Karachi, December 23, 2021 (PPI-OT):VIS Credit Rating Company Limited has assigned initial entity ratings of ‘BBB/A-2’ (Triple B/Single A-Two) to Ebrahim Textile Mills Private Limited (ETML). Long-term rating of ‘BBB’ denotes adequate credit quality; reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short-term rating of ‘A-2’ reflects good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.
ETML, incorporated in 2010, is one of the two textile companies owned by Ebrahim Group of Companies and is headquartered in Karachi. The group also owns business interests in Dairy Products and Beverage Industry. The company mainly focuses on providing textile processing services to its sister concern (Orient Textile Mills Limited) and other local clients. In addition to that, it also has a Printed fabric division as part of which it sells branded lawn via retail outlets and online under the brand name Orient. Capacity utilization levels depict an increase as production processes are streamlined over time. Assigned ratings take into account extensive experience of sponsors, stable revenues and adequate debt servicing. Ratings are constrained by low asset turnover, small equity base and elevated leverage indicators at end-June’21.
Ratings incorporate improvement in operating profitability of the company in FY21 on account of an increase in gross margins mainly attributable to higher average selling prices and discontinuation of GIDC provision, however, on account of higher financial charges net profitability of the company remained subdued. Going forward, while profitability profile is expected to improve in view of the capacity expansion in process, elevated debt levels will continue to be a drag in the medium term.
Debt service coverage improved in FY21 and remain comfortable. Ratings also take into account increase in leverage indicators on a timeline basis due to elevated debt levels to finance working capital needs and BMR expansion. Given additional funds planned to be drawn for the expansion in the ongoing year, leverage indicators are expected to further increase, however the same to remain within manageable levels for the assigned level of ratings. Going forward, improvement in profitability as well as capitalization indicators will be important for ratings together with maintenance of satisfactory cash flow coverages.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/