Karachi, May 24, 2021 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Soorty Enterprises (Private) Limited (SEL). Long Term Rating of ‘AA-’ reflects high credit quality, strong protection factors, and moderate risk but may vary slightly because of economic conditions. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and minor risk factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on March 25, 2020.
Assigned ratings take into account SEL’s position as one of the leading denim fabric and garment manufacturers in the country with vertically integrated operations, and international presence. Ratings also incorporate the company’s satisfactory operating track record across all three segments with one-off decline noted in FY20 on account of COVID-19; however the same has been re-couped in the ongoing year. Reaffirmation of ratings incorporates strong financial risk profile, moderate business risk along with remaining within commensurate benchmarks.
Over the last few years, SEL has continued to enhance its capacity in spinning, denim fabric and garment segment with increased focus on sustainability initiatives. Moreover, further expansion in all three segments is ongoing and expected to be completed over the next two to three years. Geographic sales mix demonstrates higher concentration of fabric sales directed to Bangladesh and garment sales directed to European market.
Ratings take into account management’s increasing efforts to tap clients in the US market. Business risk profile is supported by stable demand for denim products; US-China Trade disruption and recent coronavirus outbreak to support sales as major buyers look to diversify procurement. However, disruption in order pipeline and supply chain due to coronavirus outbreak remains key business risk factor in the short-term for most textile players. Given higher concentration in the European market, uncertainty of order deferment remains given lockdowns in major countries of Europe.
Assessment of financial risk profile incorporates subdued profitability during the outgoing year on account of decline in gross margins, exchange losses on forward exchange contracts, provision for doubtful trade debts, limited exchange gain on exports, and reduced dividend income. However, going forward, VIS expects profitability profile to improve on the back of volumetric growth in sales post increase in capacities over the rating horizon. Despite declining cash flow coverages during FY20, liquidity indicators are considered adequate.
Moreover, liquidity profile of the company is considered strong given sizeable liquid assets on the balance sheet. Ratings incorporate high equity base of the company which has enabled the company to be resilient against economic shocks amidst COVID-19. Capitalization profile supported by low leveraged capital structure and conservative financial policy. Given company’s projections to finance its expansions through internal cash flows and debt at concessionary rates, leverage and gearing indicators are expected to increase going forward; however the same are projected to remain commensurate with benchmarks for 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
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