Karachi, December 07, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Feroze 1888 Mills (‘FML’ or ‘the Company’) at ‘AA-/A-1’ (Double A Minus/A-One). The medium to long-term rating of ‘AA-’ denotes high credit quality coupled with strong protection factors. Moreover, risk factors may vary slightly with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on November 13, 2019.
Feroze1888 Mills Limited (FML) is a public listed company and the largest terry textile exporter of Pakistan. The Company is a vertically integrated entity engaged in end-to-end process from spinning to product packaging. During FY20, the company installed additional spindles and looms along with replacement with air-jet looms that enhanced throughput. Consistent expansion plans across all segments is planned till FY25. Capacity utilization of the spinning and weaving segments declined during FY20 due to closure of plant for one month during 4QFY20 and lower production on account of COVID-19. However, the same was on the higher side in terms of sales and production during 1QFY21 owing to sizeable order backlogs.
The assigned ratings take into account, FML’s association with the US-based 1888 Mills, which allows the Company with a competitive advantage in terms of outreach in the US market. At present sales revenues depict significant reliance on the US market. Cognizant of its sales concentration in the US market, FML has embarked upon diversification of exports towards other countries, such as Australia, Canada, UAE, UK and Europe. Moreover, lengthy association with large retailers supports business risk profile. Despite timeline weakness in cash flow coverages and leverage indicators, overall financial indicators remain healthy and are expected to improve.
Business risk profile is supported by strong focus of government on enhancing exports for sustainable growth. Improving perception and law order situation of the country has also increased interest from clients. US-China trade war has also resulted in buyers focusing on Pakistan to reduce geographical diversification risk. However, cost competitiveness remains a challenge particularly vis-à-vis regional peers (China, India and Bangladesh). Pricing power is limited as reflected by consistent decline in dollar pricing of products. Moreover, reemergence of Covid-19 in key markets may partly impact order pipeline and revenues.
Assessment of financial risk profile incorporates one-off weakening in profitability profile in FY20, liquidity coverage and capitalization indicators due to the global pandemic. However, liquidity indicators are considered satisfactory from ratings perspective. Despite lower internal capital generation during FY20 and continued investment in BMR and expansion through debt; leverage indicators remain within manageable levels. Going forward, volumetric growth in sales due to sizeable order backlog and healthy order pipeline is expected to derive recovery in profitability in FY21. Furthermore, management forecasts debt levels to increase with leverage indicators projected to be maintained, going forward.
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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