Karachi, December 21, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Nadeem Textile Mills Limited (NTML) at ‘A-/A-2’ (Single A minus/Single A-Two. Long term rating of ‘A-’ signifies good credit quality; protection factors are strong. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-2’ indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on November 18, 2021.
NTML operates in the cotton yarn spinning business, wherein the performance is sensitive to cyclicality in cotton prices, which are determined by crop yield. Historically, margins and financial performance of players have depicted seasonality. Moreover, competitive intensity is high due to commoditized nature of the product. Recently, given recessionary trend in export markets, profitability margins and sales offtake of NTML has contracted. The contracting trend is expected to stretch at least over the next couple of quarters, which has been incorporated into our analysis. However, an elongated contraction or contraction beyond our assumption translate in pressure on the assigned rating.
The aging profile of trade debts depicted an increase as of Jun’22, given that receivables within the 1-60 days bucket and 61-360 days bucket were up 10x and 9x respectively. This is viewed as a concern, and VIS will continue to monitor the developments in this regard. Overall cash flow coverage indicators posted improvement in FY22, as a result of heightened inventory gain driven profitability margins. Nevertheless, these have come under pressure in Q1’FY23. Despite an uptick in gearing during Q1’FY23, gearing remains aligned with the threshold for the assigned rating. The assigned ratings remain dependent to maintenance of business and financial risk profile in line with the assigned ratings.
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/