Karachi, June 20, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Khalid Shafique Spinning Mills Limited (KSSML) at ‘BBB+/A-2’ (Triple B Plus/A-Two). Medium to long-term rating of ‘BBB+’ reflects adequate credit quality coupled with reasonable protection factors; risk factors are considered variable if changes occur in the economy. Short term rating of ‘A-2’ indicates good certainty of timely payment; liquidity and fundamental factors are sound. Access to capital market is good. Risk factors are small. Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. Previous rating action was announced on June 29, 2022.
Revision in rating outlook reflects the prevailing weak macroeconomic environment both globally and locally as well as the deterioration of financial indicators of the company, specifically margins, cash flows, and debt coverages. However, leverage ratios are sound and continue to compare favourably vis-a-vis peer median. It is pertinent to note that despite the global demand slowdown, production levels have remained consistent on a timeline, as reflected in the high utilization ratios. Management stated that it was a deliberate strategy of sponsors to maintain volumes and prevent operational closure. Ratings also take note of the efficiency enhancement initiative involving the replacement of 36 outdated ring frames with new, more efficient ones, resulting in a slight increase in capacity. The project cost of Rs. 280m was primarily funded through subsidized financing.
The business risk profile takes into account industry-wide growth in exports in FY22; however, recent floods across the country, high interest rate situation, inflationary pressures, higher electricity costs, and demand slowdown in the current year pose risks to the sector over the medium term. In addition, high cyclicality and intense competitiveness in the spinning sector add to business risk. Revenues come exclusively from domestic sales (export-based clients), with nearly half generated from cotton yarn sales and the remaining from polyester yarn sales. Client concentration remains high, with the top ten clients consistently generating over one-half of total sales. However, the majority of clients are brokers and distributors, resulting in a varying client base each year depending on the product mix. Going forward, improvement in margins and debt coverages is considered important for the sustenance of 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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