Karachi, August 30, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Kohinoor Mills Limited (KML) at ‘BBB+/A-2’ (Triple B Plus/A-Two). Medium to long-term rating of ‘BBB+’ signifies adequate credit quality, with reasonable and sufficient 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 supported by sound liquidity and company fundamentals. Access to capital market is good and risk factors are small. Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’. Previous rating action was announced on August 10, 2022.
Ratings are underpinned by KML’s 35-year expertise in fabric weaving, dyeing, and trading for top global fashion brands and retailers, with well-balanced geographic and client distribution, and a strong commitment to eco-friendly practices. The positive rating outlook reflects sustained revenue growth, backed by rupee depreciation and higher local sales contribution, countering export volume decline. Notably, profit margins have surged in recent years, strengthening cash flows and debt coverages. However, leverage and gearing ratios are slightly high compared to industry peers.
Overall governance framework is adequate with room for improvement in terms of segregating ownership and management. Business risk profile factors in the high-interest rate environment, inflationary pressures, rising raw material costs, ongoing energy crisis in the country, and a global slump in demand. The same is reflected in a ~15% year-on-year decline in Pakistan’s textile exports in FY23, totaling USD 16.5b (FY22: USD 19.3b). Moreover, all these factors pose a challenge to the sector over the medium term in terms of margins sustainability and future growth. Ratings are constrained by the current weak macroeconomic environment both globally and locally.
Ratings also take note of capacity upgrades, such as addition of 14 new looms and upgrade of 98 existing ones with more efficient models, an initiative financed through a 70:30 debt-to-equity mix. Additionally, the vertical integration into stitched garments is also in process, with production set to begin in late 2023. This integration strategy will complement dyeing division, serving the same customer base with finished products.
While exports remain the main revenue source, local sales have notably risen this year. Segment-wise, current export-to-local sales ratios stand at 70:30 for weaving and 80:20 for dyeing. Dyed cloth contributes around 65% of revenue, with greige and jacquard fabric comprising the rest, complemented by yarn trading, processing income, and wastage sales. Geographically, most exports are aimed at Asia, including Bangladesh, Vietnam, and Cambodia, followed by the European region, primarily Italy and Turkey, and extending to Australia, US, and Africa. Top ten clients consistently generate nearly half of all revenues, with only two exceeding 10% each, and the rest below 5%. Ratings remains dependent on the improvement of leverage and short-term liquidity metrics.
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
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/
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