Karachi: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Indus Lyallpur Limited (ILL) at 'A-/A-2' for medium to long-term and short-term obligations respectively, citing a stable financial outlook despite challenging conditions in the textile sector.
According to VIS Credit Rating Company Limited, the medium to long-term rating of 'A-' reflects the company's good credit quality with adequate protection factors, although risk factors could change with economic fluctuations. The short-term rating of 'A-2' suggests a robust likelihood of timely repayment of short-term obligations due to sound liquidity.
ILL, a subsidiary of Indus Dyeing and Manufacturing Company Limited since 1992, operates in the textile manufacturing sector. It is a key component of the Indus Group, which includes multiple cotton ginning and yarn spinning mills, a terry towel production facility, and a 50 MW wind power project. The ratings reflect the inherent business risks in the textile industry, impacted by local and global economic challenges, intense competition, and high susceptibility to economic cycles.
Factors affecting the sector include fluctuations in demand, geopolitical issues, and supply-side risks such as local cotton production and dependency on imported raw materials. Despite higher export-driven revenues, increased costs for energy and materials have pressured operational margins, leading to reduced profitability and a negative net margin.
The company's financial health remains constrained by rising finance costs in a high-interest environment, impacting coverage ratios. However, liquidity is adequate, supported by sound short-term debt coverage and sufficient credit facilities. The stable capitalization structure is bolstered by managed short-term debt and consistent working capital practices.
Future ratings will depend on the company's ability to enhance profitability, manage liquidity effectively, and navigate sector risks. The ongoing adjustments in local policy rates and raw material costs will also be crucial in determining the ratings outlook.