JCR-VIS Reaffirms Entity Ratings of Sapphire Textile Mills Limited

Karachi, January 30, 2018 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Sapphire Textile Mills Limited (STML) at ‘A+/A-1’ (Single A Plus/A-One). Outlook on the assigned ratings remains ‘Positive’. The previous rating action was announced on October 25, 2016. The assigned ratings incorporate STML’s existing business risk profile which is supported by diversified operations with the company having exposure to textile and power sector and sizeable portfolio of marketable securities. Financial profile is supported by sizeable equity base and liquid assets carried on the balance sheet which provide significant coverage against outstanding obligations.

Positive outlook on the assigned ratings reflect projected improvement in financial indicators and further diversification in revenue streams as dividend income from investments begin to materialize. Improvement in leveraging profile and cash flow coverage of outstanding obligations in line with benchmarks for the assigned ratings will be important rating drivers, going forward.

Profitability from the textile operations declined slightly during FY17 on account of higher average cotton procurement cost and increase in administrative expenses. Rising contribution of value-added segment and rupee depreciation is expected to support margins despite sizeable increase in cotton prices in the ongoing year.

Overall profitability witnessed significant growth during FY17 due to gain on sale of investments and stable dividend income. Dividend income is expected to witness a decline in FY18 but the impact of the same will be offset by income from technical services earned during 1QFY18. Within the power sector, the company has made investment in four 50MW each (one is operational and three are expected to commence operations by December’2018) wind power projects. Income from the same is projected to improve profitability profile.

Equity base of the company has grown at a 3 year CAGR of 8% on account of profit retention. However, given the sizeable debt funded expansion and investments, gearing levels have increased by around 3(x) over the last three years. Liquid assets carried on balance sheet provide sizeable coverage against outstanding long-term debt. JCR-VIS expects gearing levels and cash flow coverage to return within benchmark for the assigned ratings over the rating horizon and will continue to monitor the same.

For more information, contact:
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