Karachi, VIS Credit Rating Company Limited has reaffirmed the entity ratings of Gatron (Industries) Limited (GIL) at 'A-/A-2', indicating a stable financial outlook with good credit quality and liquidity factors. The reaffirmation, announced on May 17, 2024, reflects the company's adequate protection factors despite the variable risks associated with the textile industry and economic changes.

According to VIS Credit Rating Company Limited, the ratings consider both the medium to long-term and short-term financial health of GIL. The medium to long-term rating of 'A-' suggests good credit quality with adequate protection factors, while the short-term rating of 'A-2' underscores the company's good certainty of timely payment, sound company fundamentals, and good access to capital markets. The outlook on these ratings remains stable, consistent with the previous rating action from February 15, 2023.

GIL, part of the G and T group and a public listed company since 1980, is a key player in Pakistan's textile sector, manufacturing Polyester Filament Yarn (PFY) and PET Preforms. The company's operational capacity and market position are critical in an industry dominated by fierce competition and challenges such as the dumping of low-priced Chinese PFY, which squeezes local profit margins.

Despite these challenges, GIL has adapted by starting the production and sale of intermediate products like Filament Grade Chips (FGC), reflecting growth in revenue in FY23 primarily due to higher selling prices, although gross margins declined due to increased production costs and unpassed higher energy prices. The recent termination of anti-dumping duties against Chinese products poses further challenges, though efforts to reinstate these duties are ongoing.

Financially, GIL faced increased finance costs and negative net margins in 9M’FY24 due to higher raw material prices and persistent pressures from short-term borrowings. However, a significant equity injection of Rs. 5.6 billion during Q3’FY24 has bolstered the company's financial standing, improving cash and bank balances and leverage ratios, and providing a buffer against ongoing economic pressures.

VIS's ratings affirmation hinges on GIL's continued ability to manage debt service coverage and maintain strong capitalization indicators, crucial for sustaining its operations amidst the competitive and cost-intensive nature of the textile industry.