Karachi, April 25, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Kamal Textile Mills (Pvt.) Limited (KTML). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamentals and liquidity factors. Outlook on the assigned ratings is ‘Stable’.

KTML is an export-oriented textile unit primarily involved in production and sale of madeups, garments and processed fabrics. The ratings derive strength from robust growth in topline in the outgoing year largely emanating from higher volumetric sales while gross margins decreased due to largely stagnant average selling prices amidst highly competitive export market, and increase in cost of sales. Liquidity is considered adequate in terms of cash flow coverages. Net operating cycle has remained manageable over time relative to industry median.

Leverage indicators increased notably due to uptick in borrowings, though remained at fairly comfortable level. Equity base has been strengthened on a timeline basis on the back of profit retention and interest free loan from sponsors, which is payable at discretion of the company. The company is in process of implementing an expansion plan entailing vertical integration of its apparel division. The company started its garments stitching unit in the last quarter of FY20 and has subsequently added dyeing and knitting operations in the ongoing year.

The management has also embarked upon capex related to fabric processing for its apparel division which is expected to be come online by end-FY23. Going forward, garments sale is expected to be a major revenue driver. Positive outlook of the textile sector on the back of higher demand in export markets, coupled with additional support to the industry on the regulatory front bodes well for KTML. Meanwhile, ratings would remain sensitive to maintenance of liquidity and capitalization indicators at comfortable levels and any further deterioration in these would have an impact on ratings. In addition, achieving projected revenue growth and maintaining profit margins amidst rising cost of sales and operating costs would remain imperative.

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/