Karachi, January 10, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB-/A-2’ (Triple B Minus/A-Two) to Qadri Textile Mills Limited (QTML). The medium to long term rating of ‘BBB-’ signifies adequate credit quality. Protection factors are reasonable and sufficient while risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’.
QTML is a spinning company with main shareholding vested with the sponsoring family. The assigned ratings factor in high cyclicality and competitive intensity for spinning segment along with volatility in cotton prices which translate into moderate to high business risk profile. On the other hand, holistically business risk profile of the textile industry is supported by stable and growing demand. Ratings also incorporate financial risk profile marked by stagnant revenues, thin gross and net margins and nominal core equity. The ratings incorporate sound liquidity profile underpinned by sizable coverages.
However, current ratio needs improvement in line with rating benchmarks. The company has a conservative capital structure with no reliance on long-term borrowings; moreover, the utilization of short-term funding was also largely tapered off during the review period owing to advances from customers largely funding the working capital requirements; as a result, gearing has improved significantly while the debt leverage was recorded higher during the review period.
Further, owing to reduction in benchmark rates, a trend which has now reversed, the financing cost for the company had reduced, reflecting positively on the bottom line in the outgoing period. However, the ratings remain sensitive to lack of revenue diversification and limited scale of operations. The management’s focus on improving the quality of yarn with procurement of three drawing frames during the rating horizon is likely to positive reflect in the company’s margins.
Nevertheless, on account of nominal funding to be procured for the capex, gearing is expected to remain on a lower side. The ratings remain dependent on improvement of business margins through operational efficiencies, prudent management of working capital cycle and maintenance of leverage indicators at around current levels. The ratings are based on management accounts for the outgoing year.
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/