Karachi, VIS Credit Rating Company Limited has reaffirmed the entity ratings for Z.A. Corporation (Pvt.) Limited (ZAC) at 'BBB+/A-2', indicating adequate credit quality and good certainty of timely payment. This assessment reflects the company's solid financial fundamentals and access to capital markets despite the spinning sector's vulnerability to economic fluctuations.
According to VIS Credit Rating Company Limited, Z.A. Corporation, a medium-sized spinning unit based in Faisalabad, has maintained its credit ratings with a stable outlook. The ratings reflect a balance between the company's reasonable protection factors and the inherent risks posed by variable economic conditions. The medium to long-term rating of 'BBB+' suggests that the company has adequate credit quality, while the short-term rating of 'A-2' denotes good certainty of timely financial obligations.
Z.A. Corporation's operational context involves the manufacturing and sale of yarn, ranging from coarse to fine counts, and including various blends dependent on customer demands. Despite challenges such as economic cyclicality and competition within the sector, which includes over 400 mills in Pakistan, ZAC has demonstrated resilience. The sector faced significant hurdles from crop damage and inflation in FY23, impacting raw material costs and operational margins.
The ratings also consider the company's financial health, noting a stable revenue stream bolstered by increased selling prices, although profitability is pressured by rising costs. The company's capitalization is adequate, with debt utilization decreasing, enhancing financial metrics. However, the coverage profile remains a concern due to weakened operational margins, affecting the debt service coverage ratio. Conversely, liquidity has shown improvement, characterized by a better current ratio and a manageable cash conversion cycle.
Future ratings will hinge on Z.A. Corporation's ability to bolster profitability and improve its coverage ratios, along with maintaining strong capitalization and liquidity positions, as these elements will be critical in upcoming reviews by VIS.