Karachi, April 21, 2022 (PPI-OT):VIS Credit Rating Company Limited has reaffirmed entity ratings of ‘BBB+/A-2’ (Triple B Plus/ Single A-Two) to Hantex (Hantex). Long Term Rating of ‘BBB+’ denotes adequate credit quality and reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short Term Rating of ‘A-2’ signifies good certainty of timely payment coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on February 02, 2021.
Hantex, a partnership concern, is engaged in manufacturing and sale of yarn and denim fabric. The firm operates through a unit located at Landhi, Karachi, Pakistan. Product mix demonstrates more than four-fifth of the sales revenue comprise of indirect export of denim fabric through a sister concern. Assigned ratings incorporate diversified experience of the sponsoring group- Machiyara Group of Companies, which has known presence in the diversified business sectors across Pakistan. Given the firm’s shareholding structure and involvement of owners in management roles, corporate governance structure indicates room for improvement.
The ratings incorporate the business risk profile of the denim sector, which is driven by the global demand and pricing dynamics. In the outgoing year (FY21) demand for denim products has posted some recovery after contracting in the preceding year. Thereby, prospects of the local industry remain sound, however, rising raw material prices remains a key business risk coupled with competition within the denim market from regional competitors like China, India, Bangladesh and Vietnam.
Assessment of the financial risk profile indicates moderate profitability metrics. Sales revenue of the Company increased during FY21 on account of growth in both volumes and selling prices. Management remains confident to sustain the topline figure in the ongoing fiscal year as well. Sales remain concentrated with its sister concern; Denim Clothing Company, indicating a higher client concentration risk. However, the same is mitigated as the sister concern maintains stable order book with major European brands. Gross margins of the company has depicted weakening over the last six quarters on account of higher raw material prices and inflationary pressures.
Nevertheless, profitability profile of the firm enhanced in FY21 on account of volumetric growth and sustained performance in HFY22 as compared to the preceding period due to contained operating expense and reduced finance cost. Management expects to maintain profitability levels at the current level going forward. Higher working capital cycle leading to increasing short term borrowings remains a concern. Future trend with respect to the same will be an important rating consideration. Leverage indicators stand on the higher side owing to elevated debt levels. Improvement in leverage and liquidity indicators are important to reduce the sensitivity of the ratings at the assigned level.
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/