Karachi, June 07, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Gohar Textile Mills (Pvt.) Limited (GTML) at ‘A/A-1’ (Single A /A- One). The medium to long-term rating of ‘A’ denotes good credit quality with adequate protection factors. Moreover, the risk factors may vary with possible changes in 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 March 26, 2021.
The ratings assigned to GTML take into account the moderate risk profile of the company underpinned by its presence in the export oriented value-added textile segment, complete control on quality maintenance coupled with extensive sponsor experience and established operating track record of nearly four decades in textile business. Ratings also reflect long-standing business relationships with leading international brands and growing demand of home-textile products.
Further, the recent rupee devaluation positively impacted financial results for the review period. Prospects of the industry are strong going forward, however rising cotton prices with delayed pass on remains a key business risk. Furthermore, ratings draw comfort from the increase in production capacities of the company to cater to increasing demand which are expected to support profitability and yield operational efficiencies going forward.
Assessment of financial risk profile encapsulates strong revenue growth in the outgoing year and onwards with subsequent translation of the same into profitability metrics. However, gross margins on timeline declined slightly owing to adverse input/output price movement and inflationary pressures coupled with outsourcing of various processing-based activities as the demand of the company’s products exceeded the inhouse capacity. In line with higher scale of operations and margins, liquidity position improved and is considered sound on account of sufficient cash flow generation in terms of outstanding liabilities.
Moreover, debt servicing levels remained sizable in line with limited reliance of the company on long-term funding. Leverage indicators have inched up on a timeline basis due to debt drawdown to finance expansion in the stitching and processing segments; the same still remain within manageable levels and in sync with the assigned ratings. Although plans of financing capex through long term borrowings are in place, capitalization indicators of the company are expected to remain around current levels as the increase in long-term debt is projected to be off-set by augmentation of equity base with no increase in short-term borrowings expected. The ratings remain dependent on maintenance of margins, realization of projected targets, incremental cash flow generation and cost savings from recent capital expenditure and maintenance of leverage indicators.
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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
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