Karachi, September 21, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Artistic Garment Industries (AGI Denim) (Private) Limited at ‘A/A-2’ (Single A/ A-Two). Medium to long-term rating of ‘A’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in economy. Short term rating of ‘A-2’ indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on July 20, 2022.
Ratings are underpinned by an extensive 35-year operating track record, vertically-integrated structure focused on the production and export of denim fabric, yarn, and an extensive array of ready-made denim garments, reputable international brands as key customers, and dedication to eco-friendly manufacturing practices. The reaffirmation of ratings is supported by strong financial performance, showcasing timeline growth in revenues and profit margins, coupled with peer-leading debt servicing coverage ratio and manageable leverage metrics. Business risk profile factors in the high interest rate environment, inflationary pressures, rising raw material costs, the 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 margin sustainability and future growth. Ratings are constrained by the current weak macroeconomic environment both globally and locally.
While most revenue is generated from exports, the local sales ratio has seen an upturn this fiscal year, largely driven by a spike in yarn sales amidst regional shortages and attractive prices. Nearly four-fifths of export revenue stems from garments sales including items like denim pants, shirts, jackets, skirts, shirts, and blouses, with the remainder from the fabric division. The recent trend has shown an increased focus on denim pants exports, while contributions from jackets, shorts, and shirts have dropped, likely influenced by economic recessions in the European markets. Over half of exports are shipped to the US, followed by Spain, Germany, Poland, and the Czech Republic. Management indicated a stronger focus on the US market, highlighted by the recent addition of high-profile clients. Geographic and client-wise sales mix feature concentration. Ratings are dependent upon the maintenance of margins, liquidity, and overall debt coverage performance 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
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