Karachi, March 22, 2018 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Soorty Enterprises (Private) Limited (SEL). Outlook on the assigned ratings is ‘Stable’. SEL is one of the leading denim fabric and garment manufacturers in the country with vertically integrated operations. The company commenced its operations in 1984 as a denim garment manufacturer and backward integrated operations through diversifying in the spinning and weaving segment. Sponsors have over 3 decades of experience in the textile sector with extensive experience in denim fabric and garment segment.
SEL operates through various units at different locations in Landhi and Korangi, Karachi and Nooriabad Pakistan, comprising spinning, denim weaving, garments and washing units. The Company also has international presence through a subsidiary in Bangladesh, a marketing company in United Arab Emirates, a Research, Development and Design Office in Amsterdam, Netherlands and a Product Development Center in Turkey. Recently, the company has diversified in the industrial gases segment while diversification initiatives in the power sector are in the pipeline. Moreover, liquid investments held on balance sheet support income streams.
Business risk profile is supported by stable and growing demand for denim fabric and garments. However, local and international expansion by major players is expected to keep pricing power and hence margins under pressure. Moreover, significant investment required by customers as part of sustainability initiative is expected to add to cost pressures for denim manufacturers.
Despite diversification plans, SEL’s operations are currently concentrated with exposure entirely to the denim industry which might significantly impact business risk profile in case of change in demand patterns or any other industry specific factors. Therefore keeping pace with rapid changes in fashion trends is considered important. JCR-VIS expects demand for denim products to remain stable over the medium term. Current level of margins which compare favourably to other leading textile players in the country also supports assessment of overall risk profile of SEL.
Financial risk profile of the company incorporates healthy profitability indicators, robust liquidity profile, and conservative financial policy as reflected by a low leveraged capital structure. JCR-VIS expects gross margins to remain under pressure on account of increasing competition. Quantum of future profits will depend on volumetric growth in sales post capacity expansion.
Liquidity profile of the company is considered strong in view of healthy cash flows in relation to outstanding obligations. Equity base of the company has grown at a healthy pace over the last five years due to profit retention. Debt carried on the balance sheet largely comprises short-term debt to fund working capital requirements. Given the company’s expansion plans, leverage indictors will increase slightly but are projected to remain in line with the benchmarks for the assigned ratings.
For more information, contact:
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk