accountants have been appointed as the external auditors of the Company, rated in "Category A" by the SBP panel of auditors. They expressed an unqualified opinion on the financial statements of the Company for the year ending June 30th, 2024.


Management
Organizational Structure

US Apparel is further divided into sub-business units. The sBU-USA and sBU-UK/EU have five garment manufacturing units with the capacity to produce 25 mln units annually. The manufacturing unit 2 & unit 5 fall under sBU USA and Units 1-R, Unit 3 & Unit 4 fall under sBU UK/EU. The manufacturing unit US Denim Mills, third sBU is a fabric mill that produces 40 mln meters of fabric annually. Each sBU is divided into functional departments, namely: (i) Finance & IT (F&I), (ii) Marketing, (iii) Production, (iv) Supply Chain and Corporate Sourcing (v) Admin & HR. All departments report to respective MD(s) who are responsible for delivering the bottom line and agreed goals & targets of SBU’s. MDs, CFO, Director Projects, Director HR, and Director IR report to the CEO designate.


Management Team

Mr. Hafiz Mustanser, the CEO designate, brings over two decades of professional experience and holds an MBA. He has been associated with the group since 1998. Mr. Uzair Ahmed, the CFO, is a qualified Chartered Accountant with more than 20 years of professional experience.


Effectiveness

The management meetings are held on a periodic basis with follow-up points to resolve or proactively address operational issues, if any, eventually ensuring a smooth flow of operations. These meetings are headed by the CEO.


MIS

The Company’s daily and monthly MIS comprises comprehensive performance reports which are reviewed frequently by the senior management. Recognizing the need for quality information systems to control and maintain the efficiency of operations, the Company has implemented an Oracle-based ERP solution - Oracle E-business suite, Harmony version 4.


Control Environment

US Apparel & Textiles utilize management systems as their mechanism for ensuring control. There is clear evidence of these systems being audited and certified externally. The Company has attained ISO 14001, 45001, 9001 SA8000, WRAP, Sedex, ISO 9001, OekoTex, GRS, RCS, OCS, SLCP light, STEP, CR 360, Higg FEM 3.0, and GOTS certification.


Business Risk
Industry Dynamics

The textile exports of the country reached USD 16.7bln in FY24, a slight increase from USD 16.5bln in the previous year, reflecting a growth of 0.93% YoY. The highest contribution came from the composite and garments segment at USD 9.1bln, followed by the weaving segment at USD 6.5bln and the spinning segment at USD 1.0bln. During 5MFY25, the textile exports stood at USD 7.6bln. In FY25, the transition from the final tax regime to the normal tax regime is set to impact the profitability matrix of export-oriented units, with a 29% tax on profits and a super tax of up to 10%. The consistent decline in policy rates over the last two quarters, along with the anticipation of further reductions, is expected to provide a cushion in the financial metrics of the industry.


Relative Position

US Apparel & Textiles (Private) Limited is recognized as one of Pakistan's leading textile exporters, ranking 10th among the top 100 textile exporters in the country during FY23–FY24.


Revenues

During FY24, the Company's topline experienced an upswing reaching PKR 61.1bln (FY23: PKR 51.9bln) reflecting a 3-year CAGR of 26.5% from June 2022 to June 2024. This growth was primarily fueled by a steady increase in business volumes over the years. A predominant portion of the Company's revenue base is generated through exports (FY24: PKR 60.6bln; FY23: PKR 51.5bln), which account for 98.6% of the total sales, followed by a minimal contribution from local sales. The Company has established a stable clientele around the globe. United States is the Company's prime export destination followed by United Kingdom and Europe. The client concentration risk is considered moderate supported by a long-standing association of the Company with well-established entities.


Margins

The removal of energy tariff subsidies, rising inflation, revision of the minimum wage rate, and stability in the USD exchange rate have been key factors impacting the Company's cost structure, leading to a dilution in profitability. Despite these challenges, the Company is still able to generate a reasonable profit after tax of PKR 4.67bln in FY24 (FY23: PKR 9.03bln). During FY24, the Company reported a gross profit of PKR 11,735mln (FY23: PKR 13,932mln), with a gross profit margin of 19.2% (FY23: 26.8%) and a net profit margin of 7.6% (FY23: 17.4%).


Sustainability

In FY24, the Company enhanced its overall production capacity by 15,000 pieces per day. This will cater to expansion in the revenue base and strengthen the business profile of the Company.


Financial Risk
Working capital

The Company prioritizes financing its working capital requirements through internally generated cash flows. The net working capital cycle stood at 40 days  (FY23: 38 days) attributed to an uptick in the inventory cycle. The Company maintained a strong liquidity profile with a current ratio of 2.8x (FY23: 2.7x) during the period under review.


Coverages

In FY24, the dilution in profit before tax resulted in a decline in the Company's Free Cash Flows from Operations (FCFO) clocking at PKR 6.6bln (FY23: PKR 9.9bln). However, the Company’s solid financial coverage is noteworthy, particularly given its debt-free position. Resultantly, the Company's interest coverage and core operating coverage were recorded in a comfortable range.


Capitalization

The Company fortifies its financial structure through a stalwart equity position of PKR 16.6bln (FY23: PKR 18.3bln). The equity of the Company is slightly reduced due to the payment of interim dividend. The Company has no short-term borrowings and has secured an interest-free loan from its holding Company to support its net working capital requirements. The Company has only availed non-funded credit facilities from banks for trade purposes. 
 
 

Feb-25

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US Apparel & Textiles (Pvt.) Limited

financial summary

(PKR mln)

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Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 9,052 8,164 7,432
2. Investments 1,841 1,911 1,184
3. Related Party Exposure 31 21 0
4. Current Assets 19,837 17,698 14,990
a. Inventories 9,136 7,372 5,258
b. Trade Receivables 5,037 3,676 5,580
5. Total Assets 30,760 27,795 23,606
6. Current Liabilities 7,152 6,643 7,485
a. Trade Payables 6,330 5,329 5,781
7. Borrowings 45 89 125
8. Related Party Exposure 6,806 2,654 1,173
9. Non-Current Liabilities 87 67 48
10. Net Assets 16,671 18,342 14,776
11. Shareholders' Equity 16,671 18,342 14,776
B. INCOME STATEMENT
1. Sales 61,159 51,916 44,660
a. Cost of Good Sold (49,424) (37,983) (34,314)
2. Gross Profit 11,735 13,932 10,346
a. Operating Expenses (4,261) (3,478) (3,107)
3. Operating Profit 7,475 10,454 7,238
a. Non Operating Income or (Expense) (1,209) (127) (1,070)
4. Profit or (Loss) before Interest and Tax 6,266 10,327 6,168
a. Total Finance Cost (728) (615) (367)
b. Taxation (865) (679) (589)
6. Net Income Or (Loss) 4,673 9,033 5,212
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 6,611 9,939 7,173
b. Net Cash from Operating Activities before Working Capital Changes 5,890 9,334 5,735
c. Changes in Working Capital (2,443) (1,643) (1,666)
1. Net Cash provided by Operating Activities 3,447 7,691 4,070
2. Net Cash (Used in) or Available From Investing Activities (1,783) (2,185) (2,246)
3. Net Cash (Used in) or Available From Financing Activities (2,166) (4,159) (3,298)
4. Net Cash generated or (Used) during the period (501) 1,347 (1,475)
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 17.8% 16.2% 45.5%
b. Gross Profit Margin 19.2% 26.8% 23.2%
c. Net Profit Margin 7.6% 17.4% 11.7%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 6.8% 16.0% 12.3%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 26.7% 54.6% 38.4%
2. Working Capital Management
a. Gross Working Capital (Average Days) 75 77 69
b. Net Working Capital (Average Days) 40 38 30
c. Current Ratio (Current Assets / Current Liabilities) 2.8 2.7 2.0
3. Coverages
a. EBITDA / Finance Cost 1156.6 1035.1 700.4
b. FCFO / Finance Cost+CMLTB+Excess STB 142.0 249.4 160.8
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 0.0 0.0 0.0
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 0.3% 0.5% 0.8%
b. Interest or Markup Payable (Days) 0.0 0.0 0.0
c. Entity Average Borrowing Rate 9.0% 9.8% 4.2%

Feb-25

www.pacra.com

US Apparel & Textiles (Pvt.) Limited

rating scale

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Feb-25

www.pacra.com

US Apparel & Textiles (Pvt.) Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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  3. Conduct of Business
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Feb-25

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