Karachi: VIS Credit Rating Company Limited has reaffirmed the entity ratings for Soorty Enterprises (Pvt) Limited at ‘AA-/A-1’, indicating high credit quality and strong liquidity, with a stable outlook. The long-term and short-term ratings reflect the company’s robust financial health and its strong position in the textile sector, despite facing economic and competitive challenges.
According to VIS Credit Rating Company Limited, Soorty Enterprises, a leading denim manufacturer and exporter based in Karachi, has maintained its high credit ratings due to its significant international presence and strategic market operations. The company operates vertically integrated production facilities and has subsidiaries in Bangladesh and the UAE, along with marketing offices in the Netherlands, Spain, the USA, and Turkey.
The ratings consider the textile sector’s medium business risk profile, characterized by economic cyclicality and intense competition. The industry’s performance is sensitive to global economic conditions, including demand fluctuations influenced by economic factors. Additionally, the sector faces challenges related to geopolitical issues, liquidity constraints from delayed sales tax refunds, and supply-side risks like local cotton production and reliance on imported raw materials.
Financially, Soorty Enterprises has shown resilience, with a 13% growth in sales in FY23, primarily due to rupee devaluation. Approximately 90% of its PKR 77.9 billion sales in FY23 were from exports, ranking it sixth among the country’s top exporters in 2023, and improving to fifth in 2024. However, the company’s net profit margin saw a slight decline in FY23 due to higher finance costs from increased borrowing rates. Sales during the first nine months of FY24 indicated a recovery in demand, although net margins faced pressure.
The assigned ratings also reflect the company’s improved financial risk profile, with significant growth in its equity base in FY23 and a modest growth in 9M’FY24. The company’s debt levels decreased, leading to a conservative gearing ratio of 0.48x at the end of March 2024. While cash flow coverage metrics showed marginal weakness, they remained adequate with a debt service coverage ratio (DSCR) of 2.9x as of the end of March 2024. The maintenance and improvement in debt service coverage are crucial for future rating considerations.