Karachi, December 31, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to The Crescent Textile Mills Limited (Crestex). The medium to long-term rating of ‘A-’ signifies good credit quality with strong protection factors. Moreover, risk factors may vary with possible changes in 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’.
The ratings assigned to Crestex take into account the company being the flagship company of Crescent Group. The ratings incorporate diversification of revenue stream into spinning, weaving and made-up segments; however, the reliance on spinning still remains significant. Therefore, 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 prospects. Based upon projected capex in the next two fiscal years, the company has planned to reduce its reliance on procurement of fabric from open market on account of capacity enhancement of both weaving and stitching divisions. The ratings incorporate impact of currency fluctuations on imported raw material and any adverse changes in regulatory duties.
Assessment of financial risk profile incorporates the impact of Covid led boom in local textile sector translating into positive momentum in revenues, enhanced margins, healthy profitability indicators and augmentation of equity base. The ratings take comfort from additional equity injection made by the sponsors during the period under review. 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.
The liquidity position is sound on account of sufficient cash flow generation in terms of outstanding liabilities. On the other hand, current ratio remains slightly below 1.0x; the same needs improvement in line with rating benchmarks. Further, the ratings factor in moderately leveraged capital structure. The ratings remain dependent on maintenance of margins, realization of projected targets, incremental cash flow generation and cost savings from recent capital expenditure, improvement of current ratio and maintenance of leverage indicators.
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/