Karachi, October 11, 2022 (PPI-OT):VIS Credit Rating Company Ltd. has assigned initial ratings of A-/A-2 (Single A Minus/A-Two) to Cotton Web Limited (CWL). The medium to long-term rating of ‘A-’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ signifies 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 rating is ‘Stable’.
Established in 1998 as an AoP, the entity was later incorporated as a private limited company in 2002. Eventually, it was converted into a public unlisted company in 2015. CWL is engaged in the manufacturing and export of denim garments. Product portfolio mainly consists of denim fashion wear garments including jeans and skirts. The company has an international presence through a wholly owned subsidiary in UK – Cotton Web UK – encompassing a Design Office. The Company also holds long-term direct relationships with clients in USA and Europe.
Business risk profile is supported by industry wide growth in exports over the last year; however, recent floods across the country have adversely affected the cotton crop. Consequently, margins of textile operators may be affected with projected elevated cotton costs. Nevertheless, comfort may be drawn from higher likelihood of selling prices being adjusted against rising input costs.
Assessment of financial risk profile incorporates growing revenue base at a CAGR of 33% over the past two years contributed by rising demand from key customers and increasing selling prices. Customer concentration is considered to be on the higher side with two customers accounting for around 70% of total sales mix. However, comfort is drawn from their strong association for the past several years. The Company’s continuing focus towards value-added products, and also cost rationalization through installation of solar panels would help in keeping profitability indicators largely intact, going forward. However, managing current inflationary pressures to keep the same in line with projections amidst economic situation in the country is a key rating sensitivity.
Liquidity profile of the Company is considered sound with sufficient cash flow coverages against outstanding obligations, current ratio reported above 1.00x, adequate coverage of short-term borrowings through inventory and trade debts and satisfactory aging profile of trade debts. Timely receipt of loans, advances and other receivables comprising advances to suppliers, prepayments, and dues from the subsidiary company on the balance sheet is considered important. Capitalization indicators of the company reflects medium to low gearing and leverage levels supported by profit retention despite growing quantum of debt levels to finance expansion and working capital needs. Maintenance of leverage profile in lieu of projected increase in debt levels for consistent BMR will be essential.
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/