Karachi: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Indus Dyeing and Manufacturing Company Limited (IDMC) at ‘A+/A-1’ (Single A Plus/A-One). The medium to long term rating of ‘A+’ signifies good credit quality with adequate protection factors, although risk factors may vary with economic changes. The short-term rating of ‘A-1’ reflects a strong likelihood of timely repayment of short-term obligations, supported by excellent liquidity factors. The outlook on the rating is stable, maintaining the previous ratings announced on September 28, 2023.
According to VIS Credit Rating Company Limited, IDMC stands as the flagship entity within the Indus Group of Companies, a significant player in Pakistan’s textile sector with over sixty years of experience and operations spanning across five different entities, including a 50MW wind power project. The company’s core business focuses on the production and sale of yarn, primarily utilizing gas-based power generators, with grid-based power as a secondary source.
The ratings reflect the medium to high business risk profile associated with the textile sector in Pakistan, influenced by challenging economic conditions locally and globally, intense competition, and susceptibility to economic cycles. Factors such as global geopolitical challenges, demand fluctuations, and liquidity issues due to delayed government tax refunds further impact the sector. Additionally, the dependence on local cotton crop yields and imported raw materials introduces exchange rate risks.
The company’s financial risk profile is incorporated into the ratings, highlighted by revenue growth driven by increased exports and enhanced local pricing. Despite facing higher input costs, which impacted gross margins, the company has maintained a conservative capitalization with stable gearing and leverage ratios, supported by strong internal cash generation. However, financial coverage ratios were affected by rising financial charges and a one-time excess tax payment, although liquidity levels remain adequate for meeting short-term obligations.
The future ratings are contingent on IDMC’s ability to improve profitability and coverage profiles, with the recovery of margins being crucial. Any significant decline in key financial metrics could adversely affect the ratings.