Karachi, December 31, 2021 (PPI-OT):VIS Credit Rating Company Limited has reaffirmed entity ratings of Sitara Textile Industries Limited (STIL) at ‘BBB+/A-2’ (Triple B Plus/A-Two). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality coupled with reasonable and sufficient protection factors. Moreover, risk factors are considered variable with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound and risk factors considered small. Outlook on the assigned ratings is ‘Stable’. Previous rating action announced on October 2, 2020.
Reaffirmation of ratings encapsulates positive momentum of the textile industry with textile exports, particularly home textiles, towels, knitwear, and ready-made textile products, posting healthy growth during the ongoing year as compared with previous period. Ratings also draw comfort from the undergoing BMR projects undertaken by the company alongside initiatives to automate stitching department and reduce bottlenecks in production lines, which is expected to contribute towards improved efficiencies. However, scale of operations and lack of business integration remains a constraint.
Assessment of financial risk profile incorporates modest profitability despite topline growth in FY21. Sales revenue of the company registered strong growth on account of higher export volumes largely in home textiles. However, gross margins of the company remained under pressure owing to increase in yarn prices. Operating expenses also witnessed increase due to upsurge in freight charges globally. Consequently, operating margins declined, impacting net margins a well.
As a result, profitability profile remained subdued. Cash flow coverage indicators depicted decline during the outgoing year due to limited profitability and higher debt. However, debt servicing remains adequate. Capitalization indicators continue to remain elevated; increasing further in FY21 on account of increase in long term debt for BMR funding. Going forward, improvement in leverage and gearing levels supported by higher profitability will be important for ratings.
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Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
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Phase VII, DHA, Karachi, Pakistan
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