Karachi: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Indigo Textile (Private) Limited at 'A' for medium to long-term and 'A-1' for short-term, indicating stable outlook and strong liquidity factors. This confirmation reflects a consistent credit quality amidst the economic shifts that could potentially impact the sector.
According to VIS Credit Rating Company Limited, Indigo Textile, a partnership between Akhtar Group and Haji Khuda Bux Amir Umar Group, continues to specialize in denim with a business model that includes comprehensive production processes from rope-dyeing to finishing. The ratings affirmation takes into account both the operational strengths of the company and the broader challenges faced by the textile sector, such as economic cyclicality and competitive intensity.
The company's medium business risk profile and its exposure to global economic cycles are significant considerations in the ratings. These factors include the cyclical nature of demand influenced by economic conditions and external challenges like geopolitical tensions and supply chain vulnerabilities, particularly in cotton production and raw material imports.
Financially, Indigo Textile has shown resilience with positive trends in topline growth influenced by currency depreciation, volume increase, and price improvements in the first nine months of fiscal year 2024. However, gross margins returned to normal levels after an improvement in the previous fiscal year, and finance costs rose notably due to inflation.
The assessment also highlights the improved financial risk profile of Indigo Textile with better cash flow and debt coverage in fiscal year 2023. The liquidity indicators, such as the current ratio and short-term debt coverage, have shown enhancements, supporting the stable outlook of the ratings. Despite these strengths, the company faces ongoing pressures from operational costs and net margin fluctuations.
VIS emphasizes the importance of maintaining a robust financial risk profile for sustaining these credit ratings in the future, with no plans for mobilizing new long-term debt during the rating horizon. The focus remains on managing financial risks effectively to support ongoing credit stability.