Karachi, August 12, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Faisal Spinning Mills Limited (FSML) at ‘A/A-1’ (Single A/A-One). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on May 27, 2021.
Assigned ratings are underpinned by established operating history of over 37 years in the composite textile sector and strong sponsor strength. Ratings also take into account the qualified management team, well-equipped IT infrastructure in relation to the scale of operations, and long-standing client relationships, which help secure repeat orders. Furthermore, ratings highlight the addition of a finishing/home textile division (trial operations began in September 2020, and the unit is reportedly operating at full capacity).
Assessment of financial risk profile in the review period indicates improvement given strong growth trend in revenues, profit margins, cash flow generation with sizeable debt servicing coverage and improved capital structure supported by profit retention. Leverage indicators have also improved over time, yet remain elevated due to significant increase in long-term debt mobilized to fund recently established home textile segment. Going forward, the country’s ongoing energy crisis, rising production costs due to inflation, and expected demand slowdown due to looming global recession and monetary tightening in major world economies are key business risk factors, posing an industry challenge to margin sustainability and future growth.
Sizeable revenue growth is mainly attributable to addition of finishing segment sales (dyed fabric and made-up articles), volumetric increase in yarn exports and domestic fabric sales along with higher average prices. Akin to industry, sizeable inventory gains and efficient cotton procurement management significantly increased profitability margins. As per management, given that cotton procurement is covered till April ’23, margins are expected to sustain in the current fiscal year.
At present, spinning segment generates ~45% of sales revenues, followed by weaving at ~40% and finishing at ~15%. Within finishing segment, major growth was driven by institutional sales given post pandemic demand surge in hospitality sector. Sales mix, in terms of exports and local sales, has hovered at around 80:20 while major growth over the review period emanated from exports (primarily yarn and made up articles). China, Portugal, Italy, Bangladesh, Japan, Belgium and Germany are currently among the major export destinations. Client-wise sale concentration risk has remained elevated over time.
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
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