Karachi: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Naveena Industries Limited ('NIL') at 'A-/A2'. The medium to long-term rating of 'A-' suggests good credit quality with adequate protection factors, while the short-term rating of 'A2' indicates a good likelihood of timely repayment of obligations. The outlook remains stable, with the previous rating action taking place on January 15, 2024.
According to VIS Credit Rating Company Limited, NIL, established in 1966, is a prominent manufacturer and seller of fabric cloth. The company has a significant international footprint, reflected in its export-to-local sales ratio of 60:30 for FY24. NIL operates alongside Ahmed Oriental Textile Mills Limited, a yarn spinning unit, and has developed a Home Textile Division focusing on bedding products for markets in the US and UK.
The ratings take into account the business risk profile of Pakistan's textile sector, currently assessed as high to medium. This evaluation considers demand cyclicality, competitive pressures, regulatory challenges, and energy sensitivity. The 2024 cotton season faced production challenges such as extreme weather, water shortages, and pest infestations, reducing cotton output to around 5.20 million bales, below the domestic requirement of approximately 12 million bales. Additionally, the shift from the Final Tax Regime to the Normal Tax Regime has put financial pressure on the industry. Despite these challenges, textile exports grew in the first quarter of FY25, aided by cheaper imported cotton and a focus on value-added products.
The ratings also reflect NIL's financial profile, which, despite modest top-line growth, experienced a decline in profitability margins due to higher energy costs and increased financial expenses from elevated interest rates and short-term facility utilization. The company maintained adequate liquidity, supported by a robust cash balance, though the current ratio declined slightly in FY24 due to higher short-term borrowings. Capitalization indicators weakened due to inventory accumulation and delayed export orders, while debt coverage slightly declined with lower profitability and increased debt servicing requirements.