Karachi, August 19, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B Plus/A-Two) to Shahkam Industries (Private) Limited (SIPL). Long-term rating of ‘BBB+’ signifies adequate credit quality with reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. 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’.
Shahkam Industries (Private) Limited (SIPL) is an export-oriented knitwear and ready-made garment (from basic to high-end fashion) manufacturing unit, located in Lahore. Operations are carried out through knitting (no. of machines: 135), dyeing/washing, printing/embroidery and garment finishing divisions. Product portfolio mainly comprises pullover hoodies, shirts, trousers, jackets and denim. The sponsoring family is actively involved in business affairs while entire shareholding is held among three individuals.
Assigned ratings takes into account the established operating history of the sponsors for nearly three decades. Ratings further factor in the healthy post-pandemic recovery posted in production levels, sales revenue and gross margins. Overall profitability profile is constrained by thin net margins given labour-intensive nature of the sector. Liquidity profile is sound while recent recovery in earnings has led to improvement in cash flow coverages. Limited size of equity base is a constraint on capitalization levels while leverage ratios have noted marginal improvement in the ongoing fiscal year. Going forward, maintenance of liquidity indicators, achievement of projected revenue growth and improvement in margins is considered important from a rating perspective.
Revenues of the company almost entirely emanate from export sales, which are mainly directed towards USA and European markets including Spain, Germany and Poland. Product-wise revenue contribution has varied over the years. Sale concentration risk in terms of clients is moderate while additional comfort is drawn from long-term association of SIPL with well-known multinational apparel companies and brands. Working capital cycle necessitates utilization of short-term borrowings mainly to fund inventory levels. Current ratio stands at over 1.0x while room for improvement exists with respect to coverage of short-term borrowings vis-à-vis stock in trade and trade debts.
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/