Karachi, May 27, 2021 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Faisal Spinning Mills Limited (FSML) at ‘A/A-1’ (Single A/A-One). Outlook on the assigned ratings has been revised from ‘Rating Watch-Developing’ to ‘Stable’. Long Term Rating of A reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of A-1 indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and risk factors are minor. Previous rating action was announced on April 22, 2020.
FSML has two manufacturing units, spinning and weaving, located at Nooriabad, District Dadu (Sindh) and Feroze Wattwan, District Sheikhupura (Punjab) respectively. Its production facilities are equipped with 38,208 spindles and 265 looms and each unit has its own ancillary power unit. On April 1, 2021, the company’s third manufacturing unit pertaining to the finishing segment commenced commercial operations. FSML’s spinning unit is engaged in production of coarse to medium yarn with count range varying from 8-30 singles. Weaving unit is utilized to produce griege fabric only. Around three-fourth of total sales are geared towards international market with the remaining comprising local sales. Segment wise, contribution of spinning segment in the gross sales revenue was reported at 48% followed by weaving segment at 51% during FY20.
The assigned ratings incorporate the extensive experience of sponsor (Umer Group) in the textile industry spanning over three decades with well-diversified customer base spread across international markets. Ratings are constrained by high cyclicality and competitive intensity for spinning industry and volatility in cotton prices which translate into moderate to high business risk profile.
Assessment of financial risk profile incorporates weakening in profitability and liquidity profile during FY20 amidst COVID led slowdown in the economy; however the same has witnessed improvement during 9MFY21. Overall profitability profile of the company was impacted by higher cotton prices and currency devaluation on imported cotton during FY20. During 9MFY21, gross margins of the company improved on account of inventory gains and are projected to normalize to historic levels once the low price inventory is used up by Jan’22. Going forward, sales are expected to escalate on account of adequate orders in pipeline along with expansion in the spinning segment.
The cash flow coverages of outstanding obligations declined in FY20 due to subdued profitability and higher quantum of debt; however the same improved in 9MFY21 and are expected to remain in line with projected increase in overall profitability, going forward. Leverage indicators have increased on a timeline basis due to debt drawdown to finance expansion in the finishing segment; while the same are expected to improve going forward through debt repayments and growth in equity base from profit retention.
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