Karachi, July 12, 2023 (PPI-OT): VIS Credit Rating Company Ltd. (VIS) has reaffirmed the entity ratings of Comfort Knitwears (Private) Limited (CKPL) at ‘A-/A-2’ (Single A Minus/A-Two). Medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamentals and liquidity factors. Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on June 02, 2022.
Ratings continue to reflect CKPL’s 30+ years of expertise in dyed yarn production and knitted garments, strong sponsor strength, vertically integrated structure (with operations including spinning, knitting, dyeing, and stitching), healthy export orientation and limited reliance on imported raw materials. Ratings reaffirmation take note of all-time high sales revenue achieved in FY22. However, current fiscal year has experienced a slowdown in demand, affecting volumetric off-take. This decline in demand has led to a decrease in cash flows, resulting in a slight weakening of debt coverage metrics. On the positive side, profitability margins have significantly improved since last review and have remained stable.
Liquidity profile is adequate with slightly elevated working capital days and leverage indicators have slightly increased with rising debt levels, but remain within manageable levels. Business risk profile takes into account industry-wide growth in exports in FY22; however, recent floods across the country, high-interest rate situation, inflationary pressures, higher electricity costs and demand slowdown in the current year pose risks to the sector over the medium term. The same is reflected in ~14% YoY decline in 10M textile export proceeds (in value terms). Ratings are constrained by the current weak macroeconomic environment globally and locally.
Most of the revenue, about two-thirds, comes from exporting knitted garments while the rest is derived from yarn sales primarily focused on the local market. Exports mainly target European markets, with a focus on countries like Norway, Denmark, UK, Spain, and Germany as well as US. Client concentration remains high, with top ten clients consistently generating more than four-fifth of revenues, indicating room for improvement. Under capacity enhancement initiatives, the company self-financed installation of an additional 2,000 spindles in FY22, surpassing a total of 25K spindles in its spinning facility. In addition, management has implemented a barcode system to improve efficiency in the stitching unit. Ratings remain dependent upon improving the Topline while maintaining margins, debt coverage and leverage ratios.
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/