Karachi: VIS Credit Rating Company Limited (VIS) has reaffirmed the stable entity ratings of ‘A-/A-2’ for Rajby Textiles (Private) Limited, indicating a good credit quality and a promising outlook despite the volatile economic environment.

According to VIS Credit Rating Company Limited, the ratings reflect Rajby Textiles’ strong position within the textile sector, marked by its specialization in denim fabric production. The medium to long-term rating of ‘A-‘ suggests adequate protection factors, although these could vary with changes in the economy. The short-term rating of ‘A-2’ points to a sound likelihood of meeting short-term obligations, supported by robust short-term liquidity factors.

The assessment considers the business and financial risks specific to the textile sector in Pakistan, including its susceptibility to economic cycles, intense competition, and significant exposure to global economic shifts. These challenges are compounded by geopolitical tensions and local supply chain issues, such as fluctuations in cotton production and reliance on imported materials, which introduce exchange rate risks.

Furthermore, Rajby Textiles has demonstrated resilience with a rebound in sales in FY24 following a downturn, aligning with broader industry trends. Despite a contraction in net profit in FY23 and the first nine months of FY24 due to higher finance costs and reduced top-line growth, the company has managed to improve its gross margin and reduce overhead expenses. Financial indicators such as liquidity, cash flow coverage, and debt service capacity have shown improvement, bolstered by a strategic reduction in debt levels.

Going forward, the maintenance and enhancement of profitability and capitalization indicators are deemed crucial for sustaining and possibly improving the current ratings.