Karachi: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Arshad Textile Mills Limited (ATML) at 'BBB-/A2', indicating adequate credit quality and a stable outlook. The ratings, which were last assessed in March 2024, reflect the company's ability to meet short-term obligations despite the challenging economic environment impacting Pakistan's textile sector.

ATML, a public unlisted company based in Lahore and established in 1984, specializes in the manufacturing and sale of cotton-blended yarn and fabric. The company's operations are significantly influenced by the broader economic conditions affecting the textile spinning industry, which faces hurdles such as demand fluctuations, regulatory changes, and energy cost sensitivities.

The industry continues to grapple with a shortfall in cotton supply, driven by environmental issues and a shift by farmers towards alternative crops. Political uncertainty and global procurement shifts have also affected export performance, while changes in regulatory frameworks have increased operational costs. Higher power tariffs and wage increases have further strained the sector's cost structures.

ATML's financial risk profile has been impacted by declining revenues and profitability, attributed to reduced yarn sales and rising production costs. While arrangements for toll manufacturing with an associate company have provided some margin relief, overall demand remains weak, affecting cash flow generation. The company's capitalization metrics have remained stable, supported by equity contributions from directors. However, liquidity constraints persist due to insufficient internal cash generation.

The company's ability to sustain its operational performance amid these market and regulatory challenges will be crucial for maintaining its current ratings. Continued financial support from sponsors and the conversion of sponsor loans into equity will be key factors influencing future ratings.