Karachi, January 07, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Feroze1888 Mills (‘FML’ or ‘the Company’) at ‘AA-/A-1’ (Double A Minus/A-One). The medium to long-term rating of ‘AA-’ denotes high credit quality coupled with strong protection factors. Moreover, risk factors may vary slightly with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on December 07, 2020.
Feroze1888 Mills Limited (FML) is a public listed company and the largest terry textile exporter of Pakistan. The Company is a vertically integrated entity engaged in end-to-end process from spinning to product packaging. In the outgoing year, the Company continued with capacity enhancements in both spinning and weaving segments, increasing their production capacity by 19% and 14% respectively. Capacity utilization of both spinning and weaving segments remains strong.
The assigned ratings take into account, FML’s association with the US-based 1888 Mills, which allows the Company competitive advantage, in terms of access to US market. Nevertheless, the same also translates in regional and counterparty concentration, which has been incorporated into FML’s risk profile. Comfort is derived from Company’s long standing association with large retailers.
In FY21, in tandem with strong growth in textile exports, FML’s topline grew by 36%; while some pressure on gross margin was noted, it remained aligned with peers and impact of the same did not translate on net margins, which remained stable. Given strong growth in revenue base, cash flow coverage indicators remained stable as of end-FY21. We have noted increased stress on FML’s gross margin in Q1’FY22. As per management, this is mainly emanating from the uptick in raw cotton pricing. VIS views this as a temporary deviation, and given the significant PKR depreciation witnessed in Q2’FY22, margins are expected to normalize going forward. VIS will continue to closely monitor trends in gross margin on an ongoing basis.
Given increased debt utilization, we have noted increase in FML’s gearing and leverage indicators. The Company’s debt is entirely composed of financings under SBP’s concessionary financings schemes for exporters. Despite the uptick, gearing and leverage remains aligned with peers.
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/