Karachi: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Al-Karam Textile Mills (Private) Limited at 'A/A2', maintaining a stable outlook despite ongoing challenges in Pakistan's textile sector. The medium to long-term rating of 'A' indicates good credit quality with adequate protection factors, while the short-term rating of 'A2' suggests a strong likelihood of timely repayment of obligations.

Al-Karam Textile Mills, part of the Al-Karam Group, has been operating a vertically integrated manufacturing facility for nearly 40 years. Its product range includes various yarns, fabrics, home textiles, and garments. The company has a notable global presence, with operations in the United States, United Kingdom, and Portugal, and its retail arm, Alkaram Studio, currently operates 61 outlets across Pakistan.

The textile sector in Pakistan is facing significant challenges, including economic cyclicality, intense competition, and structural issues. Despite a 79% rise in cotton production in FY24, a sharp decline of 59.4% was noted by October 2024. Expectations for a rebound to 5.55 million bales in FY25 are tempered by persistent challenges such as limited cotton acreage and rising energy costs.

The ratings reflect the company's topline growth driven by export and local sales. Stable gross margins were offset by higher operating costs due to inflation, borrowing, and elevated interest rates, leading to a decline in net margins. This deterioration impacted cash flow coverages and liquidity, although capitalization indicators remained elevated.

Going forward, the company's ability to improve profitability and reduce capitalization indicators will be crucial for maintaining its ratings. The textile sector's reliance on imported cotton, value-added products, and its vulnerability to price fluctuations, inflation, and exchange rate volatility remain key concerns.